Investing.com – Germany faces difficulty in financing increased defensive spending to achieve the NATO goal of 2 % of GDP, as some call for higher spending (up to 4 % of GDP), according to analysts in Kumretz Bank (ETR :).
Despite its historical (in the 1960s) and the adoption of some countries (such as Poland), the current economic situation in Germany represents obstacles.
Slow economic growth in Germany is a major obstacle. It is expected that the country will grow at an average rate of only 0.5% annually in the coming years, which is much lower than the levels required to accommodate a significant increase in defense spending without affecting other sectors.
Historically, the fastest economic growth of Germany and other countries allowed the management of high defense spending more effectively, as the high domestic product in nature leads to an increase in government revenues.
Kumretz Bank added that without accelerating economic growth, Germany will need two decades to gradually increase defense spending to 4% of GDP, which is a non -political and strategic timetable.
Reducing spending in other areas of the federal budget provides a partial solution, but the scope of such savings is limited.
To fill the gap through budget discounts alone, Germany will need to reduce federal civil spending by about 20 % over a period of four years.
Possible savings of social spending discounts and government efficiency improvements will not be sufficient to finance fully increased defense spending.
While re -allocation of funds from climate initiatives, by more efficient carbon pricing, can generate savings, this is likely to face great political opposition.
The financing of the defensive increase through debts is another option, but it raises legal and economic concerns. This approach would double the German budget deficit from 2% to 4% of the gross domestic product, which is a violation of European debt rules and constitutional debts.
The current dependence on shadow funds to finance the basic tasks of the state, such as defense, is not sustainable in the long run, which confirms the need to integrate these expenses into the normal budget.
The high risk bonuses on government bonds in Germany increases the complexity of debt -based financing. As Kumretz Bank indicated, weak economic growth has already led to noticeable increases in the costs of financing government bonds.
To ensure sustainable debt levels, structural reforms are essential to enhance economic growth and tax revenue.
Increased productivity and investment in the growth sectors can reduce the burden on public finances and improve the country's ability to finance higher defensive spending.
