Europe’s fiscal environment has changed. For most of the years since the financial crisis, public investment across the continent was subdued, squeezed between fiscal rules, crisis management and competing demands on budgets. Governments are now committing substantial resources to defence and infrastructure. Borrowing has not become costless; rather, governments are reassessing the cost of not investing.
Germany illustrates the shift clearly. In March 2025, it amended its fiscal framework to allow defence and specified security-related expenditure above 1% of GDP to be financed outside the regular borrowing limit. It also established a €500 billion special fund for infrastructure and climate-neutrality investments over 12 years. (Source: German Federal Ministry of Finance, Financing package for security and investment, April 2025; Special Fund for Infrastructure and Climate Neutrality, June 2026.)
Poland is making a similar calculation under tighter fiscal conditions. The European Commission expects public debt to rise from 59.7% of GDP in 2025 to 64.5% in 2026 and 68.3% in 2027, with the deficit remaining at 6.5% in 2026, defence investment being among the contributing factors. (Source: European Commission, Economic Forecast for Poland, 21 May 2026.)
These decisions are being taken in a euro area where government debt already stands at 88.9% of GDP, up from 87.7% at the end of 2025. (Source: Eurostat, 21 July 2026.) (....)