New German government – where to find the money?

Defense spending will have to increase ...

The dispute over the federal budget was the trigger for the break-up of the former coalition. The SPD, Greens and FDP were unable to agree on how the hole in the federal budget, which was estimated at up to 26 billion euros, should ultimately be closed. The new federal government will now have to tackle this problem. This will be made more difficult by the fact that the federal government will probably have to significantly increase defense spending again in the coming years. It may not end up increasing to 5% of GDP, the number US President Trump has called for. But even the 3.5% being discussed in NATO circles and in Germany would represent a significant increase on the 2% achieved last year, especially as the special fund set up after the start of the war in Ukraine is likely to be used up by 2028, meaning that the portion of defense spending previously financed in this way would also have to be provided from another source. Without a new special fund, the “normal” defense budget would have to comprise around 150 billion euros each year, almost 100 billion euros more than at present.

... over the coming years

However, this additional expenditure will not be incurred immediately. On the one hand, the expenditure can initially still be partially financed via the special fund. Secondly, new NATO requirements would probably only be implemented in stages. The fact that expensive equipment such as tanks, aircraft and ships can only be delivered with a considerable delay, meaning that corresponding investments could only be realized in a few years' time, speaks for this. This is also shown by the outflows to date from the special fund for the Bundeswehr, which was set up in 2022 and from which only 81/2 billion euros (out of a total of 100 billion euros available) were spent in 2023. This means that the additional expenditure from the federal budget this year is likely to be negligible and will amount to a low double-digit billion amount at best in the coming year, before increasing significantly from 2028 in particular.

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