Merz victory brings defence spending to top of EU agenda

Friedrich Merz's centre-right bloc has won the German federal election, and the congratulations from European capitals arrived with unusual speed. But beneath the diplomatic warmth lies an immediate and concrete demand: Germany must spend more on defence, and it must do so quickly. The messages from NATO headquarters, the European Commission, and the Élysée Palace all converge on the same point. The largest economy in the European Union is expected to lead a rearmament effort that has been debated for years but never fully funded.

Merz's victory reshapes Berlin's relationship with Brussels

The Christian Democratic Union and its Bavarian sister party, the CSU, secured a plurality of seats in the Bundestag on 23 February 2025. Merz, a 69-year-old former corporate lawyer and long-time rival of Angela Merkel, now faces the task of assembling a governing coalition. The arithmetic points toward a two-party alliance with the Social Democrats (SPD) of outgoing Chancellor Olaf Scholz, though the Greens and the Free Democrats (FDP) cannot be ruled out entirely. Whatever the configuration, the new chancellor will sit at the European Council table within weeks, and his first summits will be dominated by defence financing.

Greek Prime Minister Kyriakos Mitsotakis, whose New Democracy party sits in the same European People's Party (EPP) family as the CDU, called the result a "decisive victory for our political family, for Germany and Europe." The EPP's official account on X expressed confidence that Merz would "deliver the necessary leadership towards a strong Germany in a strong Europe." Croatian Prime Minister Andrej Plenkovic, Finnish Prime Minister Petteri Orpo, Latvian Prime Minister Evika Silina, Portuguese Prime Minister Luis Montenegro, Czech Prime Minister Petr Fiala and Danish Prime Minister Mette Frederiksen all issued similar statements within hours. Orpo, a personal acquaintance of Merz from EPP gatherings, added that "a strong Germany is important for a strong Europe."

Defence spending dominates the immediate agenda

The most specific pressure comes from NATO. Secretary-General Mark Rutte, the former Dutch prime minister, congratulated Merz and immediately pivoted to the alliance's central preoccupation. "It's vital that Europe step up on defence spending," Rutte said, adding that Merz's leadership is central to this. The current NATO guideline asks members to devote 2% of gross domestic product to defence. Germany crossed that threshold for the first time in 2024, after years of undershooting, but the benchmark is now widely regarded as insufficient.

Donald Trump's return to the White House has accelerated the debate. The US president has demanded that European allies move toward 5% of GDP, a figure that would imply a German defence budget of roughly €200 billion annually, more than double the current level. While few in Brussels or Berlin treat 5% as a realistic near-term target, the direction of travel is clear. NATO leaders are expected to agree a new spending goal at the summit in The Hague on 24-25 June 2025. Merz will attend as chancellor, assuming coalition talks conclude on schedule.

The NATO target debate and Trump's shadow

The 2% guideline was adopted at the 2014 Wales summit, but only a minority of allies met it consistently. Germany's historic reluctance reflected both constitutional constraints and a post-reunification strategic culture that prioritised economic power over military weight. The Zeitenwende speech by Scholz in February 2022, days after Russia's full-scale invasion of Ukraine, created a €100 billion special fund and a commitment to reach 2%. That target was hit in 2024, but the special fund is nearly exhausted, and the regular budget faces competing demands from an ageing population, infrastructure backlogs and the green transition.

Trump's 5% demand, articulated at a rally in February 2025, is viewed in European capitals as a negotiating anchor rather than a literal expectation. Nevertheless, it has forced a conversation that was already overdue. Poland already spends more than 4% of GDP on defence. The Baltic states exceed 3%. France and the United Kingdom hover around 2.5%. Germany's trajectory will set the tone for the alliance's European pillar. Merz has not publicly endorsed a specific percentage, but his rhetoric points toward a substantial increase.

EU financing options and German resistance

Parallel to the NATO process, the European Commission has put a price tag on the EU's own defence ambitions. According to its analysis, €500 billion will be needed over the next ten years to close capability gaps, replenish stockpiles sent to Ukraine, and develop a credible industrial base. The figure amounts to roughly €50 billion per year, or about 0.3% of EU GDP. The question is who pays and through which instruments.

Three main options are on the table. First, joint EU borrowing, sometimes labelled "Eurobonds for defence," which would pool credit risk and lower financing costs for highly indebted members. Scholz has "vehemently rejected" this approach, arguing that it violates the no-bailout principle of the Treaties and would require treaty change. Second, relaxing the Stability and Growth Pact, the EU's fiscal framework, to allow higher national defence spending without triggering excessive deficit procedures. The Commission has already signaled flexibility for defence investment, but the rules remain contested. Third, reallocating existing EU funds, such as cohesion policy or the Recovery and Resilience Facility, toward dual-use infrastructure and research.

Germany's position is decisive. As the largest net contributor to the EU budget and the anchor of the euro area's creditworthiness, Berlin holds an effective veto on joint debt. Merz has not explicitly ruled it out, but his party's ordoliberal tradition and the FDP's likely presence in any coalition make it a hard sell. The alternative, national spending increases financed by domestic borrowing or tax shifts, would test Germany's own debt brake, the constitutional rule that limits the structural deficit to 0.35% of GDP. Merz has previously defended the debt brake, but the coalition agreement may carve out a defence exception.

Migration and legislative clarity expected

Beyond defence, Brussels expects a Merz government to shift Germany's line on migration and to unblock stalled legislative files. The CDU campaigned on tighter border controls, faster asylum procedures and a more restrictive interpretation of the right to remain. This aligns with a broader European trend, the Netherlands, Italy, Austria and Denmark have all pushed for external processing and stricter returns, but it risks friction with the European Parliament and the Commission, which guard the Common European Asylum System reform agreed in 2024.

On the legislative front, the new German government will inherit a queue of dossiers: the electricity market redesign, the pharmaceutical package, the late payment directive, and the competitiveness compass unveiled by Commission President Ursula von der Leyen in January 2025. Germany's abstentions or blocking minorities in the Council have frequently stalled progress. A CDU-led government is generally seen as more constructive on single market and digital files, but more sceptical of climate regulation that imposes costs on industry.

Franco-German axis rebooted

The most politically significant reaction came from Paris. Emmanuel Macron called Merz on election night and posted on X that France and Germany "were more determined than ever to work towards a strong and sovereign Europe." The language is deliberate. Macron has championed "strategic autonomy" since his 2017 Sorbonne speech, arguing that Europe must be able to act independently when US interests diverge. Merz's televised declaration that his "absolute priority" would be to "strengthen Europe in such a way that, step by step, we achieve independence from the US" is the closest a German conservative leader has come to endorsing that concept.

The convergence is not total. France favours joint EU defence procurement and a European nuclear deterrent dialogue; Germany remains attached to NATO's nuclear sharing arrangement and has been reluctant to pool procurement. France wants the European Defence Industrial Strategy backed by a dedicated fund; Germany prefers national programmes coordinated through NATO. But the shared diagnosis, that Europe cannot rely on the US security umbrella as it did for seven decades, creates a working basis. The next Franco-German Council of Ministers, likely in late spring 2025, will test whether rhetoric translates into joint positions.

What the coalition talks will decide

Merz's room for manoeuvre depends on the coalition agreement. A CDU-SPD "grand coalition" would command a comfortable majority but would replicate the Scholz government's internal tensions, with the SPD defending social spending and the debt brake. A CDU-Green alliance would accelerate climate policy but clash on migration and nuclear energy. A three-party "Germany coalition" (CDU, SPD, FDP) would give the liberal FDP the finance ministry and a veto on joint debt, but also a mandate to modernise the state. The FDP's Christian Lindner has already said his party would only join if the debt brake stays intact.

The timeline is tight. In 2021, coalition talks took 73 days. Merz has said he wants a government by Easter, which falls on 20 April 2025. That would allow him to attend the June NATO summit with a full mandate. If talks drag into summer, Germany will arrive at The Hague with a caretaker chancellor, weakening its negotiating position on the new spending target and the EU defence fund.