Germany halts new military aid to Ukraine amid budget shortfall

08/21/2024 / By Richard Brown

Germany has stopped approving new military aid requests for Ukraine as Berlin grapples with a significant budget shortfall, according to a report by the German newspaper Frankfurter Allgemeine Zeitung (FAZ).

The decision, driven by efforts to address the country’s 12 billion euro ($13.34 billion) budget deficit, means that Chancellor Olaf Scholz will no longer approve future military aid requests from the Federal Ministry of Defense.

While the funds and resources already allocated for Ukraine will continue to be delivered, the future of German support appears uncertain. (Related: Germany to STOP sending military aid to Ukraine over claim of Zelensky’s Nord Stream pipeline sabotage.)

This year, Germany has already earmarked eight billion euros ($8.9 billion) worth of military aid for Kyiv, with an additional four billion euros ($4.45 billion) approved for next year. These aid packages have already been halved due to budgetary constraints.

Beyond these two military aid packages, government sources told FAZ, “the pot is empty.” New aid measures will only proceed if additional financing is secured for upcoming federal budgets.

As Ukraine’s largest European financier, Germany’s cessation of future aid payments could significantly impact Kyiv’s ability to sustain its defense against Russia. Although the freeze technically affects future budgets, it is already disrupting current aid transfers.

For instance, funds for the delivery of IRIS-T medium-range infrared homing missiles from German manufacturer Diehl Defense was recently denied by the federal government due to budget exhaustion.

FAZ reported that the eight billion euros allocated for 2024 has already been spent, and the four billion euros for 2025 has already been surpassed. Consequently, “hardly any” new orders from Germany will be possible until 2028.

Berlin is reportedly hoping that future aid to Ukraine will come from the $300 billion in Russian central bank assets seized by Western allies after the beginning of Russia’s special military operation in Ukraine in February 2022.

While the G7 nations agreed at their June summit in Italy to use interest on these assets to help finance a $50 billion loan for Kyiv, there has been no formal agreement on whether the assets themselves or their generated income could be directly allocated to Ukraine.

Additionally, questions remain about the legal feasibility of diverting these Russian assets to fund the war effort. Member of the Bundestag – the German parliament – Andreas Schwarz, deputy spokesperson for the Budget Committee, noted that it is still uncertain whether or when this could happen.

The spending freeze exacerbates ongoing issues with Germany’s support for Ukraine. FAZ reported that due to a lack of spare parts and ammunition, some German-supplied weapons in Ukraine, such as the Panzerhaubitze 2000 self-propelled howitzer tank, can only fire a few rounds per day, limiting their effectiveness.

Furthermore, Ukrainian forces have had to “cannibalize” working parts from Leopard 1A5 main battle tanks to keep others operational due to a shortage of spare parts from Berlin.

Germany’s economy expected to stagnate

Concerns regarding Germany’s budget deficit come as the country’s economy is projected to stagnate further.

After a small recession in 2023, with Germany’s gross domestic product (GDP) declining by 0.2 percent, the GDP for 2024 is expected to stagnate and only slightly improve in 2025.

Domestic demand will gradually recover as real wages grow, but investment will remain below pre-pandemic levels due to high financing costs. Exports will stay sluggish in 2024, with modest recovery in 2025, leading to a projected GDP growth of 1.0 percent.

Labor market resilience continues, with stable unemployment at around 3.0 percent and real wage growth expected to persist into 2025. Inflation, which eased to 6.0 percent in 2023, is forecasted to decrease further to 2.4 percent in 2024 and 2.0 percent in 2025, despite rising fuel costs and wage pressures.

Germany’s government deficit, 2.5 percent of GDP in 2023, is expected to decrease to 1.6 percent in 2024 and 1.2 percent in 2025, as energy price measures phase out and revenue strengthens. Government debt, down to 63.6 percent of GDP in 2023, will continue to decline, reaching 62.2 percent by 2025.

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