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Germany is struggling to sign defence contracts because of uncertainty over the government’s commitment to future funding plans, chancellor Olaf Scholz has admitted, as he pledged to “guarantee” hitting Nato spending targets for the next decade and a half.
Speaking to military officials, industry executives and think-tanks at a conference organised by the defence ministry on Friday, the chancellor said he recognised the urgent need for his government to clarify its security spending plans in the medium and long terms.
“Procurement processes can only be planned and implemented sustainably if the Bundeswehr can rely on [future funds],” Scholz said.
Finding the money to enable increased defence spending will be “a great political task”, he added, but one the government was already working on.
Following Russia’s full-scale invasion of Ukraine in February 2022, Scholz’s government pledged a Zeitenwende or “turning point” in Berlin’s attitude to defence and committed to hitting the Nato benchmark of military spending equivalent to 2 per cent of gross domestic product.
That pledge has sat uncomfortably with Germany’s tightly constrained fiscal situation. A constitutionally enshrined “debt brake” limits public debt to 60 per cent of GDP, meaning vast increases to the defence budget, as pledged, will strip funding for other politically sensitive departments.
A workaround was found last year with the creation of an emergency €100bn “special fund” to top up military spending.
Dispersals from the fund mean Germany is on track for the first time ever to hit its 2 per cent target in 2024 and 2025 — around €85bn in each year. But with the fund forecast to be fully disbursed soon after that, many in the defence sector fear the government is struggling to grasp the scale of the budgetary hole that will be exposed.
According to the German Council on Foreign Relations, a think-tank, the annual defence funding shortfall could amount to up to €40bn from 2028.
However, Scholz committed Berlin to meeting the Nato spending target well into the next decade.
“We will guarantee this 2 per cent permanently, throughout the 2020s and 2030s,” Scholz said on Friday.
“I say that very consciously because of course some of the things ordered now will be delivered in the 2030s.”
The chancellor’s remarks hint at the possibility of the 2 per cent benchmark being written into German legislation, or even the constitution.
The pledge could also raise tensions within government. Germany’s hawkish finance minister, Christian Lindner, a member of the liberal Free Democrats, one of the three parties in Scholz’s coalition government, has expressed strong support for big increases in military funding, but has said he cannot support an expansion of government spending overall.
Other government budgets would thus face severe cuts if the 2 per cent defence target is to continue to be hit. That is likely to sit poorly with the Greens and Scholz’s Social Democrats, and the departments they control.
“We will solve it in such a way that the Bundeswehr gets the resources it needs — even after the special fund expires,” Scholz said on Friday.
The chancellor highlighted two joint military projects with France: the MGCS programme for a new generation of tanks; and the FCAS programme to develop a future fighter aircraft, which is potentially Berlin’s most expensive defence procurement venture.
Both projects have been beset by delays and squabbling with Paris, but Scholz said they remained at the centre of German future defence plans.
“We have advanced the FCAS fighter aircraft project with France and Spain and will now quickly also advance the MGCS main battle tank project under German leadership with France,” he said.
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