German Finance Chief Won’t Bow to Defense Minister’s Cash Appeal

Kamil Kowalcze and Michael Nienaber
·3 min read
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(Bloomberg) -- German Defense Minister Boris Pistorius will only get at most half the extra cash he wants in his budget for next year, according to people involved in the government’s financial planning for 2024.

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Pistorius has said he needs an additional €10 billion ($10.6 billion) to lift annual defense spending to €60 billion and help drive Germany’s push to modernize the military after decades of underfunding.

Finance Minister Christian Lindner would be open to an increase of €3 billion, which could potentially be raised to €5 billion if the government reaped more than expected in tax revenue, said the people, who asked not to be identified as the budget talks are confidential.

A spokeswoman for the finance ministry said it’s against policy to comment on budget negotiations before they’re completed.

Russia’s invasion of Ukraine just over a year ago prompted Chancellor Olaf Scholz to declare a “turning point” in German military and security policy and he announced the creation of a special debt-financed fund worth €100 billion alongside the regular defense budget.

Boosting outlays on the military has also taken on extra urgency given the amount of weapons and equipment Germany has donated to Ukraine which needs to be replaced.

Scholz also pledged that Germany would meet a NATO guideline of spending 2% of gross domestic product on the armed forces, a goal the government in Berlin had consistently failed to meet, irritating allies in the alliance.

Although Pistorius has said 2% of GDP should be a minimum, it’s taking time to ramp up spending due to procurement issues, bureaucratic hurdles and backlogs at defense companies. Officials have said Germany may again fail to hit the target this year and instead will reach the goal “on average in the next five years.”

To comply with the guideline in 2024, the defense budget would have to rise to at least €65 billion, according to one of the people. Last year, none of the cash from the special fund was spent, while around €8.5 billion is budgeted for this year, the people said.

Andre Wuestner, the head of Germany’s armed forces union, said the military is under particular pressure as it’s obliged not only to support Ukraine but to make sure it can fulfill its commitments to NATO.

“One thing is clear: The special fund won’t be enough and the defense budget has to increase,” Wuestner said Monday in an interview with broadcaster RTL/ntv.

“Boris Pistorius is on exactly the right flight path with his demand for €10 billion and I’m keen to see where he’ll land,” he said. “This will show whether deeds will follow words when it comes to the ‘turning point.’”

The final budget for 2024 won’t be approved by lawmakers in the lower house of parliament until the end of the year. The ministries are currently thrashing out the details with Lindner before the draft finance plan is due to be approved in cabinet in mid-March.

The head of the Free Democratic Party, who has hawkish tendencies on spending, has significantly less room for maneuver after he insisted that the ruling coalition restore a constitutional limit on net borrowing — known as the “debt brake” — starting this year.

The mechanism was suspended for three years due to the coronavirus pandemic and the energy crisis triggered by Russia’s attack on Ukraine. Any increase in the defense budget is therefore likely to come at the expense other ministries.

Adding to the complexity of the negotiations, the Greens insisted on a clause in the coalition agreement that any increase in defense outlays should be matched by the same boost in funding for development and international cooperation.

Given the limited funds available, this won’t be feasible and still needs to be clarified with the Ministry for Economic Cooperation and Development, according to people familiar with the planning. The ministry is run by Svenja Schulze from Scholz’s Social Democratic Party.

(Updates with finance ministry comment in fourth paragraph)

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