Following the NATO summit's consensus on increasing defense spending to 5% of GDP by 2035, German Chancellor Merz announced that Germany would significantly advance this goal to 2029. According to the latest budget passed by the German cabinet, Germany's core defense budget will surge by nearly a third to €109.7 billion ($125.3 billion) in 2027. This represents the ultimate disintegration of Germany's pacifist fiscal narrative since the end of World War II, and a turning point for global macroeconomic funds to systematically reprice European sovereign debt ratings and European domestic manufacturing supply chains.
The market previously believed that fiscal deficit limits in European countries (such as Germany's debt brake law) would hinder military expansion. However, Merz's statement demonstrates that, under the powerful shock of the gradual withdrawal of US troops from Europe and the looming threat of war between the US and Iran, security anxiety has overridden all fiscal discipline. Germany is forcibly entering full-scale war preparedness through massive borrowing (the core budget for next year alone includes €118.7 billion in new debt).
