Published: 16:19, June 11, 2024
Infighting over budget imperils Germany’s defense upgrade
By Reuters
German Bundeswehr soldiers stand next to a German army armored military vehicle during the Lithuanian-German division-level international military exercise 'Grand Quadriga 2024' at a training range in Pabrade, north of the capital Vilnius, Lithuania on May 29, 2024. (PHOTO / AP)

BERLIN - Budget infighting within Germany's governing coalition is jeopardizing its plan to meet defense commitments to Western allies even as a NATO-sceptic Donald Trump bids for a second term as US president.

Since the 1990s Germany has thrown off its post-World War Two aversion to military action. But it has faced criticism – not least from Trump in his first term – for repeatedly missing a NATO target of spending 2 percent of its economic output on defense.

Days after the conflict in Ukraine in 2022, Chancellor Olaf Scholz surprised allies by announcing a "Zeitenwende" – German for a historic turning point - with a 100-billion-euro ($107 billion) special fund to bring the military back up to speed.

Days after the conflict in Ukraine in 2022, Chancellor Olaf Scholz surprised allies by announcing a "Zeitenwende" – German for a historic turning point - with a 100-billion-euro ($107 billion) special fund to bring the military back up to speed

But while top-ups from that fund will allow Berlin to meet the 2 percent target over the next three years for the first time since the end of the Cold War in 1990, there is uncertainty about how to achieve the spending goal when the fund is exhausted in 2028.

Moreover, Germany's military top brass warns the Bundeswehr needs additional funds right now to be combat-ready in five years.

With Europe's largest economy at just over 4 trillion euros in gross domestic product, the current defense budget of 52 billion euros is some 28 billion below the NATO target.

"We have to remember that during the Cold War, under chancellors Adenauer, Brandt and many others, Germany spent more than 3 percent of GDP on defense," NATO Secretary-General Jens Stoltenberg told German public broadcaster NDR last week.

He said higher defense spending by Europe's biggest economy now makes a big difference for the alliance. "So we have done it before, not because we enjoy investing in defense, but because it is necessary to secure peace."

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German Chancellor Olaf Scholz stands near a large army drone at the International Air Show ILA in Berlin, Germany, on June 5, 2024. (PHOTO / AP)

Germany's fractious coalition of left-leaning Social Democrats (SPD), pro-business liberals and ecologist Greens are struggling to find the money to comply with the NATO target, given self-imposed rules that limit the amount of state borrowing they can take on.

"There's a broader strategic question about the long-term trajectory of defense spending in Germany and how compatible or not that is with the country's institutional fiscal rules," said Mujtaba Rahman, Eurasia Group managing director for Europe.

Passing the buck

For now, Scholz has sided with liberal Finance Minister Christian Lindner in rejecting calls by Defense Minister and SPD ally Boris Pistorius to increase annual defense spending next year by 6.7 billion euros to initiate more investment - in effect, postponing a solution till after the 2025 election

For now, Scholz has sided with liberal Finance Minister Christian Lindner in rejecting calls by Defense Minister and SPD ally Boris Pistorius to increase annual defense spending next year by 6.7 billion euros to initiate more investment - in effect, postponing a solution till after the 2025 election.

"The next government will be elected in 2025 and will have to provide an answer to then continue the Zeitenwende," said Marcel Schlepper, military expert at the Ifo institute.

Aside from the political uncertainty that creates, each year the annual spending upgrade is delayed, the sharper the uplift will ultimately have to be to meet the 2 percent target: Projections show that shortfall will have reached 40 billion euros by 2028.

Andreas Schwarz, an SPD member of parliament's budget committee, said that without extra funding Pistorius would be left next year with a relatively meagre 500 million euros for investments in defense procurement.

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German Defense Minister Boris Pistorius gives a media statement in front of the Berlin-class replenishing ship A 1412 Frankfurt am Main of the German Navy (Bundesmarine) before the vessel leaves its home port Wilhelmshaven, northwestern Germany, for the Indo-Pacific Deployment, on May 7, 2024. (PHOTO / AFP)

"He needs the 6.7 billion euros to keep investing, to encourage the defense industry to ramp up capacities and deliver to the troops what they urgently need," he noted, adding that some of the military's most pressing purchases such as ammunition, air defenses and rocket artillery might be affected.

The country's arms makers, faced with constant calls to expand production capacities, are not pleased either.

Crunch time

Defense industry officials argue that Germany has saved hundreds of billions of euros since the Cold War by not meeting the NATO target, creating a need for greater investment now.

The defense industry association, headed by Rheinmetall CEO Armin Papperger, reminded Scholz of his 2022 pledge to from now on reach the NATO goal.

Two Airbus A400M airplanes of the German Air Force are pictured after landing at the Wunstorf Air Base in Wunstorf, Germany, June 12, 2023, during the Air Defender 2023 exercise. (PHOTO / DPA VIA AP)

"The current mid-term planning sees the defense budget frozen at 52 billion euros for the coming years, a sum that in two years time already will only cover the Bundeswehr's fixed costs and leave no space for additional purchases," the association said in a statement last week.

It estimated a further 100 billion euros would be needed by 2028 to plug gaps in the military's inventory, which include air defense systems, long-range missiles and ammunition.

A defense source told Reuters the chancellery had warned the defense ministry that it cannot expect to receive any fresh financial authorizations until 2028, a year reflected for the first time in the mid-term financial planning being worked on now together with the 2025 budget

For now, such a prospect appears dim.

A defense source told Reuters the chancellery had warned the defense ministry that it cannot expect to receive any fresh financial authorizations until 2028, a year reflected for the first time in the mid-term financial planning being worked on now together with the 2025 budget

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Instead, the chancellery suggested defense officials talk to arms makers and convince them to start producing weapons for the Bundeswehr at their own cost and without a contract, accepting that payment wouldn't come until 2028, said the source - adding the idea was greeted with disbelief at the defense ministry.

A spokesperson for the defense ministry said she could neither confirm nor deny this information. A spokesperson from the chancellery said it was false.

One military source said army leaders regarded the outcome of the budget row as a litmus test of politicians' commitment to a genuinely transformational "Zeitenwende".

"We are at a crunch point," said the source. "Either we get onto the autobahn and drive full speed, or we come to a standstill."