Federal Chancellor Friedrich Merz (CDU) runs past Bundeswehr soldiers with military awards for the federal chancellery before he welcomes the prime minister of Denmark.
Berd von Jutrczenka | Photo Alliance | Getty images
Tax increases and rising debts can be the new reality of Germany, because born allies son will soon be a higher target of defense expenditure.
In 2024, the country spent around 2% of its gross domestic product (GDP) on Defense, with more than 90 billion euros ($ 104 billion), according to a NATO estimate. Although those expenses are in accordance with the existing NATO target, the shortage of the 5% expenditure member of the military alliance that has now reported is.
According to the new rules, members were expected to allocate 3.5% of GDP to traditional defense and 1.5% to broader related issues such as infrastructure and cyber protection.
The urge for more defense spending led by the US has been strongly answered, whereby members of the SubO say they would have difficulty assigning more funds to such editions, while others have been supportive. Although Germany has said that it has supported the proposal of US President Donald Trump’s, where a target of 5% is not for the largest economy in Europe.
The financial data
Jumping from 2% GDP expenditure to 5% would release extra dozens of billions of euros to Defense every year, whereby Chancelor Friedrich Merz said earlier this year that 1% of GDP of the Land Arund Arund would represent 45 billion euros.
The extra costs will probably have to be financed by loans, Hubertus Bardt, director of Economic Institute IW Koeln, told CNBC.
“Safe this, such a increased will lead to remarkable distribution conflicts in the annual budget of the country,” he said, according to a CNBC translation. I have added that Berlin’s administration, in addition to loans, should probably also have discussions about the implementation of financing reductions elsewhere – together with tax increases.
Emilie Hoeslinger, a researcher at the IFO Institute, meanwhile rotated to the recent tax U-turn of Germany. The new rules of Berlin mean that Defense expenditure above a certain threshold is exempt from the so-called debt of Germany, which limits how much debt Germany has also been approved with a special infrastructure fund of 500 billion euros.
“Financing of defense expenditure through extra debts gives the government more leeway in the short term,” she said, according to a CNBC translation. “But the increased need for debts will lead to higher interest costs in the medium term, which will weigh on the federal budget,” she said.
Bardt reflected these worries.
“Full financing by loans is almost impossible in the long term,” he said.
Another potential problem that experts have marked in discussions about higher defense expenditure are the tax rules of the European Union, which can stand in the way of the members of the block.
However, the rules can be suspended Temarails Exceptional circumstances, and SOM -countries, including Germany, have broken to postpone on defense and safety grounds.
Is 5% feasible?
Germany COUD “Easy” implements up to 5% of GDP defense goal in the short term, but would struggle in the long term, according to Jens Boysen-Hogrefe, senior economist at the Kiel Institute for the World Economy.
“During the medium term, [the 5% spending target could be met] With certain challenges, it would need a substantial reform of public budgets in the long term, “he said according to a CNBC translation. I added that it is unlikely that the EU will offer a deep resistance about this issue, and that the German government should eventually prevent Uble by adjusting the annual budgets.
Nevertheless “it will be difficult to get such costs going in a short time. Even the 3.5% [target is] Unlikely for the coming year and [for] 2027, “said Boysen-Hogrefe.
“Historically, it would be a high figure who, however, can be backwards with Angoh – although this will not be easy,” IW Koeln’s Brandt and noticed that the man represents new costs.
