“Austerity measures at traffic lights are damaging”
IfW: German budget policy is a security risk for Europe
May 22, 2024, 12:42 a.m
There is a dispute within the federal government about a higher budget for the Bundeswehr. Economists accuse the traffic lights of being a security risk for Europe. Because of the inadequate equipment of the troops, three rather than two percent of economic output is needed, says the IfW.
The Kiel Institute for the World Economy (IfW) has called on the German government to spend more on defense. If necessary, Germany would have to take on more debt, IfW President Moritz Schularick told the “Süddeutsche Zeitung”. “German budget policy is a security risk for Europe.” In order to close huge gaps in Germany’s defense capabilities, the Federal Republic would have to spend around three rather than two percent of economic output on defense in the foreseeable future.
“To achieve this, the government could, for example, suspend the debt brake or decide on a new special fund. Anyone who refuses new loans for dogmatic reasons is putting party over country,” says Schularick to Finance Minister Christian Lindner. Unlike the SPD and the Greens, the FDP leader insists on strict austerity measures in the government.
Defense Minister Boris Pistorius recently requested additional military aid for Ukraine for the current budget. According to “Bild am Sonntag”, the SPD politician put the additional requirement at 3.8 billion euros. The Ministry of Finance has therefore signaled its approval. “Germany must not fail to strengthen Ukraine’s defense. If possible, we should deliver more weapons this year,” the newspaper quoted ministry sources as saying. It is not necessary to suspend the debt brake. The Bundeswehr’s budget for the coming financial year has not yet been determined. Last year, Pistorius unsuccessfully demanded an additional ten billion euros per year. Recently there were signs of a controversy between Pistorius and Chancellor Olaf Scholz over the defense budget.
Europe is weak in self-defense
The IfW boss further complained that Europe had neglected investments in its security. Brussels cannot adequately protect Ukraine against Russia without American help. Schularick demanded that “in view of the unstable USA, Europe should be able to defend itself on its own in the foreseeable future.” More spending on security would also ensure growth. This is just as good as tax credits for companies to stimulate investment.
The economist named another of Europe’s security issues. EU countries are already importing 40 times as many electric cars from China as the USA, which is now imposing punitive tariffs. He assumes that imports will continue to increase. The government in Beijing subsidizes its industry with hundreds of billions of euros a year, which distorts competition: “We may notice in five or ten years that entire future industries are in Chinese hands.” The EU Commission should examine China’s subsidies and react accordingly, “if necessary with punitive tariffs.” German manufacturers are threatened with a China shock, Schularick warned the SZ.