Data show Bundeswehr buildup will not strengthen Germany’s economy

Germany’s planned military buildup may briefly lift the economy, but it will not raise the country’s long-term growth trend, according to an analysis cited by the Neue Zürcher Zeitung.

The assessment comes as Germany’s economy begins to recover and research institutes and banks revise their growth forecasts upward. That recovery relies mainly on exports, however, leaving it vulnerable to economic conditions abroad. Some experts therefore expect domestic demand to improve through the government’s debt-financed expansion of the Bundeswehr.

Researchers at the Institute of the German Economy in Cologne compared two scenarios. In the baseline, defense spending remains unchanged. In the second, the federal government borrows as planned to finance a military buildup. The analysis found that the additional spending would initially support economic activity, but the effect would fade by the year after next. By 2029, the extra military outlays would no longer provide any economic boost.

The fiscal effect would last longer. Military spending is expected to increase from 104 billion euros last year to almost 200 billion euros in 2030. Government debt would already be 0.5% higher this year than it would have been without the additional defense spending. By 2029, the difference would reach 2%, equivalent to 64 billion euros in that year alone.

The figures therefore rule out the idea that debt-financed rearmament could stimulate the economy enough to pay for the defense budget through current tax revenues. The state would have to borrow more or make major spending cuts. The article asks why the billions fail to produce a lasting boost, and begins by pointing to the economy’s need for more workers and other constraints on the impact of defense spending.