Olaf Scholz’s government set itself ambitious targets in 2022 as part of the “Zeitenwende”, but without adequate funding, the military development that has been started could soon fizzle out and Germany’s leading role in the defence of the continent could remain a pipe dream. Although both Friedrich Merz have pledged to raise defence spending permanently above 2% of GDP if he wins the elections, this is unlikely to work without a reform of the German fiscal policy and a major restructuring of the budget.
A few days after Russia’s invasion of Ukraine on 24 February 2022, Chancellor Olaf Scholz announced in the German parliament a “Zeitenwende”, or historical turning point, which, in addition to supporting Ukraine, envisaged the development of the German armed forces (Bundeswehr) and an increase in defence spending. To achieve these force development goals, Scholz’s government set up a €100 billion defence fund for the next five years, which would also enable Germany to meet NATO’s requirement to spend 2% of GDP on defence. In addition, Scholz set the Bundeswehr no less a goal than to guarantee the continent’s security by becoming the largest European army within NATO.
What has happened since then?
As Berlin became the leading European backer of Ukraine’s war of defence, it also gradually increased its defence spending. While in 2023, the regular budget allocated around €50.1 billion to defence, in 2024 the figure was €51.8 billion. However, according to the German finance ministry, with the addition of the defence fund and other sources, some €90.8 billion, or 2.1 per cent of annual GDP, was spent on defence last year, meeting NATO’s expectation. NATO estimates that Germany spent 28.7% of its 2024 defence budget on procurement and development, also meeting the defence alliance’s expectation of 20%.
The figure can be referenced here: https://public.flourish.studio/visualisation/23294770/
The most significant investments in the last three years include the purchase of F-35 fighter jets to replace obsolete Tornado aircraft, the purchase of four submarines from ThyssenKrupp for €4.7 billion, and the modernisation of Leopard 2 tanks and Puma infantry fighting vehicles. In addition, Germany is investing in advanced Patriot air defence systems and is preparing to purchase the Israeli Arrow 3 system for around €2 billion. Furthermore, it is modernising its helicopter fleet (the modernisation of Tigers and the procurement of NH90 transport helicopters) and upgrading its artillery capabilities.
Germany also participates in joint development and procurement programmes within the European Union to enhance collective military capabilities. One of these initiatives is the Future Combat Air System (FCAS) programme, in which a new generation of fighter aircraft and escort drone systems are being developed with France and Spain with a target date of 2040. The total project budget is estimated at €100 billion. Germany is also involved in the development of a land-based combat system (MGCS) to replace the Leopard 2 tank, launched jointly with France, in which the Franco-German joint venture KNDS was joined by Rheinmetall in 2019. Additionally, Germany is also a partner in the Eurodrone project, which aims to develop a European armed drone system in cooperation with Spanish, French, Italian and German companies. And in the European Sky Shield initiative, launched at the end of 2022, Germany is participating with twenty-one other European countries in the development of a common, integrated European air defence system.
In a further example of international cooperation, Germany has agreed to permanently station a brigade in Lithuania in 2022 as a sign of its commitment to the defence of NATO’s Eastern flank and the Baltic region.
New national security and defence industry strategy
In order to ensure the long-term realisation of force development, Olaf Scholz published a new national security and defence industry strategy (Nationale Sicherheits- und Verteidigungsindustriestrategie) a few days before the collapse of the government in December 2024. The document replaced the 2020 strategy, which predated the Russian-Ukrainian war and the “Zeitenwende”, and was presented by the defence and economy ministers of the Scholz government.
The strategy argues for the strengthening of domestic and European defence capabilities, and for this it considers the development of domestic defence industrial capacities essential to make Germany self-sufficient in defence. The strategy lists the capabilities that Germany intends to maintain within national borders (such as naval shipbuilding, armoured combat vehicles, EW and artificial intelligence) but also places a strong emphasis on intra-European cooperation, for example in developing air force capabilities and plans to modernise small arms in cooperation with other countries.
The strategy calls for long-term contracts for and more government investment in defence industrial companies to ensure more stable, predictable operations. The ministries of defence and economy would focus on cutting red tape and strengthening supply chains.
The strengthening of German defence industry players and the promotion of international cooperation is also to be welcomed by Hungary, given that German companies, led by Rheinmetall, are key partners in the development of the domestic defence industry and defence procurement.
The figure can be referenced here: https://public.flourish.studio/visualisation/23294408/
The initial momentum may fizzle out
Despite ambitious plans and ongoing modernisation, experts say the proclaimed “historic turning point” has not brought the drastic change, already noticeable in the short term, that the German defence sector really needs.
The main criticisms are directed at the sustainable financing of the sector. Although the German defence budget exceeded 2% of GDP last year, it could only meet this target with the additional resources provided by the €100 billion special defence fund.
However, the defence fund will be exhausted by 2027 at the latest, and it is estimated that Germany will need around €80 billion a year to continue to meet its NATO membership commitments. The 2025 draft budget proposed defence spending of around €53 billion, so a major budgetary overhaul is likely to be necessary. Given the underperformance of the German economy and the inflexibility of the budget (partly due to the debt brake in the constitution), it is not clear at this stage how an additional €20-30 billion per year can be channelled into defence after 2027.
While there have indeed been significant acquisitions in recent years, these do not, or only partially, fill the gaps in Germany’s defence capabilities caused by the underfunding of the sector over the past decade. Moreover, critics argue that modernisation has been too slow and not comprehensive, compared with, for example, Poland’s achievements in the field of force development over a similar period. The German government also needs to replace the weapons it has sent to Ukraine, given that some of its assets (air defence and artillery) have even declined in recent years.
According to Colonel André Wüstner, head of the German Armed Forces Association, the combat readiness of the German army is lower than before Russia’s invasion of Ukraine in 2022, especially due to a lack of air defence, artillery and soldiers. Before 2022, there were eight brigades with a readiness level of about 65%, which is now about 50%. Wüstner explained the decline in combat readiness by the sending of weapons, ammunition and other military equipment to Ukraine and the lack of their replacement.
Therefore, experts argue that an effective capability development of the German army would require a minimum defence spending of 3% of GDP. Not to mention the fact that there is already a debate within NATO to consider this 3% as a minimum, while Donald Trump is arguing for defence spending of 5% of GDP.
Can a change of government bring a real turnaround?
Friedrich Merz, the leader of the Christian Democratic Union (CDU) and winner of the February elections, recently raised the prospect that his government could reform Germany’s strict borrowing rules to finance, among other things, higher defence spending. However, he said the focus should first be on increasing savings potential and restoring economic growth, a statement that echoed the CDU’s traditionally conservative fiscal policy.
Merz also said that Germany would initially focus on regularly meeting its target of spending 2% of GDP on defence, but added that he expected this figure to eventually be closer to 3%. But without a real budget reform amounting to a “turning point”, they are unlikely to deliver. In that case, Europe’s largest economy could well be left behind in the race to become Europe’s most powerful army.
David Nagy is a political analyst, security and defense policy expert. He holds a degree in International Security and Defense Policy from the National University of Public Service in Budapest with international experience gained at the University of Haifa.
David began his career as a research fellow at the Danube Institute, then He worked as a consultant at EuroAtlantic Consulting & Investment Plc, leading the analyst department. Currently, he works as a geopolitical analyst at the Oeconomus Economic Research Foundation.
His primary research focuses on the geopolitics and security policies of Central Europe and the Middle East, with a special focus on Israel.
