Can Germany afford the target for defense costs of 5% of NATO?

Tax raising and raising debt may be the new reality of Germany, as NATO allies will soon face the higher goal of defense costs.

The country in 2024 spent about 2% of its gross domestic product (GDP) for defense, reaching over 90 billion euros ($ 104 billion), according to NATO evaluationS Although these costs are in line with the existing NATO target, it does not reach 5% expenses that military alliance members have now According to messages agreed on.

According to the new rules, members are expected to allocate 3.5% of GDP for classic defense costs and 1.5% on wider related issues such as infrastructure and cybersecurity.

Notification in the US about more defense costs has been highly contestedWith some NATO members who say they will struggle to assign more money to such costs, while others are supportive. While Germany has said he supported US President Donald Trump’s proposal, questions are detained whether a 5% goal is really feasible for the largest economy in Europe.

Jumping from 2% GDP costs up to 5% will see Germany spend additional tens of billions of euros in defense each year, such as Chancellor Friedrich Mertz reference Earlier this year, 1% of the country’s GDP will represent about 45 billion euros.

These additional costs will probably have to be funded by loans, told CNBC Hubertus Bardt, managing director of the IW Koeln Economy Institute.

“However, such an increase will lead to remarkable conflicts of distribution in the country’s annual budget,” he said, according to CNBC translation. He added that in addition to loans, the Berlin administration would also also have to discuss discussions to apply funding cuts in other places – along with increasing taxes.

Emily Hoeslinger, researcher at the IFO Institute, meanwhile pointed to Germany Fiscal twistS Berlin’s new rules mean that the costs of defense over a particular threshold are released from the so -called German brake, which limits how much debt the government can bear and dictates the amount of the structural budget deficit of the federal government. Germany also approved a special infrastructure of EUR 500 billion.

“Financing defense costs through additional debt gives the government more freedom in the short term,” she said, according to a CNBC translation. “But the increased need for debt will lead to higher interest rates in the medium term, which will weigh on the federal budget,” she said.

Bard sounded these concerns.

“Full loan financing is almost impossible for the long term,” he said.

Another potential question that experts have posted a discussion about the higher defense costs are the European Union fiscal rules that could prevent members of the block from taking on more debt.

However, the rules may be temporarily suspended in exceptional circumstances and some countries, including Germany requested Such a withdrawal of defense and security reasons.