How can Germany meet NATO's two percent defence spending target?
Will Germany still be able to meet NATO's 'two percent' target after the end of the Bundeswehr special fund? Finance Minister Christian Lindner thinks so, but large budget gaps remain.
Finance Minister Christian Lindner sees room to increase defence spending in the federal budget by up to €9 billion from 2028.
But this is largely based on the idea that a plan to repay Covid debt could be postponed.
Even so, there remains a significant gap between Germany’s budget and NATO's “two percent” target.
Germany’s defence currently boosted by a special fund
In response to the Russian war against Ukraine, the German government has adjusted its defence perspective.
Russia has been reclassified as a threat to security, and there have been warnings that president Vladimir Putin could also target other European states.
The declared goal of Defence Minister Boris Pistorius (SPD) is to make the German armed forces (Bundeswehr) "fit for war."
Therefore, the German government has pledged that Germany should achieve NATO’s two percent target, for the first time again this year.
The so-called two percent target sets the goal for defence spending among NATO countries. NATO members are encouraged to spend the equivalent of two percent of their GDP on defence each year.
Germany hit the two percent target in February this year for the first time since the 1990s.
The funding for this was provided by a €100 billion special fund for the Bundeswehr. The special fund is financed by credit, and will be exhausted by 2027.
READ ALSO: Germany reports record defence spending ahead of NATO meeting
Big budget gap at two-percent target after 2027
Sources close to the Ministry of Finance say that by 2028, an additional €25 billion would have to be raised for this.
So even if the German government completely waived the repayment of the Covid debt, as Finance Minister Lidner suggests, there would still be a gap.
In order to raise the remaining amount of about €15 billion, it would be necessary to take funds from other budgets.
Lindner was nevertheless optimistic: "If we succeed in strengthening our economic growth in the years up to 2028 and if we refrain from additional, costly, legally binding social spending, then we will manage to meet the two percent target," he said.
Lindner expressed surprise at reports that several billion euros could be missing for the two percent target as early as next year. At the technical and working level, no evidence had been presented or known to support that conclusion. Lindner said: "The NATO target in the federal budget will be achieved in all coming years."
Germany’s current debt
In 2020, 2021 and 2022, the German government had taken out emergency loans of around €300 billion due to the Corona crisis and the Ukraine war. The repayment is scheduled to begin in 2028 and run for more than 30 years.
Currently, a debt repayment of €9 billion per year is planned from 2028, Lindner said.
Due to the pandemic-related loans, Germany’s debt to GDP ratio rose to 69 percent, but since then it has fallen back to around 63 percent.
As defined by “The Maastricht Treaty”, Germany generally aims to keep its national debt to GDP ratio below 60 percent.
So far, this year has been a tough one for budgetary policy.
The €100 billion special fund for the Bundeswehr is already running low, meaning the federal government will need to cover any further defence spending entirely from the normal budget.
READ ALSO: Germany needs to be 'war ready' in 5 years: army chief-of-staff
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Finance Minister Christian Lindner sees room to increase defence spending in the federal budget by up to €9 billion from 2028.
But this is largely based on the idea that a plan to repay Covid debt could be postponed.
Even so, there remains a significant gap between Germany’s budget and NATO's “two percent” target.
Germany’s defence currently boosted by a special fund
In response to the Russian war against Ukraine, the German government has adjusted its defence perspective.
Russia has been reclassified as a threat to security, and there have been warnings that president Vladimir Putin could also target other European states.
The declared goal of Defence Minister Boris Pistorius (SPD) is to make the German armed forces (Bundeswehr) "fit for war."
Therefore, the German government has pledged that Germany should achieve NATO’s two percent target, for the first time again this year.
The so-called two percent target sets the goal for defence spending among NATO countries. NATO members are encouraged to spend the equivalent of two percent of their GDP on defence each year.
Germany hit the two percent target in February this year for the first time since the 1990s.
The funding for this was provided by a €100 billion special fund for the Bundeswehr. The special fund is financed by credit, and will be exhausted by 2027.
READ ALSO: Germany reports record defence spending ahead of NATO meeting
Big budget gap at two-percent target after 2027
Sources close to the Ministry of Finance say that by 2028, an additional €25 billion would have to be raised for this.
So even if the German government completely waived the repayment of the Covid debt, as Finance Minister Lidner suggests, there would still be a gap.
In order to raise the remaining amount of about €15 billion, it would be necessary to take funds from other budgets.
Lindner was nevertheless optimistic: "If we succeed in strengthening our economic growth in the years up to 2028 and if we refrain from additional, costly, legally binding social spending, then we will manage to meet the two percent target," he said.
Lindner expressed surprise at reports that several billion euros could be missing for the two percent target as early as next year. At the technical and working level, no evidence had been presented or known to support that conclusion. Lindner said: "The NATO target in the federal budget will be achieved in all coming years."
Germany’s current debt
In 2020, 2021 and 2022, the German government had taken out emergency loans of around €300 billion due to the Corona crisis and the Ukraine war. The repayment is scheduled to begin in 2028 and run for more than 30 years.
Currently, a debt repayment of €9 billion per year is planned from 2028, Lindner said.
Due to the pandemic-related loans, Germany’s debt to GDP ratio rose to 69 percent, but since then it has fallen back to around 63 percent.
As defined by “The Maastricht Treaty”, Germany generally aims to keep its national debt to GDP ratio below 60 percent.
So far, this year has been a tough one for budgetary policy.
The €100 billion special fund for the Bundeswehr is already running low, meaning the federal government will need to cover any further defence spending entirely from the normal budget.
READ ALSO: Germany needs to be 'war ready' in 5 years: army chief-of-staff
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