EU fiscal rules are a security risk, German economy minister says

BERLIN (Reuters) – German Economy Minister Robert Habeck wants to change the European Union’s laboriously negotiated debt rules, calling them “a security risk” because they are preventing much-needed spending on defence and other priorities.

“These rules do not fit the times,” said the Green candidate for Chancellor at an industry conference in Berlin on Tuesday.

Habeck said reforms to the European rules had been negotiated incorrectly by the coalition government, without naming Christian Lindner, the former finance minister who was responsible for it.

A dispute over spending led to the collapse of Germany’s fractious ruling coalition earlier this month, after Chancellor Olaf Scholz fired fiscal hawk Lindner, paving the way for snap elections in February.

“We cannot stop at the German debt brake,” said Habeck, referring to calls for spending on defence capabilities to be exempted from the constitutionally enshrined borrowing limit.

Germany may have to make further savings in its 2025 budget to comply with the EU’s fiscal rules, even if it respected the cap in borrowing of 0.35% of gross domestic product required by the country’s constitution.

After months of wrangling, the EU agreed revised its fiscal rules at the end of 2023. The new rules, which came into force in April, allow countries four years to get their finances in order before they face sanctions that could include fines or a loss of EU funding.

If the debt-reduction path comes with structural reforms, the deadline of 4 years can be prolonged.

The possibility of extending the adjustment period from four to seven years is currently being discussed within the German government and with the European Commission.

Habeck said it might be possible under the EU’s new rules to borrow more if this increases potential growth.

“But artillery ammunition and frigates in port are not part of this,” he noted, referring to defence spending.

In response to Habeck’s criticism, Lindner said European countries needed to spend within their means, citing his “great concern” at the high borrowing and debt levels racked up by France and Italy.

“Minister Habeck is playing with the stability of our currency,” Lindner told Reuters.

“If Germany simultaneously calls into question or breaks the EU fiscal rules that I have painstakingly negotiated, there is a risk of the dam bursting,” Lindner added.