German Government Slashes Spending, Except on the Military

Why It Matters: Germany has long neglected military spending.

Despite intense pressure from the United States, Germany last spent 2 percent of its G.D.P. on defense in 1991, a year after the reunification of the former East and West German nations, according to statistics from the World Bank.

But some argued that by refusing to significantly raise the military budget, which increased €1.7 billion, to €51.8 billion, opting instead to pad it with €19.2 billion from a special fund announced after Russia invaded Ukraine, the government was providing only a temporary boost.

At the same time, the severity of the cuts to social services drew sharp criticism from economists, unionists and welfare providers. The budget included cuts to a plan to help alleviate child poverty and a large reduction to the allowed annual income for new parents to qualify for government-paid parental leave.

Marcel Fratzscher, president of the German Institute for Economic Research, called the budget “economically unwise, antisocial and unstrategic.” He slammed it for neglecting investment in sectors that he said would enhance Germany’s global competitiveness, including digitization, green infrastructure and education.

Background: A national aversion to debt and taxes.

Germany’s decades-old aversion to borrowing led it to adopt a constitutional “debt brake” in 2009 that requires a nearly balanced national budget. The government is allowed to break it only in times of crisis, as it did at the beginning of 2020.

At the same time, Mr. Lindner has refused to consider raising taxes on the wealthy or altering taxes to attract more foreign investment.

The United States is using incentives, including tax breaks, to lure businesses in the green energy and technology sectors. Leading industrialists in Germany have called for similar measures to maintain the country’s position as an industrial hub.

“Germany is increasingly falling behind when it comes to investment and location decisions,” said Tanja Gönner, general director of the German Federation of Industries. “The tax framework in Germany is not competitive.”

What’s Next: Parliament must approve the budget.

The proposed budget must still be debated by Parliament. A vote is expected by the end of the year.