The German government plans to increase military spending to 2.4 percent of gross domestic product in 2025 and to 3.5 percent by 2029.

During his first term in office, Donald Trump demanded that the EU increase its defense spending and stop relying on the US to pay for its security. However, the fact that defense spending is rising not only in Germany but across Europe is not due to Trump’s demand at the time. Rather, it is due to Vladimir Putin’s aggressive policy on the one hand and the United States’ no longer predictable reliability on the other. Europe must become autonomous in terms of defense without being left in the lurch by US reluctance to defend it. But what are the implications of this relatively modest increase in defense spending? At first glance, rising from 2.4 percent to 3.5 percent is not a huge leap. However, the jump to a possible five percent represents a doubling. Let’s look at the absolute figures.

The “military boom” in the budget

Olaf Scholz had announced the “boom” for the restaurant industry with the reduction of VAT to plug the holes caused by Corona. The sobering result is well known. The situation is different with Friedrich Merz and the defense budget. This boom will be felt in the economy. The US financial portal AInvest sees a solid 70 percent increase over the next five years, from 95 billion euros to 162 billion euros. But that’s not all. German budgetary discipline, which has brought tears to the eyes of many finance ministers from other EU countries, is faltering. The budget deficit will rise from €33 billion in 2024 to an estimated €82 billion in 2025. The forecast for 2029 is €126 billion. And we are talking about the defense budget, not labor, health, and social affairs.

Anyone considering counter-financing at this point cannot avoid two approaches:

• Tax increases
• Cuts in social services and health care

The other issues in the country, such as railway restructuring, pension problems, and exploding health care costs, are not even taken into account here. The steel industry, to put it mildly, will definitely boom, but nursing homes less so. The “defense boom” is already showing signs on the stock market. It has always been easier to make money from war than from peace.

Insiders assume that Germany will take out loans totaling one trillion euros over the next twelve years. With its ambitious plans, Germany is pushing ahead of England and France in terms of defense spending (source: AInvest).

How will the billions be “blown”?

It goes without saying that the money will not only be spent on ammunition of all kinds. Of course, a lot will also go into the development of new technologies, weapon technologies of course, not environmental technology. However, people in this country could well benefit from the increased defense activities beyond their Rheinmetall shares in their portfolios. Infrastructure is always a critical issue in armed conflicts, and admittedly also for Deutsche Bahn in times of peace. A large part of the defense budget is also to be spent on infrastructure, with the focus on railways, in this case the rail network. And rail passengers will ultimately also benefit from defense-related accelerated renovation.

What considerations apply for the future?

The geopolitical situation in 2025 could be described as “back to the future.” The scenarios of Russia against the rest of the world, or NATO, bring back memories of the demonstration in Bonn’s Rheinauen in 1982. Wolfgang Niedecken and his band BAP demonstrated with 500,000 other people against the NATO Double-Track Decision of 1979. The difference today is that there was no war in Europe back then. Putin’s ambitions necessitate both increased military spending and Europe’s emancipation from the US.