Increase in Defence Expenditure Lags Behind Economic Growth as per New NATO Goal of Five Per Cent Reduction
In a landmark decision, the German Bundestag has approved a special fund ("Sondervermögen Bundeswehr") of 100 billion euros, significantly boosting the country's defense budget for 2022. This move, expected to lead to a higher total defense expenditure than previously planned, is part of a broader framework that includes the official total defense spending for 2022.
The impact of this decision is most clearly reflected in subsequent years. For instance, the defense spending for 2025 is projected to reach 86.37 billion euros, including the special fund. The exact figures for 2022 are yet to be disclosed, as they are subject to the approval of the 2022 budget and the submission of new figures.
This increase in defense spending could help narrow the gap between European NATO countries, Canada, and the U.S., as Germany submits new, higher defense spending figures. Currently, the defense spending of European NATO countries and Canada combined is less than that of the U.S., but this trend might change in the near future.
The defense spending of NATO countries, excluding Iceland, is expected to meet the 2% GDP target this year. However, more ambitious goals were agreed upon under pressure from U.S. President Donald Trump at the June summit. NATO countries have committed to invest at least 3.5% of their national GDP in defense in the future, with an additional 1.5% for defense-relevant expenditures.
The future defense investment goal for NATO countries is to reach a total of 5%. If achieved, this would result in a significant increase from current levels. The U.S. is projected to have the highest defense spending this year, estimated at approximately $845 billion, while the defense spending of European NATO countries and Canada is expected to increase at a slower pace than last year.
However, it's important to note that the actual defense spending could be higher than currently estimated due to Germany's budget uncertainty. The exact figures for other countries are also not yet clear, as the impact of the agreed goals on individual countries' budgets is not yet known.
The defense spending targets agreed upon by NATO countries do not include Iceland, as it does not plan to meet the 2% GDP target this year. The additional defense-relevant expenditures, such as infrastructure, are included in the 1.5% increase agreed upon by NATO countries.
In conclusion, the defense budget in Germany is set for a significant increase, which could help narrow the spending gap between European NATO countries, Canada, and the U.S. The impact of these changes on the overall defense spending of NATO countries is yet to be fully realised, but it's clear that the future will see increased defense expenditures across the alliance.
