A Council recommendation published on 22 June 2026 sets out economic, social, employment, structural and budgetary policy guidance for Germany, including binding net expenditure growth limits and an activated national escape clause for defence spending. The recommendation, to be adopted at the Council meeting on 24 June 2026, requires Germany to respect maximum net expenditure growth rates of 4.4% in 2025, 4.5% in 2026, 2.3% in 2027, 1.7% in 2028 and 1.6% in 2029, with 2024 as the base year. The national escape clause is activated for 2025-2028, allowing Germany to deviate from these rates to reprioritise expenditure for lastingly higher defence spending.
The Commission found Germany's implementation of key steps due by 30 April 2026 broadly on track. The recommendation also calls for strengthening public investment, streamlining planning procedures, and improving the quality of public finances by focusing on capital formation over consumptive spending. On pensions, Germany should reform its system to address demographic ageing, including revising indexation, adjusting contribution ceilings, and promoting capital-backed solutions. To boost labour supply, the Council recommends reducing the tax wedge on labour, reforming joint taxation of married couples, and streamlining benefit withdrawal. The recommendation follows Germany's medium-term fiscal-structural plan and aims to balance fiscal discipline with growth-enhancing reforms.
The Council's guidance impacts German federal and state governments, which must implement the expenditure limits and reforms; German taxpayers, who may face changes in pension and tax systems; and businesses, which could benefit from improved public investment and streamlined planning. The European Commission will monitor compliance, and the Council may review the recommendation in future cycles.