The Trump effect: Readiness 2030, SAFE, and the German debt brake reform

The return of Donald Trump to the US Presidency in 2025 has dramatically impacted the EU’s fiscal framework. In response to Trump's aims to disengage the US from guaranteeing the security of Europe, the EU has triggered the national safeguard clause of the Stability and Growth Pact (SGP), the centerpiece of the EU fiscal rules, reformed in 2024 after three years of suspension because of the pandemic. The decision exempts member states, for four years, from complying with the EU deficit rules for defense expenditures. At the same time, Germany, the member state championing fiscal stability, ditched decades of commitment to Schwarze null and passed a constitutional amendment which enables annual spending of over 1 per cent of gross domestic product (GDP) on defense in derogation of the Schuldebremse, the constitutional debt brake (formally remained operative for the other spending). The Trump effect thus led the EU to set aside EU and national fiscal rules again to increase defense spending. The outcome is an EU operating in a sort of fiscal limbo.