The Munich-based Ifo Institute has accused the German government of misallocating funds intended for defense spending under an exception to the debt brake. More than a third (38.5 percent) of the additional debt incurred last year did not go toward additional defense spending, the institute stated on Thursday. The Federal Ministry of Finance rejected the criticism, accusing the institute of applying the wrong benchmarks.
The criticism centers on the so-called sectoral exemption for defense. Under this rule, any defense spending exceeding one percent of gross domestic product is exempt from the debt brake enshrined in the Basic Law. This measure was adopted in March 2025 by the outgoing Bundestag with the support of the Union, the SPD, and the Greens.
“A large portion of the additional debt did not result in increased defense spending,” noted Ifo researcher Emilie Höslinger. “Instead, the fiscal headroom created in the core budget was used for other purposes.”
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In its analysis, the Ifo Institute compares spending in 2024—which would theoretically have fallen under the exemption introduced the following year—with spending in 2025. The institute identifies an increase of €17.6 billion. However, the debt incurred for this purpose amounted to €28.6 billion in 2025.
“This leaves €11 billion in additional debt that did not result in additional spending on defense and security,” the institute concludes. “It follows that 38.5 percent of the funds were used for other purposes.”
“The Ifo study does not apply the legal standards established by the Bundestag and Bundesrat regarding the exemption of defense spending from the debt brake enshrined in the Basic Law,” the Federal Ministry of Finance stated in response. “The study is therefore legally and methodologically flawed. It compares apples and oranges.”
The Finance Ministry further stated that the “decisive factor for the additional fiscal leeway created by the specific exemption” is “not the level of defense spending in 2024, but rather the figure of one percent of GDP.” Moreover, unlike the special fund for infrastructure and climate neutrality, the Basic Law “does not stipulate a criterion of additionality” for this specific exemption.
For her part, Ifo researcher Höslinger argued—based on her calculations—that the threshold for triggering the exemption should be raised to above one percent of GDP in the medium term. This would prevent “defense spending from increasing national debt and interest costs in the long run.” It would also ensure “that defense spending is not permanently crowded out of the regular tax-funded budget.”
Author: AFP – mt/hcy – Translated by Blackout News
Sources: AFP Press Portal