Germany: Special Fund Is Not Enough, According to Institut der deutschen Wirtschaft (IW)
(Source: Defense-Aerospace.com; posted Sept. 08, 2022)
Many in Germany doubt that the much-ballyhooed €100 billion Special Fund announced by German Chancellor Olaf Scholz will suffice to reset the Bundeswehr, and the 2023 defense budget tabled yesterday by Defense Minister Christine Lambrecht won’t do much to reassure them. (German MoD photo)
In a study yet to be published, the Institut der deutschen Wirtschaft (IW) in Cologne confirms the increasing concern of the German Defence industry on the use of the special Fund:

--No expenditure from the special fund is planned for 2022. For 2023, only €8.5 billion will be added to the procurement budget (which is slightly decreasing) and, of this amount, €304 million will be used to pay back the yearly interests of the loan;

--In the following years, until 2026, the NATO target will be almost achieved, but, by no means, exceeded;

--After 2027, once the fund is exhausted, major uncertainties will prevail about the level of financing for procurement, sending the Bundeswehr back to its dire needs.

Rightfully, the IW considers that it is important now to specify the planning of defence expenditure for the next decade, and warns that reaching the NATO goal of spending 2% of GDP on defence through the ordinary budget implies a 60% increase of the current defence budget – something the Bundeswehr will never receive.

Comments:

These initial conclusions by the IW confirm the general analysis already published here. The fund will also be used to fulfil certain gaps (in ammunition, small equipment, and infrastructures) and to finance what has been planned for a long time in all the services, but always postponed due to the lack of funds. For 2023, 10% of the amount actually available from the Fund (excluding interest paid on the loan) will be disbursed.

First, the special fund is a temporary effort, limited in time and resources: after a major boost, the MoD will face the same problems than before, certainly worsened by the fact that, after having splurged, it will be obliged to go back to a diet.

Such a stop-and-go policy is the worst strategy possible in defence affairs because support of newly-procured big items will be extremely costly (see F-35 for example) and will need high and constant appropriations which may be not planned by a new political majority beyond 2027.

Then, this fund will overshadow the main problems of the MoD: a faulty procurement system, both overly bureaucratic and under-skilled, and a maintenance system which, so far, has been proven to be inefficient to support ops & training tempo.

Finally, the biggest industrial lobbies – BDSV and BDI – are already complaining that the Special Fund mostly paves the way for major foreign orders: Israeli armament for the Heron TP unmanned aircraft, 35 F-35 fighters, 60 CH-53 helicopters and 5 (+3) P-8 Poseidon maritime patrol aircraft, and the potential purchase of Patria armoured vehicles to replace the outdated Fuchs.

For German manufacturers, buying off the shelf, dictated by urgent operational needs, sacrifices the industrial policy that necessarily takes longer to materialize. In other words, the MoD favours urgent operational needs at the expense of industrial policy.

For big defence industrialist such as Rheinmetall which hoped to pass a fabulous €42 billion proposal to replenish the stock of armoured vehicles and ammunition, this a major disappointment.

Orders for new combat vehicles are low: €304.2 million in 2023 for the procurement of PUMA IFVs (€435 million in 2022) and minor budget for studies of the replacement of Marder, Fuchs and amphibious vehicles.

Therefore, it is absurd to consider, as some have claimed, that the special fund is the way for the Bundeswehr to take the lead among European armies, and for German Defence industry to regain skills.

It is, at best, a short-term fix for the most urgent shortcomings of the Bundeswehr.

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