Germany’s Defense Policy Revolution

GERMANY’S DEFENSE POLICY SHIFT

Following Russia’s invasion of Ukraine, German Chancellor Olaf Scholz announced the introduction of a €100 billion supplementary defense budget to meet the North Atlantic Treaty Organization’s (NATO) annual defense spending target of 2% of GDP. Initial commitments in 2019 promised to raise spending to 1.5% of GDP by 2024 and to reach the 2% target by 2031. The supplementary budget will be written into the country’s constitution, preventing the funds from being withdrawn or appropriated for other purposes. This is just one part of a massive shift in German defense policy.

Germany has also pursued additional policies that reveal a shift to a more militarily active country. In addition to greater defense spending, Germany has sent arms shipments to Ukraine to aid it in its war efforts, reversing the governing coalition’s policy of prohibiting the export of weapons to active conflict zones. Germany has also increased its military presence in other European countries and deployed additional soldiers as part of NATO battle groups.

THE END OF AN ERA

Germany’s policy towards Russia attempted to separate political differences from economic interests and deter aggression by tying Western European and Russian markets closer together. Instead, the economic partnership seemed to encourage Russian aggression and reduce Germany’s ability to sanction Russia, because of its dependence on Russian exports. The invasion of Ukraine and the failure of the economic partnership strategy was referred to by German Chancellor Olaf Scholz as a “Zeitenwende” (turn of the times) signaling a massive shift in German policy.

The previous partnership-oriented approach to geopolitical rivals facilitated a decline in military spending. From a high of 4.9% of GDP in 1963, the German defense budget fell to 1.3% of GDP in 2019. This lack of spending is also legible in the total value of the country’s military expenditures. The German economy is the world’s fourth-largest, yet Germany is only the seventh-largest military spender globally.

The low level of investment in its defense forces has resulted in acute shortages of equipment and personnel, jeopardizing Germany’s ability to operate militarily both within NATO and as a discrete military force. A 2019 report found that only 50% of the country’s heavy military equipment was in sufficient condition for operational or training use at any given time.

Germany has historically been reluctant to increase its defense spending in line with the NATO target of 2% of GDP by 2024 for several reasons. These include pacifist political ideas stemming from World War II legacy, a lack of geopolitical adversaries and active war zones in proximity, and strict observance of fiscal discipline. While leaders including former US President Trump pressured Germany to meet the 2 % NATO target in 2019, there was no serious political effort to raise spending to this level.

Most recent freezes and cuts to defense have been tied to economic contraction and slow growth—Germany’s annual defense budget between 2008 and 2014 fluctuated between $43 and $45 billion—followed by a large cut to approximately $38 billion in 2015. While German defense spending gradually did increase to $52.76 billion in 2020, the increase was largely tied to Germany’s improving fiscal situation. Germany attained a record budget surplus of $15 billion in 2019. While spending, as a percentage of GDP, also reached a record high of 1.4% in 2020, the military’s greater share of overall expenditures was tied to the contraction of the German macroeconomy as part of the COVID-19 pandemic.

However, the Russian invasion of Ukraine has ended German reluctance toward defense spending. Ukraine is approximately 1200 kilometers from Germany, putting an active war zone in the closest proximity since the outbreak of the Yugoslav Wars. As part of a NATO intervention force, German participation in the Yugoslav Wars of the 1990s also triggered a change in how the country used its armed forces, representing the first combat use of its military outside its borders since World War II. However, that policy shift was mostly achieved as a result of pressure from other NATO states. While Germany has participated in overseas NATO interventions since then, pressure from pacifist political parties has continued, leading to sustained low defense spending.

While the shift in the 1990s was brought about by the influence of other nations, it did not fundamentally change long-term German policy toward military spending. Participation in overseas deployments has traditionally been justified as part of Germany’s obligations as a NATO member state. In contrast, the invasion of Ukraine triggered a shift that is both internal and fundamental. Diplomatic efforts and economic partnerships, such as the natural gas pipeline Nord Stream 2, failed to prevent Russia’s invasion of Ukraine.

A NEW ERA FOR GERMANY’S DEFENSE POLICY?

Whether the new spending will lead to significant geopolitical consequences depends on Germany’s ability to finance this spending beyond the supplementary budget’s life span. Estimates indicate that the supplementary budget will be exhausted by 2025, requiring further spending to maintain the 2% target. This is likely accomplished through further supplementary spending or a permanent increase to the country’s defense budget. How Germany aims to maintain the 2% target beyond 2025 will be a matter for the next government, following elections that year.

There are financial factors associated with increased defense spending that the German government will likely consider. Germany’s debt brake limits government deficits to 0.35% of GDP. While the supplementary budget will be written into the constitution and thus evade the limit, further spending on defense will be necessary once the additional funds are exhausted.

Previous cuts and freezes to defense spending played a major role in allowing Germany to run budget surpluses in the years before the COVID-19 pandemic. While Germany accrues large deficits during periods of economic contraction, long-term tolerance is unlikely due to the German public’s aversion to debt. Likewise, the use of the supplementary budget without longer term commitments is likely to be viewed as financial mismanagement. Future spending is thus likely to occur through further supplementary budgets that bypass existing fiscal rules, or through reduced spending in other areas.

Provided Germany can finance the expansion of its military, there will be far-reaching consequences. If German defense spending reaches 2% of GDP in 2022, Germany would become the third-largest military spender in the world with a total expenditure of approximately $81 billion, behind only the United States and China.

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The country would also assume a greater role within NATO deployments—a process that is already occurring following the deployment of additional soldiers to the Baltic region and Eastern Europe. The effects of Germany’s increased participation in NATO will be seen in German soldiers making up a larger share of NATO units in Eastern Europe and taking additional responsibilities such as the operation of Patriot air defense systems in Slovakia.

In the long-term, this will proportionally increase the share of German responsibility for NATO operations and contribute to a geographic shift in the organization’s power. Increased German involvement would shift the organization’s center of gravity further towards Europe.

However, increased defense spending will take longer to show observable effects on Germany’s military power. The country’s equipment and personnel shortages will require more than heightened spending to mitigate. While additional spending is likely to resolve gaps in operational equipment in the short- to medium-term, a sustained increase in Germany’s military capabilities will require long-term commitments and systematic reform. According to German Finance Minister Christian Lindner this entails making the German armed forces one of the “most capable, powerful, and best-equipped armies in Europe over the course of this decade”.

Some of the most immediate projects include the acquisition of a missile defense system and the replacement of Germany’s aging fleet of nuclear-capable Tornado aircraft with the US-made F-35. Additionally, issues named in the German parliament’s 2021 annual defense report are likely to be targeted. These measures are the combatting of right-wing extremism in the armed forces, reforms to reduce bureaucracy in the acquisition of new equipment and supplies, as well as an investigative review of recently concluded operations in Afghanistan.

The shift will increase the power of Germany’s military-industrial complex. The share price of Rheinmetall, Germany’s largest arms manufacturer, rose by an estimated 30% following the announcement of the supplementary budget; it has more than doubled since the beginning of 2022. The lobbying power of Germany’s defense industry can further be confirmed by reports that the government resisted industry lobbying for increased military spending from late 2021 until the invasion of Ukraine eliminated this opposition.

Internationally, a militarily powerful Germany would increase its influence in NATO and in the EU. Within NATO, Germany’s central location and future military power would likely result in the country being NATO’s second most powerful nation, behind the United States, and the European leader of the organization. Within the EU, a militarily powerful Germany would largely become the bloc’s chief decision-maker as military power would complement its existing economic and diplomatic influence. It is, however, unlikely to have the power or will to make unilateral decisions, instead continuing its long-standing partnership with France though with more leverage.

Ultimately, increased defense spending will improve Germany’s combat capabilities and increase its leadership within NATO and the EU. While the process of improving its military will require further steps, it is likely Germany will make further commitments, resulting in the country becoming a significant military power and enhancing its overall power projection capabilities.