Are We Dancing? US Ambition for German Defence Spending

German Chancellor Angela Merkel’s meeting with US President Donald Trump in Washington last week went as well as expected, given the huge differences between them.

However, few areas remain as frosty between Washington and Berlin as the topic of Germany's defence expenditure. The US president did not shy away from repeating what has become a constant US message, recently put clearly – if somewhat inelegantly – by a senior US official: it’s time for Germany ‘to put out or get off the dance-floor’.

There can be no surprise here of course. The White House's signalling of the president’s wish for extensive re-capitalisation of the US military (with, by some estimates, a 10% uplift in budget sought from Congress) sits uneasily with Germany’s continued and systemic failure to meet the NATO spending target of 2% of GDP.

Germany’s spend of 1.2% of GDP (at 2016 values) sits below Portugal, Bulgaria, Croatia and Albania. It is also nowhere near the values in relative terms spent by the US, Greece, the UK, Estonia and Poland – the only NATO members assessed as meeting the 2% commitment.

Time for Deep Pockets

The American argument is a stark one: if Germany seeks to continue to lead in Europe, it must be a leading European NATO nation, and that means spending big.

To underscore this message, at the February meeting of NATO counterparts US Defense Secretary James Mattis demanded from colleagues a set of concrete action plans by member states that describe how countries will meet and/or maintain the 2% target. Capitals are expected to submit their homework to Washington by the end of the year.

This is leading to much soul-searching in Berlin. The German policy narrative of leadership in Europe with increased responsibility for global and regional security sits poorly with its current spending of about €37 billion and a multi-billion euro budget surplus in 2016.

It is also observable in Washington that, in cash terms, the German annual spend on defence is similar to that of the UK, following the depreciation of the pound against the euro and dollar.

Yet the UK order of battle yields more capability than forces offered by Germany: an uncomfortable thought, perhaps, in a country that has a reputation for efficiency and competent governance.

Moreover, the tired argument often heard in Berlin relating to Germany’s unique history and rejection of militarism for fear of upsetting the neighbours is now just a little crass, given that those same neighbours are looking to allies to bolster their security against an increasingly assertive Russia. Poland, lest we forget, pays the 2% NATO club fees.

Increased Defence Spending

Unsurprisingly, the response from Defence Minister Ursula von der Leyen is to assert that Germany will meet its obligations and spending will increase appropriately, although, of course, the journey to the sunny uplands of the 2% commitment might take a little time.

This appears also to be the position of German Finance Minister Wolfgang Schäuble, who has indicated consistently since the turn of the year that Germany will meet its NATO spending commitments, pointing to the rise in the defence budget from 2016–17 of about 8%.

There are some significant issues here. At today’s values, Germany reaching the NATO target means that it will spend close to €60 billion per annum on defence, making it by far the largest military power in Europe.

Its defence doctrine and that of NATO would have to be reshaped to take account of this substantial recapitalisation of European capabilities. Moreover, Germany’s command and control functions and, critically, acquisition functions would need the magic dust of profound transformational change scattered liberally and fast.

Whether there is pan-party political commitment for this revolution in defence capability regeneration remains debatable. For example, the Social Democrat policy spokesman on defence, Rainer Arnold, believes that Germany spending €60 billion a year on its military is unrealistic and flawed. This debate will crystallise as the autumn general election nears.

This is far from just a policy discussion. The whole process of defence procurement will have to be reformed. To date, each commitment of defence expenditure over €25 million needs to be approved by the German parliament, a constraint that has existed since the early 1980s without readjustment for inflation.

With an annualised equipment budget, the ability to set requirements and deliver programmes under this constraint seems an impossible endeavour. To make the impossible just a little bit trickier, the German procurement office within the defence ministry has had a hiring freeze for ten years.

This means that, on some estimates, the department is short of 1,400 people, ranging from commercial officers to lawyers and project managers. How can Germany so dramatically increase its spending on defence if this critical infrastructure is not in place?

A Hard Lesson

Also, in the short term at least, there is little spare capacity within industry. It is not a given that defence businesses and their supply chains can deliver complex systems immediately to the German military, even if the money is made available.

German politicians will learn the hard way that it takes generations to embed the core competencies, capacity and depth necessary to acquire, deliver and operate complex defence systems subject to appropriate oversight.

In many ways, having the money available is the easy part of the capability equation.