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BERLIN (Reuters) - Germany's government has rejected the initial bid from a consortium led by Luerssen Werft of Bremen to build five warships because the offer exceeded the budget target of 1.5 billion euros ($1.59 billion), defence industry sources said.
Germany is boosting military spending by nearly 2 billion euros in 2017 to 37 billion euros, or 1.22 percent of gross domestic product (GDP) but said it would take time to reach the NATO target to spend 2 percent of GDP on defence.
Asked about Luerrssen Werft's bid to build five corvettes, a defence ministry spokeswoman declined to comment. "We are in intense negotiations. I cannot make any comment on any further details because these are ongoing negotiations," she said.
In October, German lawmakers announced plans to spend 1.5 billion euros to buy five more of the warships to bolster security in the Baltic Sea and the Mediterranean.
Germany has come under pressure from U.S. President Donald Trump's administration to raise its defence spending to meet a NATO target of 2 percent of economic output.
Chancellor Angela Merkel has said Germany is committed to the goal but the centre-left Social Democratic (SPD) leader, Martin Schulz, on Monday cast doubt on that view, saying that was only "something to strive for" rather than a pledge. Schulz is hoping to oust Merkel in September's election.
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Reporting by Sabine Siebold; writing by Erik Kirschbaum; editing by Mark Heinrich