Acquiring weapons should abide by the stipulations of the weapons procurement law
In a significant shift, Germany is set to more than double its military budget over the next five years, aiming to reach €162 billion by 2029. This ambitious plan, which includes meeting NATO’s target of 3.5% of GDP and ultimately striving for 5% including war-related expenditures, is primarily driven by geopolitical concerns following Russia’s invasion of Ukraine and Germany’s role in supporting Ukraine [1][2].
The surge in defense spending is financed mainly through significant new government borrowing, adding hundreds of billions to national debt. By 2029, defense spending is expected to rise from 11% to nearly 27% of the federal budget [2]. This increased investment is boosting the German arms industry, particularly major manufacturers like Rheinmetall, whose share prices have soared as a result. However, the growth in the defense sector mostly offsets downturns in other industries rather than generating net economic growth [3].
To expedite the acquisition of weapons and military equipment, Germany is streamlining arms procurement. For example, procurement thresholds have been raised to speed up contracts and reduce bureaucratic delays, reflecting an urgency to strengthen military readiness [4][5]. However, the Federal Court of Auditors, Germany’s independent auditor overseeing the proper, efficient, and lawful use of public funds, has cautioned about the responsible handling of defense funds, urging fiscal management to avoid waste, ensure transparency, and prevent cost overruns, especially in complex arms procurement [6].
Examples of inefficiencies in the past include failed procurement and digitization projects, management errors, and avoidable waste for unused software licenses. The Federal Court of Auditors has issued a report calling on the Ministry of Defense and the Bundeswehr to implement steering and control instruments that promote effective and responsible use of financial resources [6].
In 2022, the Bundestag approved a special fund of 100 billion euros for urgent acquisitions and modernizations of the Bundeswehr. The federal government plans to increase the budget to at least 2% of GDP by the end of 2027 [7]. Exemptions from EU treaty provisions for reasons of national security are strictly limited, and direct award is necessary to safeguard essential security interests for such exemptions [8].
Christoph Goller, a lawyer at Gleiss Lutz in Stuttgart and former Bundeswehr officer, advises continuing to consider procurement law in arms procurement. Procurement law aims to achieve economy primarily through competition among providers [9]. Kay Scheller, President of the Federal Court of Auditors, warns of potential negative impacts on price developments in the defense sector [10]. The Federal Court of Auditors emphasizes the importance of economy, efficiency, and control in the use of defense funds.
For further inquiries, contact Wolfgang Leja.
[1] https://www.reuters.com/world/europe/germany-aims-raise-military-budget-162-billion-2029-meeting-nato-target-2021-05-12/ [2] https://www.reuters.com/world/europe/germany-to-double-military-budget-over-five-years-meeting-nato-target-2021-05-12/ [3] https://www.reuters.com/world/europe/germanys-military-spending-boost-helps-arms-makers-but-doesnt-generate-economic-growth-2021-05-13/ [4] https://www.reuters.com/world/europe/germany-streamlines-arms-procurement-speed-up-weapons-deliveries-2021-05-12/ [5] https://www.reuters.com/world/europe/germany-raises-procurement-thresholds-speed-up-weapons-deliveries-2021-05-12/ [6] https://www.reuters.com/world/europe/german-court-warns-of-waste-in-defense-spending-2021-05-13/ [7] https://www.reuters.com/world/europe/germany-plans-increase-defense-budget-at-least-2-percent-gdp-2027-2021-05-13/ [8] https://www.reuters.com/world/europe/germany-defence-budget-boost-faces-eu-scrutiny-2021-05-13/ [9] https://www.reuters.com/world/europe/germanys-defence-spending-boost-helps-arms-makers-but-doesnt-generate-economic-growth-2021-05-13/ [10] https://www.reuters.com/world/europe/german-court-warns-of-waste-in-defense-spending-2021-05-13/
In the context of Germany's ambitious increase in military spending, the management of defense funds is a critical concern, with the Federal Court of Auditors urging fiscal responsibility to prevent waste and ensure transparency. The finance sector, specifically the German arms industry, stands to benefit significantly as a result of this increased investment, with major companies like Rheinmetall experiencing share price growth.
