Germany will escape punishment for breaching strict EU budget rules thanks to an exemption that accounts for its increase in defence spending, Brussels’ top economic official has said.

Europe’s largest economy is forecast to record an excess deficit of 3.3 per cent in 2025, but this is fully accounted for by an increase in defence spending, EU economy commissioner Valdis Dombrovskis told the Financial Times. Therefore Berlin “is likely not to end up in [the] excessive deficit procedure”, he said.

The EU rules — which Germany helped design — dictate member states must keep their budget deficit within 3 per cent of GDP and public debt below 60 per cent of GDP. A country could face fines if it does not take corrective measures to meet the rules.