What happened to the German military's €100 billion fund?

Just over a year ago, Chancellor Olaf Scholz gave a speech to the German parliament that is likely to define his chancellorship — and he was barely two months into it. The "Zeitenwende" speech (literally "turning of the times"), a response to Russia's invasion of Ukraine, was built on the announcement that the German military would receive a special one-off fund of €100 billion to be upgraded ...

On June 3, the center-right opposition in the Bundestag joined forces with the ruling parties to change the constitution and allow the additional debt — an unprecedented occurrence in the history of the Federal Republic.

Since then, Scholz's center-left coalition has been dogged by broadsides from the conservative opposition and critics who say Germany's troops have not benefited from this windfall. "The Bundeswehr has tremendous deficits, and the Zeitenwende hasn't even started in it," Roderich Kiesewetter, foreign policy spokesman for the Christian Democratic Union (CDU) told the Augsburger Allgemeine newspaper on Monday. "The military has lost a year and is barer than it was at the start of 2022."

In response, Marie-Agnes Strack-Zimmermann, head of the Bundestag defense committee and a member of the governing coalition's Free Democratic Party (FDP), remarked pointedly to the Deutschlandfunk public radio station that, in the 16 years the CDU had occupied the Defense Ministry under Angela Merkel, "nothing at all" had been done to modernize the army.

She then listed what she said were the government's achievements of the past year: new orders of F-35 fighter jets and heavy transport helicopters from the United States and a new digitalization drive to modernize the forces.

For its part, the Defense Ministry says €30 billion of the €100 billion has already been earmarked for major purchases. There has been some criticism from European allies, and within Germany, that so many big orders have been placed in the United States, though ultimately most of the special fund is likely to stay in Germany, which has a strong weapons industry.

And anyway, Strack-Zimmermann said, €100 billion isn't something that can easily be spent in a year. Manufacturing sophisticated new equipment takes time. The first eight F-35s, for example, are expected to be delivered in 2026 (they will initially stay in the US while Bundeswehr pilots are trained), with the remaining 27 to be delivered by 2029. Some goods, like new digital communication equipment, will be available more quickly, while others will take even longer.

Dwindling pile of money

Time is pressing. Economic forces are eating away at the €100 billion. Rafael Loss, a defense specialist at the European Council on Foreign Relations (ECFR), told DW that the original estimate was that only €8 billion of the special fund would have to go toward the interest payments on the loan that the government had taken out. Now, thanks to rising interest rates, that estimate has gone up to €13 billion. So that leaves €87 billion of actual money to spend.

On top of that, there's inflation and the value-added tax, which mean that, once all the extra costs have been covered, only about €50 to €70 billion will be left over to spend on actual hardware. "The longer you have this money sit around somewhere, the longer factors like inflation and interest payments have to eat away at this pile," Loss said.

To some extent, Loss agrees that the government could have acted quicker. "In some ways, last year was a lost year for the Bundeswehr," he said. "But the new defense minister (Boris Pistorius) seems to be pushing for a lot of things to happen on accelerated timelines, like the replacement of the Leopard tanks."

Boris Pistorius took office just over a month ago, after his predecessor Christine Lambrecht, also a Social Democrat, resigned in part because of a wave of discontent with her leadership that leaked from within the army ranks.

And the new minister has been pushing for more money: This week he suggested that the special fund was not enough to cover the military's needs, and called for his ministry's budget to be increased by an extra €10 billion. Some of his colleagues, among them his party's co-leader Saskia Esken, appeared less than enthusiastic about the idea.

A new harmony

Pistorius' apparent urgency is a shift for the German military, which has for many years suffered from inefficiency in its procurement. In 2022, that was a familiar complaint made Hans Christoph Atzpodien, head of the German security and defense industry association BDSV, whose members include all of Germany's biggest suppliers of heavy military equipment, including Krauss-Maffei Wegmann, which makes the Leopard 2 tank.

Atzpodien has argued that the bureaucratic colossus that is the military's procurement system suffers from a "perfectionism" in its regulations that often means the troops don't actually get what they need — citing the example of the German tank crews who don't have the same radio equipment their international partners do, even though these have been specifically requested.

That particular wrinkle has since been ironed out. "I have to give the procurement process credit for the fact that in December 2022 a procurement decision was made for precisely this equipment — even with a German company — which we of course welcome," he told DW.

This is a new tone. As recently as December, Atzpodien was getting into public rows with senior government figures who alleged that the arms industry should be working harder to increase capacity. Now, the two sides appear to be on the same page: "We are very confident that the orders that were essentially held up by budgetary bureaucratic processes will now get underway on an appropriate scale," he said.

The procurement ecosystem

Loss said the complexities of procurement remained an issue that defies easy fixes: "It's a very complex ecosystem between parliament as the budget holder, the Defense Ministry, procurement agencies and the armed forces."

After the Cold War, he said, the Bundeswehr settled into a culture in which speed was not a priority. "There was an enormous risk aversion to doing anything wrong and spending maybe a little bit too much money on things to get them through the procurement pipeline faster," he said.

On top of that, Loss thinks that the regional interests of Bundestag members often played a part in how procurement decisions were made — with Bavarian politicians pushing for Bavaria-based aviation companies to win contracts, for example. "This leads to budget processes being less oriented towards military needs," said Loss. "I suppose in the US they would call this pork-barrel politics."

In other words, Scholz's famous "turning of the times" involves turning around the colossal ocean tanker that is the German military, its culture and its bureaucracy. Even one year isn't enough to do that.

Edited by: Rina Goldenberg

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