Germany's ambitious military plans hit financial hurdles

Germany wants to create the largest army in Europe, but it is having issues balancing the budget and maintaining continuous supplies for Ukraine. The industry highlights that the federal government sets high demands without funding research, development, and production.

"Germany is ready to play a leading role in European security policy," assured German Defense Minister Boris Pistorius on May 10 during a visit to the United States. Four days later, Chancellor Olaf Scholz bolstered the sentiment, announcing that the Bundeswehr would soon become the largest conventional army in Europe within NATO.

Currently, the Bundeswehr has 183,000 soldiers, several thousand fewer than the armed forces of France, the United Kingdom, and Poland. Germany wants its army to have 203,000 soldiers.

However, finances could be a problem, which both politicians seem to overlook. In 2022, the Bundeswehr received €50.3 billion. Last year, it was already €64 billion; currently, it is €66.8 billion. Germany still does not meet NATO's requirement of allocating 2% of GDP to defence spending. They aim to reach this level next year, but they are still €17 billion short of achieving this goal.

Berlin points out that it is still spending billions more from another pool on the army. However, NATO does not want to recognize the €100 billion special fund allocated exclusively for technical modernization, as it is spread over time and not included in the defense ministry's budget. The ministry estimates that €70-80 billion annually is needed to meet the Bundeswehr's needs. For now, this is out of reach.

The industry itself negatively assesses politicians' assurances. Armin Papperger, CEO of Rheinmetall AG, pointed out that after using the special fund, the government has not planned any further steps to maintain the pace of development and research. At a meeting with journalists, Papperger estimated that after exhausting the funds from the special fund, there would be a financial gap of €30 billion.

The largest industrial companies working for the military call for the government to continue funding development projects and research in the coming years. This will allow for the further development of the defense industry. However, the chances of this are slim, as the Finance Ministry has even struggled to find an additional €5 billion that Pistorius requested. Finance Minister Christian Lindner claims he can provide the money but would need to cut social spending drastically. And no one in Germany will agree to that if they want to stay in power.

On the other hand, the government retorts that the industry is primarily focused on maintaining high stock prices rather than improving production quality and increasing ammunition supplies. Delays in ammunition deliveries to Ukraine support this thesis.

Sebastian Schäfer, a Green Party member of the Bundestag and a member of the parliamentary team for the special fund for Bundeswehr modernization, stated outright that the CEO of Rheinmetall AG was not truthful in guaranteeing the opening of repair facilities for German equipment in Ukraine. He also pointed out significant delays in constructing an artillery ammunition factory. Moreover, Schäfer directly accused the industrialists of artificially lowering ammunition production to maintain high market prices, which benefited them.

Germans themselves are relatively supportive of the army's expansion. Eva Högl, the Parliamentary Commissioner for the Armed Forces, calls for convening a citizens' panel to address the issue of military service. 57% of Germans support raising defense spending to two or more percent of GDP. Only 31% view this critically. On the other hand, only 45.5% of Germans view the Bundeswehr positively. This is a drop of 10% over two years.

Pistorius hoped to shake up German public opinion by saying that Germany was not well-prepared for war, that they should shed the pacifist outfit, and finally start to follow realistically understood national interests. This did not have the desired effect. Discussions continue within the nation and the Bundestag about the sensibility of spending billions on defense.

Chancellor Scholz, in turn, claims that by 2028, depending on financial results, the army budget will be €102-104 billion, so he does not see a problem currently. He blocks any attempts to increase defense spending, which does not align with the announcement of soon building Europe's largest army.

In this situation, the opposition Christian Democrats proposed creating another special fund amounting to €300 billion. Pistorius, the Greens, and the Christian Democrats support the proposal. Scholz and the Socialists block it. Additionally, Pistorius calls for excluding defense spending from the federal government's borrowing prohibition, which would allow for an increased budget deficit for defense. In this case, he also cannot count on support from party colleagues.

He faced even more significant opposition during the debate over registering birth years that could be mobilized in case the compulsory military service, which was suspended after 55 years in 2011, is reinstated. Social Democrats are against this, promoting voluntary military service. The problem is that Germans are not eager to join the army, and it still suffers from personnel shortages.