The German government will be forced to increase tax revenues or cut public spending if it intends to continue to spend significant amounts on defense in the coming decades. Financing defense through debt loans would not be a sustainable financial strategy, according to Klaus Seip, an expert at the Institute for Macroeconomics and Business Research (IMK).
„The long-term financing of high defense spending through debt loans is incompatible with sustainable public financial policy. "If the federal government and parliament want to maintain high defense spending in the long term, they must finance a significant part of it through tax increases or cuts in other spending," Seip was quoted as saying by the IMK press service.
The expert has calculated possible scenarios for Germany's public debt, its servicing and defense spending until 2050. According to his forecast, the level of public debt could rise to 90% of GDP by 2040. The majority of the total debt - over 60% - will be allocated exclusively to defense spending. The economist notes that with a bond yield of 3%, the government will be able to finance public debt, but at the same time interest payments will absorb approximately 25% of all tax revenues (7.7% in 2025), which, in his opinion, creates risks for long-term stability.