Professor Federico Fabbrini,Full Professor of EU Law, PI of the Jean Monnet Network PROSPER, and Founding Director of Dublin City University’s Dublin European Law Institute and Brexit Institute.
The return of President Donald Trump to the White House, and his actions in the first two months of his mandate, have created a global earthquake, with unprecedented legal, economic and political challenges both in the United States (US) and around the world. In the European Union (EU), in particular, changes in US policies towards Russia, Ukraine and NATO have forced a new debate about defence and strategic autonomy. Yet while much uncertainty still surrounds EU efforts to integrate further in the field of security and military capabilities, Trump seems to have had already a major impact on the EU’s architecture of economic governance.
As is well known, since the creation of the Economic and Monetary Union with the 1992 Maastricht Treaty, European economic governance has essentially been founded on a core principle: budgetary stability. At the EU level, stability has been codified in the Stability and Growth Pact, which introduces strict constraints on member states’ deficits and debts. And at the national level, over time, stability has been strengthened via the introduction of constitutional requirements for balanced budgets. The epitome of this was Germany, which amended its constitution in 2009 to introduce a debt break, prohibiting annual deficits in excess of 0.35% of GDP, and then “exported” its legal model to the entire Eurozone through the Fiscal Compact of 2012, which required each signatory to introduce a balanced budget requirement in its domestic constitution.
Of course, budgetary stability is not always compatible with having an army. Historically, nation states have used debt to finance standing armies, with which to wage war and ensure peace. It is no coincidence that the US, which for over seven decades has guaranteed security in Europe and the world, does not have a balanced budget requirement in its federal constitution and has regularly had a spending deficit, precisely to finance the most powerful army in the world. But in their illusion of “perpetual peace” Germany and Europe had believed they could focus only on the Schwarze null, ignoring their security.
In fact, as I wrote in an article in the Harvard National Security Journal in 2018, during the first Trump Presidency, the US demand that NATO partners increase defence spending should have legally prevailed over the principle of fiscal stability in force at the EU level. But this did not happen. Moreover, during the 2024 reform of the Stability and Growth Pact, in the midst of the Russian war in Ukraine, I criticized in a commentary on Carnegie Europe the EU Finance Ministers’ decision, under pressure from the German Minister Lindner, to essentially ignore the need to increase defence spending. But despite the return of war in Europe, this did not happen.
Trump’s re-election to the White House, and his actions in a few weeks in office – with the decision to open direct negotiations with Russia, humiliate Ukraine and abandon Europe – have however really alarmed the EU. Thus, in a few days, the EU has profoundly revised the foundations of its economic governance, effectively revolutionizing the EMU. Two decisions are crucial in this direction.
First, at EU level, the Commission has announced – and the European Council has enthusiastically welcomed – that it will activate the safeguard clause of the Stability and Growth Pact to exclude defence spending from the deficit calculation. For years, various voices had called for a golden rule for investments, but the idea had never dented the orthodoxy of stability. By authorizing today the separation of defence spending from the constraints of the Stability and Growth Pact, the Commission is giving member states the freedom to increase military spending, bringing it above the floor envisaged by NATO, with an estimated effect of permitting over 650 billion euros of additional national spending that will not count into the national deficit.
Second, at the national level, a historic decision has been taken in Germany. In a major vote at the Bundestag held yesterday, 18 March 2025, the two parties that will form the new governing coalition (CDU/CSU and SPD), with the support of the Greens, agreed to amend the German Basic Law to loosen the constitutional budget constraints and allow for defence spending of at least 1% of GDP per year (in addition, they agreed to build a special infrastructure and environmental transition fund of €500 billion). This decision, which is formally legal, has raised some doubts about its legitimacy, since the CDU/CSU and SPD will not have a 2/3 majority in the new Parliament to reform the constitution, and therefore cleverly used the parliamentary numbers they had in the ‘old’ Parliament to make an amendment to the Basic Law. But beyond this, the decision has profound systemic implications because it pushes Germany – traditionally the champion of austerity in the EU – to abandon the sacred cow of fiscal stability, taking the budgetary costs of security and defence seriously.
In conclusion, EMU was born and developed in a dream-like context: Europe could rely on the US for its security, and this allowed the emergence of an economic governance focused on stability. The end of the dream of perpetual peace, and the questioning of the transatlantic bond, have however prompted a rude awakening in Europe and especially in Germany. The decisions taken in the last two weeks, both at European and national level, are therefore revolutionizing European economic governance by bringing the need for defence spending back to the center. It is of little use to have a stable Union that cannot defend itself. And no political community that has had an army has ever been bound by a balanced budget. It took the fear of Trump to make Europe reconsider its foundations, but in the end the economic governance that emerges from this unprecedented transformation is a more mature and balanced one.
Professor Federico Fabbrini is Full Professor of EU Law, PI of the Jean Monnet Network PROSPER, and Founding Director of Dublin City University’s Dublin European Law Institute and Brexit Institute.
The views expressed in this blog reflect the position of the author and not necessarily that of the PROSPER network.
