Germany to hike defense budget by up to $10.7 bln in 2024

Germany is poised to increase its defense budget by as much as €10 billion ($10.7 billion) next year to help fund additional spending needs triggered by Russia’s war on Ukraine, according to people familiar with the plans.

Defense Minister Boris Pistorius is pushing for the extra cash in the 2024 finance plan, which would lift the total allocated to €60 billion, said the people, who asked not to be identified discussing confidential information.

Finance Minister Christian Lindner in principle shares the view that defense spending should be increased but won’t likely agree to the full amount Pistorius wants, the people added. A finance ministry spokesman declined to comment on specific figures and said negotiations on the budget between ministries are ongoing.

The extra cash would be on top of the debt-financed special fund worth €100 billion Chancellor Olaf Scholz announced shortly after the Russian invasion to finance the rebuilding of Germany’s military in coming years.

At the time, Scholz said the fund would enable Germany to both reverse years of neglect and comply with a NATO guideline of spending 2 percent of economic output on defense. However, the government has since scaled back its ambitions.

Officials have said it may again fail to hit the 2 percent target this year and instead will reach the goal “on average in the next five years.” They blame longstanding procurement issues, entrenched bureaucratic hurdles and backlogs at defense companies for the difficulties.

Pistorius told reporters in Brussels on Wednesday that NATO members should spend a minimum of 2 percent of GDP on defense, adding that simply aiming to get close to the target won’t be sufficient.

Scholz’s coalition government plans to wrap up the budget negotiations in the next two weeks so that cabinet can approve the draft in mid-March and send it to parliament.

This year, Pistorius plans to spend €50 billion from the regular defense budget and tap €8.5 billion from the special fund, according to the people.

In addition, the government will use some €2 billion from a separate pot to procure ammunition and other military gear for Ukraine, taking overall defense spending to around €60 billion.

Scholz’s chief spokesman, Steffen Hebestreit, said Wednesday the chancellor is aware that the budget talks are “not uncomplicated” due to a constitutional limit on net new borrowing, which Lindner has vowed to restore starting this year. Germany’s so—called “debt brake” was suspended to help deal with the pandemic and the fallout from Russia’s war in Ukraine.

Scholz does not plan to intervene and will leave the budget negotiations to his ministers, Hebestreit said at the regular government news conference in Berlin.

“The chancellor is totally convinced that we have to get to the point where the federal budget should attribute at least 2 percent to defense, but he also knows as a former finance minister that this cannot be easily achieved,” Hebestreit added. He did not provide a specific date when the goal would be reached.