Germany likely to ask for EU leeway on defence spending, finance minister says

By Maria Martinez

BERLIN (Reuters) - Germany is likely to ask the European Commission for an exemption from European Union borrowing limits to increase defence spending in coming years without breaking EU rules, German Finance Minister Joerg Kukies told Reuters on Friday.

"It looks likely that we may do that, but the final decision needs to be taken," Kukies said in an interview on the sidelines of the International Monetary Fund and World Bank meetings in Washington. He added that this matter is being discussed in the German government in coordination with the incoming coalition parties.

The European Commission has proposed allowing member states to raise defence spending by 1.5% of GDP each year for four years without any disciplinary steps that would normally kick in once a deficit is above 3% of GDP.

Portugal has signalled it would ask for an exemption and Poland is likely to as well, Reuters reported on Thursday.

The European Commission had hoped the proposal would be widely taken up by the 27 EU countries and help boost EU defence investment by 650 billion euros over the next four years to deter a potential Russian invasion.

Germany's parliament approved in March plans for a massive spending surge, which has been praised by officials during this week's IMF and World Bank meetings.

The fiscal plan includes 500 billion euros ($568.55 billion) for a special fund for infrastructure and plans to largely remove defence investment from the domestic rules that cap borrowing.

Kukies also said there is no reluctance in Germany to do common European financing, but added that it has to be targeted and specific to true joint military projects.

In the interview, which took place ahead of his meeting with U.S. Treasury Secretary Scott Bessent, the German finance minister reiterated that trade negotiations are in the hands of the European Commission.

"My role in this is just to get a better understanding of the U.S. position, to explain the specific interests of the largest EU member state, and then to coordinate again with our European friends," Kukies said.

He said he plans to give Bessent specific examples of how the potential escalation of tariffs could adversely affect the U.S. and German economies, while clearly showing the mutual benefits of a deal.

Kukies added that Germany could avoid a third consecutive year of economic recession if a trade deal is reached with the U.S.

($1 = 0.8794 euros)

(Reporting by Maria Martinez; Additional reporting by Jan Strupczewski; Editing by Andrea Ricci and Paul Simao)