Factbox-How will Germany pay for rapid rise in defence spending?

By Maria Martinez

BERLIN (Reuters) -Germany will boost defence spending to 3.5% of gross domestic product by 2029, a hefty, and quick, increase from a 2% NATO quota that it only achieved for the first time in three decades in 2024.

Here is how Germany will achieve its defence spending goal:

DEFENCE FUND

Days after Russia's 2022 invasion of Ukraine, former Chancellor Olaf Scholz surprised allies by announcing a "Zeitenwende" - German for a historic turning point - with a 100-billion-euro ($116 billion) special fund to bring the military up to speed.

From 2025 to 2027, 77 billion euros in defence spending will come from the defence fund, which will be exhausted by the end of 2027.

DEBT BRAKE REFORM

From 2028, it was unclear how Germany would meet the 2%-of-GDP NATO spending target without top-ups from the defence fund, as the country's constitutional debt brake rule limited government borrowing to 0.35% of GDP.

To make it possible, an exemption from debt rules for defence spending was approved in March after much political wrangling.

Germany, now led by Chancellor Friedrich Merz, will now be able to borrow a total of 378.1 billion euros for defence between 2025 and 2029.

HOW BIG IS THE INCREASE?

Germany's annual defence spending will go up from 95 billion euros in the draft budget for 2025 to 162 billion euros in the budget framework for 2029. This includes 9 billion euros per year for Ukraine.

Over the five-year period, defence spending will total 649 billion euros.

($1 = 0.8613 euros)

(Reporting by Maria Martinez)