Military money

New German government set to miss NATO defense spending target

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Shooting low on a high target. Source: DPA

Angela Merkel and Martin Schulz quietly dodged an issue that could potentially have blown apart their exploratory talks to form a new government before they even got off the ground – NATO’s common defense spending goal of 2 percent of GDP per annum.  The party leaders were cleverly mum on the subject last week when they agreed in principle to pursue coalition negotiations.

But questions about it are likely to arise on Sunday when Mr. Schulz, the leader of the Social Democratic Party (SPD), faces the rank and file to decide on whether to push ahead with the coalition talks. Defense spending, a top priority for US President Donald Trump, is yet another hurdle the embattled SPD leader could stumble over when it comes to winning support from the party’s left-leaning base.

It’s no secret that Ms. Merkel’s Christian Democratic Union (CDU) and her Bavarian sister party, the Christian Social Union (CSU), have widely differing views on defense spending than the SPD, their junior partner in the former coalition government. The acting chancellor’s conservative bloc has pledged to invest billions to reach the 2-percent spending goal that members of the trans-Atlantic military committed to three years ago.

To reach the NATO goal, Germany would have to double defense spending to nearly €75 billion by 2024.

From the start, the Social Democrats have fought the financial commitment tooth and nail. Mr. Schulz has publicly called the goal “unrealistic and wrong.” In a country with a history of wars and where military spending is viewed with skepticism, the party leader is aware that spending more on defense doesn’t go down well with large segments of German society. And after leading the party to its worst election result since World War II in September, the former president of the European Parliament is understandably worried about losing even more supporters.

Ms. Merkel may be having second thoughts, too. Apart from the CDU’s disastrous result in the federal election, Germany’s economic boom is giving her an unexpected political headache: The increases her government has made in defense spending haven’t kept pace with the country’s economic growth, making it even harder to meet the NATO goal.

In fact, from the military alliance’s perspective, German defense spending is headed in the wrong direction. It increased last year to €37 billion ($45 billion). But, rather than the projected rise to 1.26 percent of GDP, strong economic growth kept last year’s budget stuck at 1.13 percent. A planned defense spending increase of €5.4 billion will still leave the budget stuck at 1.15 percent of GDP in 2021, based on current growth forecasts. It is highly unlikely a new government will push to raise that target.

CDU leader and acting German Chancellor Merkel and SPD leader Schulz shake hands a speech before exploratory talks about forming a new coalition government at the SPD headquarters in Berlin
Now if we can only agree on defense spending, Martin. Source: Reuters

“In that case, we would clearly fail to achieve any gradual convergence with the 2-percent NATO goal,” Matthias Wachter, a defense expert with the Federation of German Industries (BDI), told Handelsblatt. The industry group recently recalculated projected defense spending in terms of GDP, using newly-available growth figures. Mr. Wachter said the group is disappointed at the results: “The German government did after all affirm the goal in 2014.”

This is not what NATO wants to hear from its largest European member. Nor will President Trump be pleased. He has loudly claimed that European countries, and Germany specifically, aren’t spending enough on their security and instead are relying too heavily on Washington’s promise for help in case of war. He’s threatened to cut support if Europe fails to pay more.

After Russia’s annexation of the Crimea region in 2014, all 28 NATO member states agreed to gradually increase their national defense budgets toward the 2 percent target. However, of countries which are members both of NATO and the European Union, so far only France and Greece have achieved the target. In last year’s election campaign, the SPD vigorously campaigned against the target, which for Germany would mean roughly doubling defense spending to nearly €75 billion by 2024.

Almost all defense experts argue that Germany’s armed forces would struggle to spend such enormous sums, even if most agree that a decent increase is warranted. “I would be happy to see the new coalition agree a goal of spending 1.5 percent of GDP by 2021,” Hans-Peter Bartels, an SPD parliamentarian and the official parliamentary commissioner to the armed forces, told Handelsblatt. “That could fill all known shortcomings in army equipment.” The SPD, he added, has always said the armed forced need excellent equipment, “and for that defense spending has to rise.”

Many within the ministry are pleased over the failure of the “Jamaica” coalition between Ms. Merkel’s conservatives, the business-friendly Free Democrats and the environmentalist Greens. That coalition planned a return to an older defense budget model, which would have seen Germany cutting back on defense spending even further. In that sense, maybe Donald Trump should hope for the new coalition to succeed, too.

Donata Riedel covers economic policy for Handelsblatt. John Blau is a senior editor with Handelsblatt Global. To contact the authors: riedel@handelsblatt.com and blau@handelsblatt.com

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