German Defense Spending Shortfall Puts NATO Goal in Doubt, Ifo Institute Says

2023-07-10 19:22

Germany can’t make good on its NATO commitment to spend at least 2% of economic output on the

Germany can’t make good on its NATO commitment to spend at least 2% of economic output on the military in the longer term unless it increases its core defense budget markedly, according to the Ifo Institute.

Shifts in some spending out of the regular budget mean Germany will have to use about one-third of its €100 billion special armed forces fund to compensate, Ifo said in a statement on Monday. Taking into account inflation and interest payments, that only leaves about €50 billion in the fund for new military equipment, it said.

“To keep spending at 2% of economic output over the medium term, there would have to be a noticeable increase to the core defense budget,” Ifo researcher Florian Dorn said. Instead, the opposite is happening, Ifo said. As recently as 2022, the defense budget had earmarked €10 billion for new equipment. For 2024, that amount has dropped below €3 billion, it said.

Chancellor Olaf Scholz announced the special fund just days after Russia invaded Ukraine in February 2022. It marked a turning point in Germany’s military posture and the government has a lot of catching up to do after years of neglecting the armed forces.

The country’s regular defense budget is expected to amount to 1.57% of its economic output in 2023, according to NATO estimates. To try and reverse the trend, Scholz’s ruling coalition is prioritizing defense spending in next year’s finance plan, setting aside €71 billion for defense. That includes just under €52 billion from the regular budget and almost €20 billion from the special fund, allowing it to meet the NATO goal, according to the finance ministry.

Assuming the special fund is used up by 2026, the government would face a €25 billion annual shortfall to reach the NATO target, Ifo said.

“The current budget plans cast doubt on whether Germany really intends to fulfill the 2% target in the medium-term,” Ifo’s military expert, Marcel Schlepper, said.

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