Germany’s landmark defence move
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E-Trade is a business of Morgan Stanley. Welcome to the world in 10. In an increasingly uncertain world, this is The Times' daily podcast dedicated to global security. Today with me, Tom Noonan and Toby Gillis. This week, Germany changed its constitution. In a landmark move, the country's politicians voted to make defence spending and aid to Ukraine exempt from laws that limit the public deficit.

It'll free up hundreds of billions of euros to fight against Vladimir Putin's Russia, with the chairman of the SPD party declaring, it is now our damned duty to defend this free and democratic Europe. It has potentially very significant implications, which we're going to explore with our guest today, Oliver Moody, our Berlin correspondent, who also covers European defence and NATO. Oliver, why is this such a landmark decision?

It's a huge moment in two senses. First of all, because it's just huge. What we're talking about here is about half a trillion euros for infrastructure spending and then probably a similar amount that will be spent on defence. Although some of that infrastructure may be of military use, for example, the railways.

in particular, are very dilapidated, but also things like bridges that need to be strengthened or motorways that need to be expanded. But what they're really doing is lifting all restrictions on defence spending. So it's theoretically unlimited.

The first 1.5% of GDP they spend on defensible accounts awards their normal borrowing limits, and then beyond that, they can borrow as much as is politically possible and as much as the bond markets will tolerate. And what we saw after the outline of the package was first announced was that the borrowing cost on a benchmark 10-year bond rose by...

So it is a big shift. But at the same time, Germany's borrowing costs still remain well below those of Britain and most other European countries. So for the time being, it looks like the markets have swallowed this shift and remain persuaded that Germany has a lot of fiscal space.

And there are various assessments out there of how much money that will be in total, but most of them cluster around something like 400 billion euros to 600 billion euros. And to put that into context, the regular German annual defence budget is about 50 euros.

billion euros. So we are talking anything from 8 to 12 times their annual military spend. It's the kind of money

That could be completely and utterly transformative, not just for Germany's defense, but also for Europe's. And it's so large that when the package was announced, you could see the borrowing costs of other countries in the Eurozone rising because the markets expected this to have such a massive kind of gravitational pull to it.

Now, obviously, Germany has a complicated relationship with its military past, especially in the context of the world wars. And that was brought up in this debate, wasn't it? Friedrich Merz, who's set to be the next German chancellor and has been driving this package, was accused by MPs of taking Germany back to 1914 and to the build-up of war loans in the run-up to the First World War.

That's correct. This was brought up by the Safar-Wagenknecht alliance, which is a kind of mixture of radical left and radical right. And one of the French parties that is very much tapping into the part of the German electorate that remains staunchly pacifist and anti-militarist is

However, that pool of voters is a lot smaller than it was before February 2022. And there has been a tremendously dramatic shift in the German public's attitude towards the military and towards Rearmen in particular.

To the point where about two thirds of voters believe Germany should be spending at least 3% of its GDP on defence. I mean, those are crazy numbers. If you've been in Germany before 2022, you'd have struggled to believe they were possible.

And this metamorphosis has been so pronounced that even the Alternative for Germany party, which is very kind of sympathetic to the Putin regime, felt obliged to support rearmament in its manifesto ahead of the Bundestag election. So that shows you just how much the political climate has shifted.

And when he was trying to persuade German lawmakers, Merz was pretty explicit, wasn't he, in saying this is because of Vladimir Putin? Well, what Merz said was that it wasn't just Vladimir Putin, it was Trump. On the night after his Christian Democratic Union party won the Bundestag election, Merz appeared on television and said, and these are really extraordinary words to hear from any

political leader, but particularly to hear from a person who's been such an absolutely staunch Atlanticist for so many years, as Miltz has, that Germany can no longer unreservedly count on America and its security guarantees, and that it should help Europe as a whole take steps towards becoming actually independent of the US.

If Merz, Oliver, is, as you say, quite explicitly trying to decouple European defence from the US because of Donald Trump, what does that actually mean for Germany's role in European defence? If there is going to be a new European defence community, is Germany now going to be at the heart of that?

One of the key parts of Meltzer's promise to the German electorate was to put Germany back on the map of Europe after a period where it had largely abdicated its traditional leadership role under Olaf Scholz, the outgoing president.

Chancellor, and a key part of that is going to be making Germany a big security player again. And Merz doesn't want to do that alone. He's very keen to do it in tandem with the other three big military players, which are France and Poland within the European Union and Britain outside it. And if you're watching this kind of ever-shifting trend

constellation of European countries that have been coming together since J.D. Vance's notorious speech at the Munich Security Conference.

The constant has always been that these four countries are in the room. They very much regard themselves as being the engine room of the solution. And we've seen all kinds of interesting steps from Britain and from France and from Poland suggesting that it might pursue a nuclear weapons program of its own. But so far, Germany has been absent in terms of constructive policy proposals. And what I think we can take away from the signals Mertz is sending out ahead of his kind of prospective election

tilt for the chancellorship is that he would very much like to put Germany in the driving seat alongside those three countries. And Oliver, how do you think that Donald Trump is going to react to all this? I mean, Germany has in the past lagged behind NATO's 2% target of how much of GDP should be spent on defence. And it's only in recent years that it's crept above that figure. So with a huge amount of cash, this is going to open up.

Do you think that Trump will be pretty pleased with this? Or do you think he's just going to see it as, well, Germany should always have been spending this much? Sadly, I have no special insight into the inner workings of Donald Trump's mind. And if I did, I would not be sitting in a flat in Berlin. I would be on a trading floor on Canary Wharf raking in billions of pounds in stock options.

It's hard to tell because on the one hand, Trump clearly has a particular animus against Germany. And that has not gone away since Angela Merkel, his previous favorite punch bag, has retired from the German political stage. And Trump has also been pushing for European NATO allies to spend 5% of their GDP on defense. And...

However much political will there is to transform the German armed forces, Germany is still very far from being in a position where it's politically possible to reach 5%. On the other hand, if Trump is in a mood to big up his own achievements and to say, you know, look what I've done, the fact that he has taken Europe's most notorious laggard on defence spending

and shaking it by the collar to the point where it's now prepared to cough up something in the region of three plus percent could certainly be chalked up as a win for the Trump administration. So I think it will just come down entirely to his caprices on any particular day how he perceives this.

And I suppose we'll just have to wait and see on that front. Oliver, thank you. That's Oliver Moody, The Times' Berlin correspondent. For more on Europe's rapid shift towards greater defence spending, you must go back and listen to our interview with the former NATO planner, Philip Ingram, when we asked the question, is Europe really stronger than Russia? Scroll back to March the 6th for that one. It is well worth it.

That's it from us. Thank you for taking 10 minutes to stay on top of the world with the help of the times. We'll see you tomorrow. Hey, you know what would make your customer service help desk way better? Dumping it and then switching to Intercom. But you're not quite ready to make that change. We get it.

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