By David Ruff, Portfolio Manager
Last week, at a special parliamentary session, German Chancellor Olaf Scholz announced a massive increase in military spending. Germany will be adding a €100 billion special fund to improve military equipment. Additionally, the country plans to significantly increase annual defense spending above its latest budget of €53 billion euros, already a record level. By 2024 future military spending will target 2% of Germany’s GDP, significantly above the current 1.4% level. With German GDP growth this should effectively double annual outlays, making Germany, by far, the biggest military spender in Europe, and easily surpassing Russia’s annual defense spend. The announcement was greeted with cheers by all German political parties. Understandable with the Ukraine-Russia War backdrop, but still an amazing development.
Amazing yes, both in terms of spend magnitude as well as multi-partisan agreement, but maybe not surprising given the modern historical context of Germany and the European continent. Looking back, we note the movement toward German and NATO militarism started after the Russian takeover of Crimea in 2014. At Germany’s urging, NATO set a defense spend target at 2% of GDP. Although non-binding, the goal was for all NATO members to meet the target by 2024. According to Visual Capitalist, the below table shows the top 10 NATO defense spend in 2021 (approximate) with spending growth indicated from 2014 to 2020.
Clearly, the NATO summit resolution had an impact. Non-US NATO spending growth over the seven years averaged over 61% with Turkey the only member to lower spending. Impressive? Maybe, but this is from a low base, and as of 2021, only 10 of the 30 members met the 2% standard. Importantly, despite the 40% growth in seven years, Germany was lagging, not on pace to meet the 2024 deadline for 2% spend until the recent announcement. Note that although German leadership help push NATO to set the new spend target at the 2014 NATO Summit, there was still strong resistance against heavy military spend within Germany itself. Social Democrats argued consistently that too large of a military budget rekindles fears of a militarist and imperialistic Germany. As we know this propelled the planet into the horrors of two World Wars. The Greens even more so, wanting budget coffers directed toward carbon-neutral programs, not fuel guzzling tanks. Clearly, pushing for greater NATO defense spend was the method by which German leadership sidesteps strong resistance at home where a significant proportion of the population believe pacifism to be a badge of honor.
Germany’s defend spend hypocrisy was not lost on other NATO members, however, and many blame Germany for the slow uptake by NATO members towards rearmament. The US, in particular, railed against this under former President Trump. Moreover, many believe Germany’s defend spend sluggishness contributed to NATO’s unpreparedness for Russia’s recent naked aggression.
Evidently not accounted for by President Putin in his war planning scenarios, the Russian military move against Ukraine provided the shock treatment to Germany’s political stalemate on the defense issue. Russian missiles hitting Ukrainian civilian targets instantly melted away decades of German apprehension towards militarism, engendering a remarkable transformation in German attitude. Now with little debate, German politicians and much of the public have rallied around the idea that Germany needs strength on its own, and within NATO, with less dependence on the US. No longer operating in the shadows, Germany will be much more transparent, intending to lead NATO by example. The German war machine reawakens, but thankfully, this time they’re on the side of the West fighting against tyrannical, warmongering despots. Hopefully, President Putting gets the memo and renounces his “Vlad the Invader” mentality.
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