Marcel Schlepper

Of 25 European NATO countries including Sweden only Estonia and Lithuania achieved NATO’s 2 percent target with sound public finances in 2023. This is the conclusion reached by researchers at the ifo Institute in a new EconPol study.

Parmi les 25 pays européens membres de l’OTAN, Suède comprise, seules l’Estonie et la Lituanie ont atteint en 2023 l’objectif de 2 % du PIB tout en affichant des finances publiques saines. C’est la conclusion de la nouvelle étude EconPol menée par les chercheurs de l’Institut ifo.

The draft budget for 2024 leaves open how the German government intends to achieve its goal of spending 2% of economic output on defense. This is according to calculations by the ifo Institute ahead of the budget discussions in the German Bundestag this fall. For 2024, the government is planning a defense budget of EUR 52 billion as well as EUR 19 billion of spending from the special fund for the German Armed Forces (including interest payments). “That’s just 1.7% of economic output, leaving a shortfall of EUR 14 billion that would have to be classified as defense spending in other ministries,” says ifo military expert Marcel Schlepper. 

Only half of the EUR 100 billion special fund can be spent on additional equipment for the German Armed Forces. “The way the special fund is being spent thus falls short of its stated objectives,” says ifo military expert Marcel Schlepper. Thirty-three% of the special fund will be used to offset cuts to the defense portion of the core budget, while 8% will cover interest payments. This poses a long-term threat to meeting NATO’s 2 percent target, according to calculations made by the ifo Institute shortly before the NATO summit in Vilnius.

Malgré l'agression russe contre l'Ukraine, de nombreux États membres de l'OTAN ne relèvent leurs dépenses de défense qu'à un rythme très lent. En 2023, la plupart d’entre eux seront encore loin de l'objectif de dépenses convenu de 2 % de la per-formance économique. Ce seuil ne sera dépassé que par onze des 30 États membres. « À de rares exceptions près, les pays dépassant la barre des 2 % se trouvent tous à la frontière orientale de l'OTAN. En Europe de l'Ouest, les efforts financiers en fa-veur de la défense ne marquent que peu de progrès », observe Marcel Schlepper, expert militaire à l'Institut ifo. L'Allemagne n'aura augmenté son budget militaire global qu'à 1,6 % de sa performance économique, soit de 0,1 % par rapport à 2021, et ce même en comptant le fonds spécial dévolu à la Bundeswehr. Ce constat est le résultat de calculs réalisés par l'Institut ifo. 

Despite Russia’s attack on Ukraine, many NATO countries are increasing their defense spending at a very slow pace. In 2023, most of them remain short of the goal of spending 2 percent of their economic output on defense. Only 11 out of 30 countries exceed this mark. “In Europe, the 2 percent target is being reached almost exclusively along NATO’s eastern border. Member countries further in the west are increasing their defense spending only cautiously,” says ifo’s military expert Marcel Schlepper. Compared to 2021, Germany will increase its spending by 0.1 percentage points to 1.6 percent of its economic output, including spending from the country’s special fund for the Federal Armed Forces. This is according to calculations by the ifo Institute. 

A majority of German economists support a higher tax rate for very high incomes. A total of 56 percent of participants in the ifo Economists Panel are in favor of raising the marginal income tax rate on annual incomes of EUR 278,000 or more. However, 52 percent of the participants reject an increase in the top tax rate, which is already payable for incomes of EUR 59,000 and up.

Germany’s Armed Forces need an additional EUR 25 billion each fiscal year. This is the amount required to meet the investment of 2 percent of GDP announced by German Chancellor Olaf Scholz. For 2022, Germany’s core defense budget amounts to some EUR 50.3 billion, or 1.3 percent of the country’s economic output. Added to this is the debt-financed special program worth EUR 100 billion. “This 100 billion is all well and good, but in view of Russia’s attack on Ukraine and the turning point in Europe’s concept of defense, it’s not enough for the long term,” says ifo researcher Florian Dorn.