Interview with the Chairman of BBW, Ravel Meeth, with Prof. Dr. Dirk Meyer (Helmut Schmidt University / University of the Federal Armed Forces Hamburg)

Mar 16, 2025

BBW: Professor Meyer, the constitutional amendment planned by the CDU/CSU and SPD will lead to new levels of debt. Are there estimates of what this could entail?

Meyer: According to my preliminary calculations (see Table 1), additional loans of over 1,713 billion euros could reach the future generation by the end of 2036. Additionally, there will be an extra interest burden, with uncertainty about whether it should be covered by the normal budget or through additional debt. In any case, this interest burden will restrict the budgetary scope of future governments and generations. With a debt level of 2,489 billion euros (30.09.2024), the debt would increase by 69% – to 4,202 billion euros excluding the additional interest burden. Thus, the debt ratio in 2036, including any potential but modest growth, would be over 90% of GDP compared to about 63% of GDP currently.

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Table 1: Calculation of possible new debt until 20361)

Infrastructure Fund: 500 billion.
Exception regulation for defense: assumption of 3% of GDP for defense expenditures

Of which 2% of GDP through new credit results in 86 billion euros annually x 12 years = 1,032 billion euros

Exception regulation for federal states: 0.35% of GDP for the states x 43 billion euros annually x 12 years = 181 billion euros
Interest at an assumed interest rate of 3% p.a. over the linear term of 12 years: 365 billion euros

Conclusion: Debt increase in twelve years by 1,713 billion euros plus interest of 365 billion euros (assumption: interest rate 3% p.a.)

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The calculation refers to the term of the infrastructure fund.

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BBW: What are your views on the rearmament efforts nationally and EU-wide from a defense and peace policy perspective?

Meyer: Germany and Europe must build their own defense capabilities to be able to defend against military attacks, should the USA withdraw or fail to meet their alliance obligations. However, it is essential to clarify what national and European alliance defense will require in 2025 and in the coming years. Russia is an adversary of Ukraine. But is it also a military adversary of NATO, as has so far been assumed? Two things are involved: Russia's capability and willingness. The course of the three-year Ukraine war at least raises doubts about Russia's future attack potential. Security is based on reciprocity and must not be built on the uncertainty of another state. 'ReArm Europe,' the planned EU armaments program, and Germany's pioneering role regarding armament debts could be the start of an unpredictable arms spiral. It would certainly be better to reach an understanding with Russia and to find a peace settlement for Ukraine, so that military saber-rattling subsides. For example, we have made a counterproposal with our proposal for a peace plan for Ukraine https://hamburger-friedensinitiative.de/

BBW: The EU is also planning further softening of the debt rule of the Stability and Growth Pact (SGP), which today hardly works due to the reforms added over the years. How do you view the initiative 'ReArm Europe' from an economic perspective?

Meyer: Although the repayment of the 809 billion euros credit-financed recovery fund NGEU from COVID times is still completely open, the EU is planning new debts of 800 billion euros for defense through 'ReArm Europe.' On the one hand, it wants to give EU member states more opportunities to do more for their defense through new national debts (650 billion euros). In addition, euro bonds, i.e., joint debts with joint liability, are under discussion (150 billion euros). Germany could lose its AAA rating in the medium term, which would impact the credit anchor for weaker member states. A renewed euro sovereign debt crisis cannot be ruled out. The EU debts already amount to 1,221 billion euros, for which Germany is liable for about 25% regarding most programs. Since total liability applies for the recovery fund, the liability here would be as high as 100% or 809 billion euros – at least hypothetically. If Germany significantly relaxes the debt brake nationally now, it would set a very bad example for the previously fiscally solid country with repercussions.

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Table 2: EU Joint Debts in billion euros (as of 31.12.2024)

European Financial Stabilization Mechanism (EFSM) 48.5

European Financial Stabilization Facility (EFSF) 188.2

European Stability Mechanism (ESM) 78.9

EU Short-Time Work Assistance SURE 98.4

NextGenerationEU 806.9

Total 1,220.9

Source: own calculation

References:

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