Germany announces ‘significant’ hike in defence budget

Berlin meets euro debt limit for first time in 17 years

BERLIN, July 6, (Agencies): German Finance Minister Olaf Scholz Friday pledged to raise defence spending sharply next year but the amount falls well short of US President Donald Trump’s demands for NATO allies to pay their way.

Europe’s economic powerhouse Germany and other NATO members have been reluctant to meet a commitment made in 2014 to spend two percent of GDP on defence by 2024.

“We are continuing the turnaround in defence spending, in 2019 alone we will spend four billion euros ($4.7 billion) more than we previously planned,” Scholz told journalists in Berlin.

The increase will boost the military budget to 42.90 billion euros — a “significant increase” and “clear sign” of Germany’s commitment to its international obligations, he said.

But following years are set to see spending slow sharply.

The 2019 budget approved by Chancellor Angela Merkel’s cabinet calls for defence outlays of 42.93 billion euros in 2020, 43.88 billion in 2021 and 43.86 billion in 2022.

The figures are well short of the 2.0 percent of GDP target.

Next year the ratio will hit 1.31 percent, before falling back to 1.23 percent by 2022.

NATO leaders are meeting in Brussels next week and Trump has written

to Germany and seven other nations asking them to live up to their budget pledges.

Merkel acknowledged on Wednesday that her country must do more.

“Compared with what others are doing as a proportion of their GDP, it’s far from enough. That’s why we’ve committed ourselves to spending 1.5 percent of GDP by 2024,” she told parliament.

Meanwhile, the German government says its 2019 budget will comply with eurozone debt limits for the first time in 17 years.

The draft budget also raises defense spending — a contentious issue between Germany and US President Donald Trump.

Finance Minister Olaf Scholz told a news conference that debt would fall to 58.25 percent of yearly economic output. That would put it below the 60 percent limit established by rules to ensure fiscal responsibility and price stability in the 19 countries that use the euro.

The debt burden has fallen as the economy has grown and the government has run balanced budgets. And eurozone governments have faced very low borrowing costs in recent years thanks to stimulus efforts by the European Central Bank that have included very low interest rates and purchases of government bonds.

But the tight budgets have drawn criticism that the government of Chancellor Angela Merkel has neglected investment needs and skimped on defense spending. At 1.3 percent of gross domestic product, defense outlays remain below NATO members’ target of 2 percent by 2024. Germany has committed to raising its defense spending

toward the NATO guideline after a period of shrinking expenditure.

The defense spending by NATO allies promises to be a contentious issue at an upcoming NATO summit on July 11-12 after Trump again pressed allies to raise their spending commitments.

Germany’s defense budget is getting an 11 percent yearly increase, Defense

Minister Ursula von der Leyen was quoted as saying by the newspapers of the Funke media group. She said that “Germany has strong arguments in that regard” ahead of the summit.

The eurozone debt rules have a checkered history since the currency was introduced in 1999. They have been widely breached but enforcement

turned out to be weak. The average government debt level in the eurozone was 86.7 percent of GDP last year, with France’s at 97 percent and Italy’s at 132 percent. After the 2010-2012 debt crisis, the rules on debt were backed up with a treaty limiting deficits.

The draft budget will be taken up by the parliament in the fall.