• German Chancellor Friedrich Merz cautions that excessive debt levels across the eurozone pose a risk to stability.
  • Merz reaffirms opposition to common European debt issuance, citing constitutional concerns.
  • Germany's recent fiscal reforms balance investment needs with long-standing debt brake rules.

Merz Sounds Alarm on Debt

German Chancellor Friedrich Merz warned European Union leaders this week that surging government, corporate, and household debt endangers the eurozone's stability. “We must be careful that debt does not rise too much,” Merz said, emphasizing that “Germany plays an important role in the stability of the euro.” The remarks came days after he doubled down on opposition to former European Central Bank President Mario Draghi's proposal for common European debt during his Charlemagne Prize acceptance speech in Aachen.

Merz's warning echoes a similar caution issued by Germany in 2009, when it argued that rising debt levels could undermine the single currency. The chancellor noted that some countries now spend more on interest payments than on defense, a trend he called “unhealthy development” that risks triggering a new financial crisis.

Fiscal Conservatism vs. Investment Needs

Germany's traditionally strict fiscal stance has shaped eurozone policy through the Stability and Growth Pact. However, in March 2025, Merz secured Greens' backing for a landmark €500 billion infrastructure and defense fund, coupled with constitutional amendments to relax the debt brake—a reversal of decades of fiscal conservatism imposed after the 2008 crisis. The reforms aim to address Germany's stagnation, with output still at 2019 levels in 2024 and growth projected at just 0.4% in 2025 and 1.2% in 2026.

Despite this shift, Merz remains adamant that common EU debt issuance, as proposed by Draghi to boost competitiveness, is off the table. “For constitutional reasons, we cannot support that,” a government official familiar with the matter said, speaking on condition of anonymity.

The Broader European Debate

Merz's warning highlights a deepening divide in the EU: fiscal discipline, long championed by Berlin, versus investment-driven growth. The OECD has warned that medium-term fiscal sustainability requires improved spending efficiency and tax base broadening, especially as aging populations strain budgets. Meanwhile, countries with high debt face mounting pressure to curb interest payments, which in some cases exceed defense spending.

Attempts to reach Merz's office for further comment were unsuccessful. As Europe's largest economy, Germany's position will be decisive in shaping the bloc's fiscal trajectory.

This article was updated to include the historical precedent and OECD warning.