Germany will increase its defense budget to a record amount next year, helping Europe’s biggest economy meet a NATO target of spending at least 2% of output annually on the military.
(Bloomberg) — Germany will increase its defense budget to a record amount next year, helping Europe’s biggest economy meet a NATO target of spending at least 2% of output annually on the military.
Defense Minister Boris Pistorius will be allocated €51.8 billion ($56.4 billion) in his regular budget, €1.7 billion more than this year, according to the 2024 federal financing plan distributed Monday by the government in Berlin. An additional €19.2 billion from a special fund set up immediately after Russia invaded Ukraine will lift total military investment to €71 billion, hitting the NATO goal, the plan showed.
Chancellor Olaf Scholz’s ruling coalition is prioritizing defense spending in next year’s budget while all other ministries have had to tighten their belts after a constitutional limit on net new borrowing was restored last year.
The so-called debt-brake was suspended for three years to allow the government to lavish hundreds of billions of euros on addressing the impact of the Covid-19 pandemic and the energy crisis.
Finance Minister Christian Lindner, who heads the fiscally hawkish Free Democratic Union, insisted on reimposing the mechanism, provoking tension with some lawmakers from Scholz’s Social Democrats and the Greens, the third party in the ruling alliance.
Lindner insists that his fiscal prudence will help dampen inflation and help European Central Bank monetary policymakers bring the annual increase in consumer prices in the euro region back to their target of 2% over the medium term.
The 2024 budget and finance plan through 2027 — entitled “Back to fiscal normality” — foresees net new federal borrowing declining to €16.6 billion next year, from €45.6 billion in 2023. It will then drop to €16 billion in 2025, and fall to €15 billion by 2027.
Despite the consolidation effort, finance ministry officials warned that a budget gap of more than €14 billion remains for the years 2025 through 2027.
“It is therefore still necessary to contain the expansionary fiscal policy of recent years by prioritizing spending and consolidation measures,” they wrote.
The confirmation of Germany’s increased defense budget comes just before NATO allies are due to set a slightly more ambitious spending goal at next week’s summit in Vilnius.
The members of the military alliance are likely to agree to invest a minimum of 2% of GDP in their militaries as soon as possible, though some nations are still years away from meeting that target.
Scholz’s cabinet is due to sign off on next year’s budget on Wednesday before it’s sent to parliament for fine-tuning by lawmakers. That process typically lasts until final approval in mid-December.
–With assistance from Natalia Drozdiak.
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