Why Germany’s defence splurge pushes EU allies to follow suit

Good morning. Donald Trump’s impact on European defence, foreign and fiscal policy has been so enormous that rules are being torn up, red lines erased and sacred cows sacrificed at a rate so fast that we’ll only know what the new norms are when the crisis momentum subsides. But until then . . . 

Today, as EU leaders congregate in Brussels for a(nother) crisis summit, our Paris and Rome bureau chiefs report on how Germany’s historic move to open its defence spending taps changes the dynamics for other capitals. And our trade correspondent reveals a push to tighten the screws on pernicious parcels.

Over to you

After Germany’s decision to extravagantly rip off its decades-old fiscal straitjacket in the name of defence investment and Brussels’ move to allow the rest of the EU to follow suit, the spotlight will today shine on the other 26 leaders to lay out their own spending plans, write Leila Abboud and Amy Kazmin.

Context: German chancellor-in-waiting Friedrich Merz has unveiled a plan to allow limitless national borrowing to fund defence spending. European Commission president Ursula von der Leyen has proposed allowing €800bn in additional borrowing by EU governments to be exempt from the bloc’s rules on debts and deficits.

In today’s summit EU leaders will agree to “substantially increase defence expenditure” and demand “the commission to propose additional funding sources for defence at EU level”, according to prepared conclusions seen by the Financial Times. And officials are also hoping that other large member states will feel pressured to follow Germany’s lead on national spending commitments.

France, the bloc’s second-largest economy after Germany, has welcomed both Merz and von der Leyen’s moves, seeing them as validation of President Emmanuel Macron’s long-held position that Europe must ensure its own defence and security.

Macron sees it as a positive step that would also open a window for France and Germany to do more joint weapons development. “With Germany, there is now a strong convergence on the strategic wake-up and steps that are needed such as increasing investments on defence, pooling purchasing power and deploying it in the European industrial base,” said a French official. 

Italy, the bloc’s economic number three — heavily indebted and a major defence spending laggard — has long called for the fiscal rule exemption. Italian Prime Minister Giorgia Meloni’s rightwing Brothers of Italy has hailed von der Leyen’s decision.

Now, say other capitals, it’s time for Rome to put its money where its mouth is.

“There were times when we didn’t feel the need and didn’t perceive the urgency of investing in the defence of the nation,” Italian defence minister Guido Crosetto said yesterday. “Today, unfortunately, it is necessary and urgent.” 

“It’s also necessary that this investment benefits, to the greatest extent possible, the national economy,” he added, signalling that Rome would direct its potential surge towards domestic arms producers.

Beyond national defence spending increases, some expect leaders at today’s summit to renew a push for additional tools such as a common debt fund for defence at the EU level — something Germany has long opposed and has, so far at least, yet to waver on.

“[This week] really is the turning of the page in terms of European defence,” said an EU official involved in preparations for the summit. “Is this the end of the story? No, I don’t think so.”

Chart du jour: Low power mode

Battery manufacturing investment is rising fast on both sides of the Atlantic, but the US has rapidly outstripped the EU in recent years, according to a new Bruegel report.

Damaged goods

The EU is moving closer to charging a customs handling fee on small packages ordered from outside the bloc, a move that would hit ecommerce companies such as Temu, Alibaba and Shein, writes Andy Bounds.

Context: Some 4.6bn lower-value parcels arrived in the EU in 2024, a fourfold increase on 2022. More than 90 per cent were from China, putting an “unsustainable strain on the authorities”, according to the European Commission.

In February, Brussels proposed reforms as part of a long-discussed customs modernisation plan. 

They would abolish a duty exemption for goods worth less than €150, make them subject to customs checks, and put more responsibility on sellers to ensure they comply with EU quality standards and aren’t counterfeit.

Now the European parliament is pushing for a proposed voluntary charge added to every small package to be made compulsory.

A draft report for its Internal Market committee wants a level playing field for EU retailers, saying it would encourage those outside the bloc to ship in bulk and use local warehouses instead.

MEP Salvatore De Meo’s plan could yet be amended before being put to a vote of the whole parliament.

What to watch today

1. Summit of EU leaders, in Brussels.

2. Meeting of British Prime Minister Keir Starmer and Irish Taoiseach Micheál Martin, in Dublin.

3. Nato secretary-general Mark Rutte meets Poland’s President Andrzej Duda in Brussels.

Now read these

• Fighting blind: The US cut off intelligence sharing with Kyiv in a move that hampers its ability to target Russian forces.

• Self-defence: Can Europe’s defence-industrial groups step up if Donald Trump’s US military pulls back its support to the continent?

• Changing sentiment: European investors pulled money from US equity exchange traded funds in February for the first time since May 2023.