The Enlargement of the German Defense Budget: What Does it Mean?

In recent years I have generally refrained from attempting to offer comment on immediate events, especially in a news-y sort of way--my researches instead tending to be somewhat more long-term in their orientation (as with my recent stuff on British policy). This is, in part, because I like to take my time and give myself a chance to be thorough when attempting a piece of analysis, but also the generally lousy job the media does in supplying information that would provide a basis for an analysis that would be better than superficial in the extreme and, quite likely, outdated just ten minutes later (as the "analysis" the media itself tends to give us shows). What I have seen of its coverage of the current war in Ukraine, absolutely true to the pattern, has been exceedingly vague and extremely short on explanations or insight, even given the unavoidable uncertainties and rapid unfolding of the situation. (Consider how much we are actually being told in the headline-grabbing stories about the fight for Chernobyl, or the Battle of Kiev--not much of substance.)

However, one development did catch my eye as worth mentioning here, precisely because it seems that something can and should be said about it, namely the German government's announcement of increases in its defense spending. According to what we are now hearing it means to raise its defense spending to over 2 percent of its GDP by 2024--though we are not told much in those pieces of why 2 percent should represent a significant benchmark, or what it would mean in terms of Germany's particular economic position. The other figure we are seeing is 100 billion euros--with a glance beyond the headlines (for example, at the actual Febraury 27, 2022 speech by German Chancellor Olaf Scholz from which the press has derived these little factoids) indicating that the 100 billion euros would be a "one-off sum" out of the 2022 budget to provide a "special fund for the Bundeswehr" that would pay "for necessary investments and armament projects."

What do the numbers really mean?

According to data from the Stockholm International Peace Research Institute (SIPRI) Germany's defense expenditure averaged 1.2 percent a year in 2011-2020, if generally rising in recent years (so that it was just a hair under 1.4 percent a year in 2020, and in 2021, it seems, a hair over 1.5 percent). The result is that in the decade of the '10s it averaged an expenditure of 40 percent less than the 2 percent mark, and in 2021 spent a quarter or so less.

What does that mean in currency terms? Well, using the World Bank's GDP figures (in this case, the constant 2015 dollar series), adjusted for inflation using its own deflator, that would work out to an extra $290 billion in 2020 dollars devoted to the German armed forces over the decade of the '10s had it spent at that level. And today, given a German GDP of about $3.8 trillion, it would translate to a German defense budget in the $80 billion+ a year range (as against the under $60 billion to which the rising trend of German defense spending brings its efforts today). This might well make Germany the world's number three defense spender after only the U.S. and China.

Still, impressive as it is that would be considerably less than the other figure we are seeing, the 100 billion euro figure, which at today's rate of exchange equals $113 billion, about twice Germany's already elevated recent expenditure--more like 3 percent of the country's GDP than 2 percent—which, especially if, as implied in Scholz's speech, it comes on top of the defense appropriation for the year (producing a budget well to the north of $160 billion), would change Germany's place in "the league tables" from "maybe third biggest" defense spender in the world to "definitely third biggest by a long way."

The result is that Germany is publicly announcing what may well be a tripling of its defense spending this year to levels (4+ percent of GDP) unseen since the Cold War era, as well as a longer-term commitment to elevated spending at some uncertain level, with the 2 percent+ figure cited as the target from 2004 forward indicating a much raised floor--with this particular way of communicating the budget increase, one might add, carrying a particular meaning for the country as a member of the North Atlantic Treaty Organization. By common agreement 2 percent on defense is their minimum obligation, a minimum of which they have tended to fall short. In the past Germany was no exception, but here it declares that this will no longer be the case in what its government presumably hopes will be taken by allies, and non-allies, as an indicator of, besides its commitment to a more forceful posture, the NATO alliance (as one might expect, a major theme of Scholz's speech).

These are big numbers, intended as, among much else, a big political signal, which I suspect will not be the last, with other NATO members (the French, the already high-spending British) plausibly announcing their own increases--testimony to the extraordinary events of the present, and extraordinary in their own right.

I have said it before but it bears repeating. The 1990s, and their illusions, are now far, far behind us as history, the end of which was another of those '90s-era illusions, marches on.