Germany Clashes With Ifo Over Defence Debt Use as 2027 Budget Debated
Ifo says €11 billion of extra 2025 borrowing under Germany's defence exemption funded non-defence spending; the finance ministry disputes the finding.
Germany's finance ministry has pushed back against an analysis by the Ifo think-tank suggesting that more than a third of the additional debt raised in 2025 under a defence and security exemption was channelled into unrelated spending.
The study, released on Thursday, estimates that expenditure covered by the sectoral exemption came to €54.6 billion in 2024 and climbed to €72.2 billion in 2025. Although that spending rose by €17.6 billion, borrowing under the exemption increased by €28.6 billion over the same period.
Ifo calculates that the €11 billion gap between the two figures represents extra debt that did not produce additional defence and security outlays, a misappropriation rate of 38.5%.
"The spending leeway that became available in the core budget was used for other purposes," said Ifo researcher Emilie Hoeslinger.
A finance ministry spokesperson rejected the conclusions as "legally and methodologically flawed", saying the study disregarded the framework approved by parliament and anchored in the constitution. The ministry argued that Ifo applied the wrong benchmark, noting that the relevant constitutional threshold is defence and security spending above 1% of GDP rather than 2024 spending levels, and that the exemption does not require spending to be additional.
Ifo responded that its analysis was not meant to judge whether the spending complied with constitutional rules, but to test whether the additional borrowing translated into additional expenditure.
The findings carry no immediate consequences for the government, but they sharpen scrutiny as the ruling coalition defends its draft 2027 budget in the lower house of parliament. The far-right AfD, which topped Sunday's election in Saxony-Anhalt, has threatened to seek a constitutional review of the budget at Germany's top court.
"It is clear to me that this potential lack of limits on debt-financed expenditure means the ministry of defence no longer sets priorities, because everything has become possible – at least from a financial perspective," said Sebastian Schaefer of the opposition Greens.
The dispute follows Chancellor Friedrich Merz's fiscal overhaul, which created a large off-budget infrastructure fund aimed at unlocking hundreds of billions of euros in investment and reformed the constitutional debt brake to expand military spending.