The German Grand Coalition Government, Arms Exports and Defense: Playing Politics or a Global Role?

2014-10-29 by Julien Canin

Recently, the German press has underscored the perilous condition of the Bundeswehr.

In part due of the Euro crisis, the government has made economies on the supply chain and spare parts with, for result, the currently atrophy of German capabilities.

Indeed, between 2008 and 2014, the defense budget has been cut around $5 billion on their budget line with the military facing a significant downward trajectory already.

As mentioned by Defense Analysis, “It is clear that a procurement budget that is sub-20% of all defense spending is pretty poor” and to do the comparison with the UK (35%) and France (30-35%)’s figures. Consequences of this long-term under-spending have been gradual but results in dropping in equipment availability. Today, moreover, support systems are not efficient.

According to a report, “out of Germany’s 109 Eurofighters, 35 aircrafts are currently undergoing external maintenance, leaving 74 aircrafts in service. However of these 74, only 42 aircrafts are currently available for missions, training, and exercises.”

Massive change is going to sweep German arms makers when big ticket weapons projects like the A400M Military Airbus will have expired. Credit: DW
Massive change is going to sweep German arms makers when big ticket weapons projects like the A400M Military Airbus will have expired. Credit: DW

These problems were recently exposed by delay supported in the deliveries of aid to the Ebola patients in West Africa, and arms and instructors in Iraqi Kurdistan, caused by serial breakdown on the C-160 transport plane fleet

Indeed, just over half C-160 Transall are in service (24 of 43), while the maintenance cost is high for this 45-years-old-plane.

More generally, a KPMG audit shed a harsh light on major Bundeswehr projects.

A list of 140 problems and risks are match in projects aimed at better equipping the German forces.

Nine projects worth $72 billion were either running late (between two-and-a-half and 10 years behind), or were delivered faulty, or over-budget.

The most emblematical failure was the cancelation of the “Euro Hawk” drone project by the former Minister of Defense Thomas de Maiziere (CDU), with a price overrun of more than $860 million.

There is nothing wrong with the unmanned aircraft; it is simply that the European Union really has no policy for the inclusion of UAVs in its airspace.

Hence, they can be no surprise that the project was in difficulty — a defense project can not be expected by itself to change European Union flight clearance policies!

The parliamentary inquiry revealed that concerns were already put into writing by the Air force in 1999.

In the end, although the German forces are not widely deployed, across the world, the Bundeswehr is currently not capable of fulfilling its NATO requirements in the event of an attack triggering the article-5-self-defense-mechanism.

“With our airborne systems we are currently below the target figures announced one year ago, defining what we would want to make available to NATO within 180 days in the case of an emergency” Defense Minister von der Leyen told. “Delay for replacement parts for our planes and the missing helicopters are the reason for this.”

These shortfalls, some of which known in the forces since a couple of months, appear at the less opportune moment, when Germany is willing to increase his role on the world stage. Indeed, Foreign Minister Walter Steinmeier stated before the UN’s annual session in this Fall, that Germany remained ready to take more responsibilities, to expand its international role.

As stated by Chancellor Angela Merkel, about this topic, “I’m the last person who does not call problems – even those of the Bundeswehr and its supplies – by their names.”

Yet the disconnect between a desire to play a broader role and the reality of the downward spiral for the tools to play that role is fundamental.

And it is clearly rooted in the dynamics of the Grand Coalition governing Germany and the role of SPD Party Chairman Sigmar Gabriel, who garnered a Super Ministry for himself in the Coalition government.

He heads a new ‘super’ ministry which combines economy and energy and will help oversee Germany’s transition to renewable energy sources.

And from this post and preparing for the next election, Gabriel has identified the defense industry and defense as a good target to build up his support on the left.

Unfortunately for the German defense industry and German defense, the forecast of the SPD being able to leverage issues to the disadvantage of the Chancellor is proving true.

As forecast in an article published in January 2014, Michael Miebech noted:

The chances are good that it will be social democrats shaping the relevant issues in the coalition.

Let´s wait and see if the new female conservative minister for defense Ursula von der Leyen is really able to implement the necessary reforms of the German military.

Let´s see how far the minister of transport Alexander Dobrindt (CSU) proceeds with his crazy idea of a car toll for foreigners.

In the meantime, the SPD can set about modernising the country:

with the 39-year-old Manuela Schwesig as minister for family affairs;

with the first state minister of Turkish origin Aydan Özuguz, responsible for integration and migration;

with the young minister for consumer protection Heiko Maas;

with Frank-Walter Steinmeier, a “real foreign minister” at last, as they say in the ministry for foreign affairs;

and, of course, with Sigmar Gabriel as the new minister for economy and energy, a position which gives him the opportunity to take centre stage and demonstrate the SPD’s economic competence.

Gabriel had linked his political destiny to this membership vote.

He took a risk Angela Merkel would have never taken.

And it paid off. Never before in his political career was he as respected and powerful. T

he party chairman now holds the uncontested strategic centre of the SPD.

From today, he looks like the natural social democratic frontrunner for the 2017 elections. 

Going After German Arms Exports: A Political Strategy

Since the reunification’s 2+4 Treaty, the purchase of military hardware was dramatically reduced. Major military projects have been reduced in a number of areas: the end of the development of the MBT Leopard 2E in 1995, of the Boxer multirole armored fighting vehicle in 2006, or the Eurofighters, NH90 and Tiger helicopters’ programs.

With German defense being one of the bill payers for German reunification, German industry sought other ways to stay alive.

Facing up the fall of Bundeswehr’s orders, German industry developed an export strategy in support of their sales.

In theory, Germany’s political principles governing exports of armaments and other military equipments, since 2000 stated that weapons are not supplied to crisis areas.

For the few exceptions, the authorization from the Ministry for Economic Affairs should be sought.

A tacit agreement occurred between the government and the industry, relaxing these export rules.

This decision allowing German firms to compensate their national losses through an export strategy, bringing Germany in the 3rd -5th largest arms exporter in the world.

This move was especially applicable this last 12 years under Chancellor Angela Merkel.

Indeed, in 2010, the Chancellor approved a turnover of $2.9 billion, a tenfold increase on 2000.

In 2011, the firm Krauss-Maffei Wegmann (KMW), producing the highly protected wheeled and tracked vehicles, e.g. Boxer, PzH 2000, Dingo, thus realized 80% of its turnover with the export.

“I am convinced that arms exports can only be an instrument of security policy, and not one of economic policy,” “employment policy reasons may not play a decisive role.” Sigmar Gabriel, credit photo Wikepedia.
“I am convinced that arms exports can only be an instrument of security policy, and not one of economic policy,” “employment policy reasons may not play a decisive role.” Sigmar Gabriel, credit photo Wikepedia.

And statistics show that a larger proportion of those weapons went to countries outside the European Union (EU) and NATO, with western nations cutting their military budgets in order to managing the Euro crisis, or simply by incongruous thinking that their security will be granted for the coming decades.

Conversely, other international markets continued to grow, especially in the Middle East and the Maghreb.

Eventually in 2013, the German Federal government has authorized exports in an amount of $7.3 billion, with 62% outside EU-NATO, especially toward Qatar, Saudi Arabia and Algeria.

For example. Algeria has ordered in these recent years, around $12.5 billion for military equipment like two Meko A200 frigates, SUVs, trucks. Rheinmetall was thus recently allowed to deliver an armored vehicle assembly plant for Fuchs 2 armored vehicles. Last year Algeria purchased about $1 billion worth of gears from Germany

With Sigmar Gabriel as the Energy and Economy Minister, the authorizations for arms exports now become a political football.

Chairman of the SPD and coalition’s partner to Chancellor Merkel’s CDU/CSU as Vice-Chancellor, Sigmar Gabriel aims to win 2017 federal elections. For this purpose he should gather a strong coalition, especially with the Green party, for hoping to defeat the CDU/CSU, like in 1998.

His  political desire to strengthens his support from the Left, could explain his currently stance about German armament export.

“Gabriel and the SPD expressed their position so clearly against the Leopard tank exports in 2011 and 2012, that they could no longer withdraw themselves from that position,” said Jürgen Grässlin, chairman of an anti-weapons association.

“If they did, they’d face serious criticism from our campaign ‘Stop the Weapons Trade’ – the accusation: deceiving the voters!”

Gabriel has announced he would tighten rules on arms exports, rejecting requests for the export of defense hardware to countries outside EU and NATO.

Explaining that the government must ensure the 2000’s law whose prevent that German weapons don’t end up in conflicts around the world.

As an advocate of a strict interpretation of the law  which will have the clear effect of significantly reducing German arms exports, Gabriel did not want “new debates, new instructions, no round table or clarification”, just the respect of the letter of the law in this matter.

Consequently, hundreds of unprocessed export applications are apparently currently waiting for review.

“If you’re not very careful (selling arms abroad) can very quickly become a deal with death” warned Gabriel in August 2014.

In another interview he announced:

“I agree with Helmut Schmitt: it’s a shame that Germany was among the most largest arms exporter in the world.”

These declarations and stance directly defy the Chancellor Merkel who, in the previous years, championed arms exports, but also made a major evolution in the German foreign policy by supplying arms to Kurds, a “sea change” as analyzed by a German defense industrialist.

Indeed, arms exports are clearly part of comprehensive foreign policy.

They are part of working with  countries which are allies and who are not, where the national interest is and where it could be endangered.

For CDU parliamentary Joachim Pfeiffer, “Weapons exports are a legitimate and necessary instrument of foreign and security policy,” he told the parliament, adding that a radical change of course, as proposed by the Greens and the Left, would endanger Germany’s combat capabilities and lead to dependence on foreign military technology.

Yet earlier this month, the German magazine Der Spiegel indicated that even this policy does not appease the left who seek more reductions from German arms industry.

According to the article Gabriel approved $1.6 billion worth of arms exports at the beginning of his term, from January to the end of April.

Although the number of permits decreased in comparison to the same period last year by around a quarter, authorizations for exports to countries outside EU/NATO jumped from $164 million to $822 million (51 to 63.5 percent of the total). The top ten buyers of German weapons included Singapore, Brunei, Saudi Arabia, and Algeria, all of which have been accused of major rights violations by human rights organizations.

In the aftermath of this article, Left Party parliamentarian, Jan van Aken, criticized Gabriel saying, “In public Gabriel is always playing the critic of military exports, but in actuality he does exactly the opposite.”

The Greens’ co-leader Anton Hofreiter also noted that the policy shift did not go far enough.

“The much heralded change of course by Gabriel is nothing more than hot air,” while Mathias John, an armaments expert for Amnesty International, told “that human rights are not the German government’s decisive criterion for the export of military equipment.”

From Minister of Employment to Eliminating Critical Jobs: A Super Ministry in Operation

Beyond the foreign policy issues, a more restrictive policy jeopardizes the existence of the armament industry in Germany, a strategic and economic asset for the country.

Given the downturn in Germany buying weapons for its own forces, exports are vital.

Indeed, for Henrik Heidenkamp, research fellow for the defense industries program at the Royal United Services Institute, “It is crucial because only a commercially viable defense industry can deliver functioning equipment to the armed forces in order to sustain the national security effort. That’s an argument that is rarely made in the German debate – in the UK for example it’s the dominating narrative.”

The Federation of German Security & Defense Industries, representing the interests of 40 German companies, argued that every delay to provide components to their clients risked discrediting the Germany as reliable partner.

Germany is the world's third-largest exporter of arms, like this bazooka destined for northern Iraq, being packed up at a German military base on Thursday. The country's economy minister has held up hundreds of weapons exports since he took office in December, angering many in the defense industry. Credit: NPR
Germany is the world’s third-largest exporter of arms, like this bazooka destined for northern Iraq, being packed up at a German military base on Thursday. The country’s economy minister has held up hundreds of weapons exports since he took office in December, angering many in the defense industry. Credit: NPR

For the manufacturers, the minister’s plan aims to ruin an entire industry and a profitable business model.

As explained by Frank Haun, CEO of KMW:

“If it reduces or freezes its defense budget continuously while at the same time limiting export opportunities, the result for the industry will be death from starvation,”  because orders from the Bundeswehr are not enough to keep the industry afloat.

For the CDU’s deputy Michael Fuchs, the decision of Gabriel is catastrophic.

As he declared in the Bild am Sonntag, “We have to be clear what this means for the German arms industry, if the German arms firms can no longer export outside the NATO alliance, there will be no arms industry in Germany anymore.

There is a big danger.”

But those arguments, together with the question of job loss, seem not to be relevant for the Minister.

Indeed, while the unionists explained in a letter that the minister’s decisions put directly 100,000 jobs at risk, 320,000 jobs with suppliers and various service providers the Minister answered, “I am convinced that arms exports can only be an instrument of security policy, and not one of economic policy,” “employment policy reasons may not play a decisive role.”

Then one could ask a simple question: Why is the Super Minister weighing in at all on arms exports, because by his own statement it is a security policy over which he has no formal authority?

The arguments of Gabriel joined with those of the Jan van Aken when he stated that jobs shouldn’t play in the equation, “

As a worker, you should consider if you really want to work at building instruments of murder.”

Adding, “You can’t put jobs over the lives of people, that is not okay.”

It is atypical to see a Minister of Industry fighting not for preserving and creating jobs, but for destroying them and becoming the Ministry of De-Industrialization.

This is more so given he clearly stated before the last election that the stable economic situation was more important for German people than the social democratic ideal of justice.

And this controversy is unfolding when the economics forecast for German growth are turning pessimistic, the country might be in a shallow recession in 2015.

From Swords to Plowshares and Europeanization as Alternatives for German Industry?

But not to worry: Sigmar Gabriel has two solutions to the challenge — the conversion of defense industry to civilian sector and a pan-European defense industry.

One could ask whether the Minister has noted changes in the neighborhood this summer?

The first solution will be “the promotion of diversification strategies in the civilian sector” by altering the range and the scope of their products.

“We will have to discuss about what and how we can contribute to promote the creation of highly advanced spin-offs in civil sector from the classic defense industry, in order to increase the scope of the companies,” Gabriel said.

But go from main battle tank to wind turbine production is not just a question of state forms or political goodwill.

Is building wind turbines instead of battle tanks really a viable alternative? Credit: DW
Is building wind turbines instead of battle tanks really a viable alternative? Credit: DW

It is unclear, and the Minister doesn’t provide details, how to convert weapon production units to make products for the civil market in a short while.

“To manufacture tractors instead of armored vehicles in a market where tractors are already being produced is not easy,” said Hans-Peter Bartels, chairman of the defense committee in the German parliament.

Conversion does not secure defense technology jobs, Bartels told, pointing out that there haven’t been any major instances of successful defense conversion over the past 25 years.

The second prospect is related to the European cooperation, Sigmar Gabriel calling in August “to perform now what the industry should have done 15 years ago”

Indeed, Europeanization cannot be done to the detriment of the German “high restrictive standards”

One could remind the Minister that was a core reason, EADS emerged and in the time frame he mentioned, and his plan for supporting the new European products coming out of the pipeline?

The Government has on its plate a core example – the A400M which there are clear forces hoping to slow down this buy.

In effect, accelerating the A400M buy could demonstrate Gabriel’s commitment to Europeanization of arms buys.

And the reality is that French-German cooperation, except for Airbus Group – ex-EADS Group – often suffered major setbacks for political reasons:

Thales with Atlas Elektronik (sonars, sensors, and maritime command system), MBDA with BGT (missiles);

EADS with Thales in 2004 and 2006;

or the constantly postponed “Naval Airbus” between DCNS and TKMS.

Does Europeanization Include France?

An ongoing example of these difficulties is the KMW-Nexter initiative to create a 50-50 joint holding company, temporary named “Newco”.

According to Defense News, the company would have annual sales of almost $2.68 billion, and more than 6,000 employees.

Headquartered in the Netherlands, the company would have two CEOs, elected by the board of directors.

But beyond legal and customary regulation approvals and the privatization of Nexter, currently a French state-owned firm, the real problems could be directly or indirectly… Sigmar Gabriel.

Indeed, the German Minister clearly took a stand for the Germans option, arguing for a cooperation between KMW and Rheinmetall rather than Nexter.

And through the exports authorizations, Sigmar Gabriel owns a powerful lever to slow the merger of a French and German firm.

Already, the exports of KMW to Qatar (62 MBT Leopard 2 and 24 self-propelled howitzer PzH 2000 for $2.4 billion) are in the limbo, under review in the Ministry of Industry.

And a rejection of the authorization will degrade the value of the group and in fine the share price, decisive element in the future joint company.

The more restrictive the restrictions are, the lower the incentives will be for the merger.

Indirectly, the new orientation of the German political impacts French military industry.

Through programs in collaboration with Germany, products are affected by these restrictions.

It is the case for MBDA in Qatar for a sale of the Milan ER anti-tank missile, the firing posts are produced in Germany;

in Lebanon, where the French Renault Truck Defense is currently blocked in the completion of the contract for the VAB Mark 3;

and soon, Airbus Helicopter could be suffer the same situation, Berlin is thinking about the sale of 16 helicopters (10 Fennec and 6 Cougar) to Uzbekistan for $230 million.

This is a Europeanization when it is convenient policy rather than a European defense industry able to operate normally policy.

Beyond weakening the economical link between the two countries, these measures are against the Debre-Schmidt agreement (1971-72).

Still in force, the treaty is intended to define the rules for exporting weapons built in cooperation.

Article 2 states that “neither of the two governments will stop the other to export […] armament resulting from the cooperation. Each of the two governments plight to deliver with no delay […] exports authorizations necessary for the provision of the components.”

Refusals are framed, an export vetoed by one of the country, obligates this state who must let his partner to produce by his own the missing device.

But rather than put its veto, and hence transfers technologies to French industry, Germany lets time running, as described above.

And again if a “European” option is seen as an alternative, all of these developments provide a clear counter to the claim of the commitment to go down the European route.

This pattern damages the France-Germany relationship relation in this domain, whereas it must be the driving force between the two states.

As Thomas Enders, CEO of Airbus Group deplored, “While there is continual talk about more cooperation and consolidation in the military European industry, decades of Franco-German’s cooperation are under attack.”

Julien Canin has received a French law degree and a master’s degree from the Universite Libre de Bruxelles (Belgium).

He has worked with both the French Political Party UMP on foreign and defense issues and with the Ministry of Defense recently at the Eurosatory conference.