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The Proposed Hike In German Military Spending – Analysis

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By Alexandra Marksteiner*

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A few days after Russia launched its first airstrikes against the Ukrainian capital of Kyiv, the German Parliament convened for a special Sunday session. German Chancellor Olaf Scholz took the floor and, within half an hour, did away with decades of political restraint and ushered in a new era of German foreign and security policy. He proposed the creation of a special fund of €100 billion (US$112 billion) to be spent on military procurement and pledged to allocate more than 2 per cent of Germany’s gross domestic product (GDP) to defence.

For a country that had long been wary of military power and has continuously delayed plans to reach the 2 per cent expenditure goal set by NATO, Scholz’s historic speech represents a watershed moment. Dialogue and trade interdependence—the cornerstones of Germany’s policy towards Russia—had failed to deter President Putin from waging war against Ukraine and uttering threats against other European states. Under this new German thinking, it is military hardware, not gas pipelines or other trade mechanisms, that will deter further aggression and manage relations with Russia.

Interestingly, the German electorate appears to back Scholz’s decision: according to a recent poll, 69 per cent of voters support the government’s proposal to boost military spending, up from 39 per cent in 2018. Russia’s invasion of Ukraine has evidently heightened threat perceptions, thereby bringing about a dramatic shift in public opinion. Security now comes at a higher cost.

The procedure

Two and a half weeks after Scholz’s announcement, the German Finance Minister, Christian Lindner, presented a revised draft budget for 2022 along with a draft law creating the special fund to the cabinet. The €100 billion would be appropriated through an extra-budgetary fund, termed a Sondervermögen, to allow legislators to circumvent the constitutional debt brake (Schuldenbremse). This limit has been suspended to finance economic relief measures during the Covid-19 pandemic, but the new ruling coalition is keen to reinstate it from 2023 onwards.

After cabinet approval, the revised draft budget was handed over to the German Parliament to be debated and amended. It is expected to pass by June. The draft law authorizing the Sondervermögen will follow a similar route, but will require a two-thirds majority in both chambers of the legislature to be adopted, given that it entails a constitutional amendment. The idea is to anchor the new fund in Germany’s Basic Law (Grundgesetz) to prevent the money from being diverted amid the ebb and flow of German politics.

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The maths

Shortly after Scholz’s speech aired, the research community rushed to crunch the numbers and make sense of the proposal. Now that additional information has emerged, some conclusions of those early days have to be revisited. First, the two promises made that day—to allocate at least 2 per cent of Germany’s GDP to defence and to commit €100 billion to military procurement—now appear to be complementary, not supplementary. The funds in the Sondervermögen are not to be spent in addition to the 2 per cent of GDP goal, but instead would go towards reaching it. Second, while the Sondervermögen is to be created and appropriated in 2022, the funds are not intended to be spent in one go but, instead, over several years.

In 2021 the Ministry of Defence (MOD) received €46.9 billion in funding. To reach the 2 per cent target, Germany’s military expenditure would have to rise to €75.5 billion in 2022 and €85.6 billion by 2026. The revised draft budget appropriates €50.3 billion for the MOD in 2022 and then €50.1 billion per year until 2026.

This leaves a funding gap of €25.2 billion in 2022 and €35.5 billion by 2026. All in all, the German government would have to invest an additional €151.5 billion over these five years to fulfil Scholz’s pledge. At that pace, the funds in the Sondervermögen would be depleted by the middle of 2025. Based on this, it seems that the intended timeframe for the implementation of the Sondervermögen is three years.

If Scholz’s proposal is realized, it would represent the largest absolute jump in German military expenditure since at least World War II. Annual spending would increase by 50 per cent in 2022 alone. This would catapult Germany towards the top of the list of the world’s largest military spenders. All else being equal, Germany would rank third—up from seventh in 2020—behind the United States and China and ahead of India and Russia.

The risks of a rushed approach

If the Sondervermögen is indeed to be spent within just three years, it may be of limited help to address persistent capability gaps within the German armed forces (Bundeswehr). Procurement projects are notorious for being overlong and drawn-out; that holds especially true for major equipment such as naval vessels and next-generation combat aircraft. Rushing the process would deprive the Bundeswehr of long-term planning security and may lead to money being hastily spent on inefficient, under-performing and incompatible systems.

Moreover, spending €100 billion requires a large amount of bureaucratic resources. In 2021 the MOD’s procurement apparatus oversaw an annual budget of roughly €9 billion. In order to increase investment to €34 billion in 2022 alone, as Scholz’s plan seems to require, the MOD would have to recruit and train new personnel and reform old processes at lightning speed—a monumental task.

The apparent three-year spending window may be down to political calculus. It is probably no coincidence that the end of the timeframe for the implementation of the Sondervermögen would coincide with the next federal elections in 2025. This would allow the ruling coalition to meet the 2 per cent target, while shelving any politically sensitive discussions on budgetary trade-offs until the next legislative period. If, instead, the coalition were to stretch the Sondervermögen over, say, five or ten years, it would have to raise the regular budget for the Bundeswehr and make cuts elsewhere—a politically risky move—in order to meet the 2 per cent goal while complying with the debt limit.

In this case, however, the German government would be best advised to spend the Sondervermögen over a longer time period, instead of going on a hurried shopping spree. This would provide the Bundeswehr with a long-term planning horizon and help minimize the risks of wasteful spending. The stated need to swiftly bolster the armed forces ought to be balanced with a measured, deliberate and future-oriented procurement policy based on a prioritization scheme and a continuous assessment of ends, ways and means. If the aim is to build and maintain a capable Bundeswehr, slow and steady wins the race.

Some known unknowns

A month after Scholz’s announcement, several questions remain. For instance, on what exactly will the Sondervermögen be spent? In his speech, Scholz called for ‘necessary investments in procurement’. According to media reports, the draft law is far more ambiguous, envisaging the creation of a special fund of €100 billion to ‘strengthen the defence capabilities of the Alliance’. This could refer to the procurement of military equipment, costs related to maintenance, investment into research and development and so on. It could also be interpreted to include operational costs and civil defence.

Perhaps more importantly, will the bill pass in its current form? By itself, the ruling coalition—composed of the Social Democratic, Green and the Liberal Democratic parties—cannot muster the necessary two-thirds majorities in either legislative chamber. Moreover, there are indications that not all members of the coalition will vote in favour of the Sondervermögen.

So, which way does the opposition lean? The Left party is unlikely to support the proposal; it has historically opposed increases in military spending. The far-right populist Alternative for Germany will probably vote against the amendment as well; its leadership blames the West, not Putin, for the war in Ukraine.

That leaves the Christian Democrat Union, the largest opposition party. Despite generally advocating for increased investment in military capabilities, the Christian Democrats have threatened to withdraw support if the phrasing of the draft law is not clarified; the party wants the Sondervermögen to be spent solely on military procurement. Party leader Friedrich Merz has also hinted that he will only allow as many members of his party to vote for the constitutional amendment as are needed to pass the two-thirds mark, meaning that everyone in ruling coalition would have to vote affirmatively to ensure the adoption of the law.

Should the motion fail, Scholz would either have to abandon his plans or draw up a new bill for a stand-alone Sondervermögen that is not protected by a constitutional amendment. Such a precedent exists in the special fund for energy and climate which was approved in 2010.

Lastly, there is the question of what will happen to the government’s original defence spending plans. In the coalition agreement signed in December 2021, the three ruling parties pledged to allocate a total of 3 per cent of GDP to defence, development and diplomacy (3D). This was done to cast military capabilities as part of an integrated, global security strategy and possibly to challenge the rigidity of NATO’s spending target.

Following Scholz’s speech, it is unclear whether his proposal is meant to complement or supersede this approach and how spending on development and diplomacy might be affected. The innovative 3D policy could become yet another casualty of the war in Ukraine.

*About the author: Alexandra Marksteiner is a Researcher in the SIPRI Military Expenditure and Arms Production Programme.

Source: This article was published by SIPRI

SIPRI

SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament. Established in 1966, SIPRI provides data, analysis and recommendations, based on open sources, to policymakers, researchers, media and the interested public. Based in Stockholm, SIPRI also has a presence in Beijing, and is regularly ranked among the most respected think tanks worldwide.

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