Germany’s debt brake was introduced in 2009, restricting the annual budget deficit to 0.35% of GDP. The brake proved popular with German citizens, particularly as parts of southern Europe fell into major debt crises in the 2010s.

However, the debt brake has turned burdensome as Germany’s economy endures newfound economic struggles. Russia’s invasion of Ukraine put pressure on energy prices in the country. Meanwhile, Germany’s export-heavy economy has been racked by flagging demand in China. Import tariffs on goods to the U.S. are expected to cause further pain for producers.

Germany fights back

Germany’s myriad struggles have resulted in two consecutive years of economic growth, with economists projecting a further decline in 2025. In the process, there have been growing calls to scrap the debt brake and allow Germany to spend its way out of decline.

In Morgan Stanley’s new upside scenario following the spending announcement, Germany’s economy could grow by 0.6% this year and by 1.6% in 2026.

The bank remains bullish on German defense stocks in the wake of the announcement, with the country’s biggest contractor, Rheinmetall, doubling in valuation since the start of the year.

XTB’s Brooks says Germany’s new measures would inevitably lead to rising debt, but that that was a problem for another day.