Analysis: Budget fights threaten Germany’s defense upgrade

BERLIN (Reuters) – The budget infighting among Germany’s governing alliance is threatening its plan to meet defense commitments to Western Allies, even as tensions rise with Russia and a NATO-sceptic Donald Trump runs for a second U.S. presidential term.

Germany has been able to overcome its post-World War Two fear of military action since the 1990s. It has been criticized – including by Trump during his first term – for failing to meet a NATO goal of spending 2% on defence. Olaf Scholz, the German Chancellor, surprised his allies days after Russia invaded Ukraine in 2022 by announcing “Zeitenwende”, a historical turning point. He announced a special fund of 100 billion euros ($107 billion) to bring up the military to date.

While Berlin will be able to reach the 2% spending target for the first three years since 1990’s end of the Cold War, the question remains as to how it will achieve this goal after the fund runs out in 2028.

The German military brass has warned that the Bundeswehr urgently needs more funds to be ready for combat in five years when, according to them, Russia will be able attack NATO member state territory.

The current NATO defence budget, 52 billion euros, is 28 billion euros below the target. This is due to the fact that Europe’s largest economy has a gross domestic product of just over 4 trillion euro.

Last week, NATO Secretary General Jens Stoltenberg said to German public broadcaster NDR: “We must remember that Germany spent over 3% of its GDP during the Cold War under chancellors Adenauer and Brandt, among others.”

He said that the increased defence spending of Europe’s largest economy has made a huge difference to the alliance.

“We have invested in defence before not because we like it, but because we need to ensure peace.”

The fractious German coalition of the left-leaning Social Democrats, the pro-business Liberals, and the ecologists Greens struggle to raise the funds to meet the NATO target due to self-imposed rules which limit the amount they can borrow from the state.

Mujtaba Raham, Eurasia’s managing director for Europe, said: “There is a larger strategic question regarding the long-term trajectory in Germany of the defence expenditure and whether or not it is compatible with the country’s fiscal rules.”

Passing the Buck

Scholz, who is a liberal, has joined Christian Lindner, the Finance Minister, in refusing to accept calls from SPD ally Boris Pistorius, Defence Minister, to increase defence spending by 6.7 billion euro next year to kick-start more investment. This effectively delays a solution until after the 2025 elections.

Marcel Schlepper is a military expert from the Ifo Institute. He said that the next government, which will be elected in the year 2025, will need to answer the question of how to continue the Zeitenwende.

The more the spending increases are delayed each year, the greater the increase will be in order to reach the 2% goal. Projections indicate that the shortfall could have reached 40 billion euro by 2028.

Andreas Schwarz of the SPD, a member of Parliament’s Budget Committee, stated that Pistorius, without additional funding, would have been left with only 500 million euro for investment in defence procurement next year.

He said that the money would be used to continue investing and to help the defence industry increase its production capacity and provide the troops with the urgently needed equipment. Arms makers in the country are also not happy, as they have been asked repeatedly to increase production capacity.

CRUSH TIME

Officials in the defence industry claim that Germany has been able to save hundreds of billions since the Cold War because it did not meet the NATO target. This creates a need for more investment today.

Scholz was reminded by the defence industry association led by Rheinmetall CEO Armin Pappger of his pledge made in 2022 to reach NATO’s goal. The defence budget is frozen at 52 billion euro for the next few years. This amount will cover only the fixed costs of the Bundeswehr in the next two years and no room for any additional purchases.

The report estimated that another 100 billion euro would be required by 2028 in order to fill gaps in the inventory of the military, including air defence systems and long-range missiles.

For now, such a prospect appears dim. According to a source in the defence sector, the chancellery has warned the ministry of defence that they cannot expect any new financial authorizations until 2028. This year is reflected for first time now in the mid-term planning which is being done along with the budget 2025.

Source: The chancellery instead suggested that defence officials speak to arms manufacturers and convince them to begin producing weapons for Bundeswehr without a contract and at their own costs, while accepting payment would not come until 2028. This idea was met with disbelief by the defence ministry.

The spokesperson for the Ministry of Defence said that she couldn’t confirm or deny these reports. A spokesperson for the Chancellery confirmed that it is false.

According to one military source, army leaders view the outcome of the budget dispute as a litmus check on politicians’ commitment towards a truly transformational “Zeitenwende”.

The source said, “We’re at a critical point.” We have two options: either we drive at full speed on the autobahn, or we stop.

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