Merkel Seeks Security Spending Boost in Budget Driven by Crises

  • Schaeuble cites terror threat as Cabinet backs 2017 spending
  • Infrastructure builders poised to benefit in 2.7% increase

German Chancellor Angela Merkel’s Cabinet backed spending increases for defense and infrastructure in a budget plan designed to address global risks and the refugee crisis that’s her biggest domestic challenge.

The blueprint, approved by ministers on Wednesday, foresees a 2.7 percent increase in spending next year and balanced federal budgets through 2020, according to the Finance Ministry. Defense is slated to get 6.8 percent more funding in 2017 compared with previous plans, while the biggest absolute increase is for social-welfare and labor-market programs. That includes spending to aid some 1 million refugees who came to Germany last year, the most since World War II.

“These are the right priorities -- a focus on domestic and external security, aid to refugees on the ground in the region and over here, plus continuing to develop investment in infrastructure, education and research,” Finance Minister Wolfgang Schaeuble said at a news conference in Berlin.

With stepped-up spending for asylum seekers as well as German residents, Merkel’s budget priorities amount to a fiscal stimulus for Europe’s biggest economy and underscore a reduced reliance on exports for growth. Schaeuble added social spending demanded by the Social Democrats, Merkel’s junior coalition partner, who argue the government needs to show that lower-income native-born Germans aren’t being short-changed.

Building companies are poised to benefit from increased funding for public housing and 3 billion euros ($3.4 billion) in extra spending on roads, rail and broadband earmarked for 2017 and 2018.

“One of the biggest beneficiaries of the 2017 budget is the construction industry, they will benefit from the planned expenditure for social housing,” said Tobias Hentze, a budget analyst at the IW economic institute in Cologne.

‘Stimulus Program’

Schaeuble said European Central Bank policies provide a buffer for Germany’s 2016 budget, which is already swollen by the refugee crisis. Envisaged for next year are federal funding boosts for everything from jobless, family and retirement benefits to police hiring and heating subsidies for refugees.

“The budget plans are effectively a small stimulus program,” Holger Schmieding, chief economist at Berenberg Bank, said in an interview. “Uncertainty threats are mostly external, such as a possible Brexit or a worsening economic crisis in China or emerging countries.”

It’s a bump that Merkel can use as Germany heads toward elections next year in which she may well seek a fourth term.

The German government’s council of economic advisers cut its 2016 growth outlook on Wednesday to 1.5 percent from 1.6 percent. European Commission Vice President Valdis Dombrovskis said the commission, the EU’s executive arm, may find that Germany’s budget doesn’t do enough to boost investment.

“This need to stimulate investment still may be among the recommendations” in the next review in May, he said in an interview.

Defense Plan

As Merkel faces criticism at home and abroad for her open-border policy on refugees, her promise to German voters to avoid new government debt is under attack from the Social Democrats. Balanced budgets “shouldn’t become a fetish,” Thorsten Schaefer-Guembel, the party’s deputy national leader, said in a Deutschlandfunk radio interview.

Next year’s defense budget represents 1.2 percent of gross domestic product, Schaeuble said, with an increase to 36.6 billion euros out of total federal spending of 325.5 billion euros. Under the plan, Germany would spend an additional 9.4 billion euros on military equipment between 2017 and 2020.

That’s part of a 130 billion-euro, 15-year defense spending plan presented by Defense Minister Ursula von der Leyen in January, which calls for additional Leopard main battle tanks as well as armored vehicles for Germany’s armed forces.

“We have benefited over many decades from our allies in NATO who protected us,” von der Leyen said in an interview on “Charlie Rose” in March. “So it’s kind of time to pay back.”

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