How come with large budget deficit Belgium and Germany are providing military and financial aid to Ukraine
Introduction
Despite facing budget deficits, both Belgium and Germany are continuing to provide significant military and financial aid to Ukraine, while attempting to balance their budgets through various measures:
Germany’s Approach
Olaf Scholz. He has been serving as Chancellor since December 2021, when he succeeded Angela Merkel.
Germany is taking several steps to manage its budget while maintaining support for Ukraine. Olaf government fell down due to budget and reelection are expected by 2025.
Current status
The German government budget deficit is expected to reach 2.8% of GDP by the end of 2024, according to Trading Economics forecasts.
For the first half of 2024, Germany recorded a general government deficit of € 38.1 billion , which equates to 1.8% of GDP.
Recent Trends
In 2023, Germany recorded a government budget deficit of 2.5% of GDP.
The deficit is projected to decrease slightly from 2.6% in 2023 to 2.4% in 2027, according to the Bundesbank’s forecast.
Reducing Aid
Germany plans to reduce its military aid to Ukraine from €7.5 billion in 2024 to €4 billion in 2025.
Alternative Funding Sources:
The government is looking to tap into “European sources” for future Ukraine aid.
Germany aims to use proceeds from frozen Russian assets to fund Ukraine support.
Long-term Commitments
Germany has made authorizations to enter commitments for future years, currently amounting to approximately €6 billion.
Reimbursement
Germany has received some reimbursements (about €31 million) from the European Peace Facility (EPF).
Belgium’s Strategy
Current status
The outgoing government of Prime Minister Alexander De Croo (Open VLD) is serving as a “government in current affairs” since offering its resignation to the King after the elections.
This caretaker government has limited powers, focusing on day-to-day management and urgent matters.
As of December 2024, Belgium does not have a fully formed federal government. The country has been without a federal government for over six months since the legislative elections in June 2024.
Belgium is also balancing its budget while supporting Ukraine.
Belgium Budget Deficit is alarming
Current Deficit
The general government budget deficit in Belgium was 4.2% of GDP in 2023, according to the National Accounts Institute (ICN) and the National Bank of Belgium (BNB).
For 2024, the deficit is projected to increase:
The European Commission forecasts a deficit of 4.6% of GDP.
The National Bank of Belgium expects it to reach 4.8% of GDP.
Future Projections
The deficit is expected to worsen further in the coming years
For 2025, projections range from 4.9% to 5.5% of GDP.
By 2026, the European Commission forecasts the deficit to reach 5.3% of GDP.
Outlook and Recommendation
The OECD has warned that Belgium urgently needs to lower its debt and has recommended cutting public spending to reduce the deficit.
Without consolidation measures, public debt of Belgium could potentially reach 200% of GDP by 2050.
Targeted Funding
€977 million ($1 billion) in military aid as part of a 10-year bilateral security agreement signed on May 28, 2024.
30 F-16 fighter jets to be delivered by 2028, with the first aircraft expected to arrive by the end of 2024.
Belgium is using extra revenue from additional corporate tax receipts on Russian assets frozen in Belgium to support Ukraine.
Long-term Planning
The country has structured its commitment over a 10-year period, allowing for more flexible budgeting.
Deficit Reduction
Belgium aims to reduce its general government deficit from -5.2% of GDP in 2023 to -4.6% in 2024.
Challenges and Risks
Both countries face significant challenges in balancing their budgets while maintaining aid:
Political Pressure
There’s growing internal tension, especially in Germany, over budget allocations and spending priorities.
Economic Constraints
Both countries are dealing with economic pressures and the need to reduce deficits.
Potential Government Instability
The budget issues and aid decisions could lead to political instability, as seen in France and Germany.
Reliance on External Factors
Both countries are counting on international initiatives (like using frozen Russian assets) that may not materialize or may be delayed.
Conclusion
While both Belgium and Germany remain committed to supporting Ukraine, they are actively seeking ways to balance this commitment with their domestic economic needs.
The success of these efforts will depend on various factors, including economic recovery, international cooperation, and political stability within their respective governments.
It is recommending Germany and Belgium look into balancing their budget and economic progress.
Belgium has even bigger issue of no federal government elected since Dec 2024? And Both Belgium and Germany continue to support Ukraine, but they are also exploring strategies to balance this commitment with their domestic economic priorities. The success of these endeavors will hinge on several factors, including economic recovery, international cooperation, and political stability within their respective governments. It is advised that Germany and Belgium consider strategies for balancing their budgets and fostering economic growth.
