Germany's Bold Defense Investment: A New Era of Growth

Germany is poised to boost its defense spending to 3.5% of economic output by 2029, funded through a nearly 400 billion euro borrowing initiative. The move, announced by insiders on Monday, aligns with Chancellor Friedrich Merz's decisive stance ahead of this week's pivotal NATO summit.

Following a period of minimal defense spending post-Cold War, Germany met NATO's 2% of GDP target for the first time in 30 years by 2024, thanks to a special fund initiated by Merz's predecessor after the Ukraine crisis. Defense spending will rise from 95 billion euros in the 2025 draft budget to 162 billion by 2029, with record investments of 123.6 billion euros planned for 2026.

This financial strategy, designed to rekindle economic growth after two stagnant years, is fueled by a 500 billion euro infrastructure fund and a defense spending exemption from debt rules passed in March. This exemption allows borrowing to reach 378.1 billion euros between 2025 and 2029, signaling a transformative fiscal policy shift.

(With inputs from agencies.)