By Andrew Gray and Thomas Escritt
BRUSSELS (Reuters) -German Chancellor Friedrich Merz did not rule out common European Union borrowing for defence during a trip to Brussels on Friday, but said it must be for exceptional circumstances and voiced concern about rising global debt.
Visiting Brussels for the first time as chancellor, Merz also said he was now more optimistic about the future of NATO than in February, when he questioned whether the alliance that has been the bedrock of European security would still exist in its current form when its leaders meet in June.
He said U.S. President Donald Trump’s administration, which has warned European allies it will not protect them if they do not spend enough on defence, had now recognised that Europeans were taking more responsibility for their own security.
“America is indispensable for the security of Europe – today and for a long time to come,” Merz told reporters at NATO headquarters.
“I am very thankful today that I can come to a more optimistic assessment of the future of NATO.”
Russia’s war in Ukraine and its hostility towards other European countries, coupled with fears that the U.S. might not come to the aid of NATO allies, have prompted many European leaders to ramp up defence spending and vow to do even more.
That has led many European governments to back common EU borrowing to fund a defence spending splurge.
But fiscally cautious Germany, the EU’s largest economy, has traditionally rejected common borrowing, with the exception of during the COVID pandemic when it was used to fund recovery projects.
‘MAJOR CHALLENGE’
Merz, who took office on Tuesday, told a joint press conference with European Commission President Ursula von der Leyen that he did not want to preempt conversations in his government and the EU over different financing options.
When asked about common debt, he said the guiding principle must remain that the EU should take on debt only in exceptional circumstances, without saying whether he thought the current situation qualified as such.
“We had the exceptional situation of the coronavirus pandemic, and now we face a new major challenge: the establishment – or re-establishment – of the European Union’s defence capability,” Merz said.
“We are looking for ways to finance this.”
Before taking office, he pushed a historic fiscal package through parliament that would allow his government to sharply increase national defence spending, suggesting he would take a more assertive stance on defence than his predecessor.
Merz is also a conservative who has long advocated fiscal rectitude. He said on Friday he was “worried about the constantly rising national debt around the world – not just in Europe, but also, for example, in the United States”.
“And I do wonder how long it will be possible not only to refinance the debt itself but also to finance the interest payments. We cannot keep taking on debt indefinitely,” he said.
German debt is just above 60% of GDP – half of the level of the U.S. and two thirds the euro zone average.
(Reporting by Andrew Gray in Brussels, Thomas Escritt and Miranda Murray in Berlin; Writing by Sarah Marsh and Andrew Gray; Editing by Andrew Heavens and Timothy Heritage)
