What happened? According to Reuters, who refer to two sources familiar with the matter, German Defence Minister Boris Pistorius is aiming to hike the country''s ordinary defence budget to over EUR 60bn starting in 2025. BNPP Exane View: German defence budget composition: The total German defence budget, which amounted to EUR 79bn in 2024, thus equating to 1.8% of GDP by our calculations, consists of three buckets in total: 1) the ordinary budget, which is part of the country''s budget (2024: EUR 52bn), 2) the special fund (2024: EUR 20bn), and 3) Ukraine aid (2024: EUR 7bn). While the ordinary German defence budget has not been materially hiked since the start of the war in Ukraine (see table below), the gap towards the prevailing 2% NATO requirement has been mainly bridged by the respective contributions from the EUR 100bn special fund, which was passed by the German Parliament - requiring a 2/3rd majority - in June 2022 in reaction to the war (following the Zeitenwende speech of Olaf Scholz). Total defence budget might rise to EUR 87bn in 2025 for a GDP quota of 2.0%: In combination with the special fund and likely continuing contributions from the Ukraine aid budget, this would bring the total defence budget to c. EUR 87bn or 2.0% of GDP this year assuming 0.4% GDP growth y/y. While the respective contribution from the special fund has been defined (2025/26/27: EUR 21.6bn/ EUR 17.8bn/ EUR 15.9bn), we note that the related chunk from the mentioned Ukraine aid, which is part of the so-called Ertuchtigungsinitiative der Bundesregierung has not been quantified yet after having seen a sizable step-up to EUR 7bn in 2024 versus EUR 5bn in 2023. In the wake of the envisaged min. EUR 8bn increase in the ordinary budget, we would not rule out that the Ukraine aid contribution might revert to the 2024 level, hence, our expectation is that the total defence budget might not exceed EUR 87bn in 2025. Debt brake relaxed for defence spending on 18 March,...