VZCZCXRO2009
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHRL #0267/01 0651113
ZNR UUUUU ZZH
P 061113Z MAR 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 3487
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RHMFISS/CDRUSAREUR HEIDELBERG GE PRIORITY

UNCLAS SECTION 01 OF 03 BERLIN 000267 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: MOPS PREL MARR NATO EUN GM
SUBJECT: GERMANY'S DEFENSE BUDGET: SMALL INCREASES LIKELY 
INSUFFICIENT FOR TRANSFORMATION GOALS 
 
¶1. (SBU) SUMMARY.  Despite a nominal increase of 1.64 billion 
euros over last year, the German defense budget for 2009 will 
fall short of the NATO target of two percent of GDP by only 
accounting for 1.5 percent GDP.  Transformation remains 
significantly underfunded.  Plans to free up money for 
investments by reducing operational expenses have been 
undermined by salary increases and pension expenditures 
eating into the MOD budget.  However, the Bundeswehr will 
benefit from Germany,s economic stimulus package, receiving 
at least 250 million euros to invest in its infrastructure. 
Contacts in the MOD offices responsible for planning and the 
budget present a uniformly up-beat outlook for the coming 
year despite the small budget increase.  END SUMMARY 
 
NOMINAL INCREASES WITH A BOOST FROM THE STIMULUS PACKAGE 
 
¶2. (SBU) The German parliament approved the 2009 defense 
budget on November 28.  With 31.09 billion euros, the German 
MOD will have, in nominal terms, approximately 1.64 billion 
euros more available than in 2008 (29.45 billion).  This 5.6 
percent nominal increase, which amounts to a three percent 
real increase when adjusted for inflation, is augmented by 
the extra money the MOD unexpectedly received as part of the 
recent economic stimulus package.  However, the German 
defense budget, at approximately 1.5 percent of GDP, still 
remains far below the NATO target of two percent. 
 
¶4. (U) Defense spending continues to lack support in the 
German public, reflecting a general aversion to the use of 
military force.  While most defense experts agree that the 
MOD needs more money to fulfill its tasks, a recent poll by 
the Bundeswehr Institute for Social Sciences (released 
November 2008) revealed that only 26 percent of respondents 
support increasing the defense budget.  For the last decade, 
approximately 50 percent of those polled have been in favor 
of keeping the defense budget unchanged.  Despite this 
prevalent perception, MOD contacts proudly pointed to the 
fact that in 2005 they reversed the trend of yearly budget 
cuts and brought the budget back to the levels required for 
Bundeswehr transformation. 
 
¶5. (U) Despite limited public support for defense spending, 
the second economic stimulus package, approved by the 
Bundestag on February 13, will somewhat benefit the MOD.  The 
package does not allocate funds directly to the MOD budget, 
but the ministry will receive 250 million euros to speed up 
its previously underfunded efforts to renovate garrisons in 
western Germany, which have not been modernized since 
Germany,s reunification 20 years ago because of higher 
priorities in the east.  Although these additional funds are 
not directly spent on efforts to make the Bundeswehr more 
deployable, they indirectly free up resources that could be 
spent on transformation.  The Bundeswehr will be able to 
spend an additional 226 million euros on other defense 
equipment related to transformation.  Moreover, the 
Bundeswehr also will receive a sum yet to be determined to 
modernize its information technology (IT) systems.  An 
interagency process will determine in March how a total of 
500 million euros will be distributed among the government 
agencies.  This IT money will be in addition to the 
Bundeswehr,s already very ambitious IT modernization project 
Herkules. 
 
THE BUDGET AND TRANSFORMATION: TRIMMING EXPENDITURES 
 
¶6. (U) In 2003, the MOD announced plans to transform the 
Bundeswehr into an expeditionary force, giving out-of-area 
deployments a clear priority as outlined in the "Bundeswehr 
Concept."  It also made budget projections for the next four 
years.  The decision to transform was based on the assumption 
that the MOD budget would increase in the following years. 
However, from 2003 through 2007, the Bundeswehr yearly 
received 1.5 billion euros less than predicted in 2003, 
according to the Chairman of the Bundeswehr Association. 
Although the 2009 budget meets the budget numbers the MOD 
projected back in 2003 for FY 2007 (25.2 billion euros plus 
four billion for pensions), the 2009 MOD budget increase will 
not be spent on items relevant to transformation, but rather 
on a salary increase for Bundeswehr soldiers and on new VIP 
aircraft. 
 
¶7. (SBU) Given the lack of political support in the public 
and in the Bundestag to increase its budget significantly, 
the MOD,s strategy has been to cut operational expense in 
order to free up resources for transformation.  The MOD 
successfully reduced spending in this area from 17.1 billion 
in 2007 to 16.9 billion in 2008.  However, the MOD and the 
Bundeswehr Association agree that the budget remains too low 
 
BERLIN 00000267  002 OF 003 
 
 
to implement transformation fully. 
 
¶8. (SBU) The Bundeswehr also will be limited by its inability 
to procure any large ticket items before 2015, because 
ongoing defense investment programs have exhausted the budget 
until then.  Ongoing programs include: 
 
-- a) the Eurofighter (180 aircraft total, 18 billion euros, 
last delivery 2014), 
 
-- b) the A400M air lift (60 aircraft, 8.6 billion euros), 
 
-- c) the NH90 and MH 90 (navy version mid-size transport 
helicopters to replace the Bell UH-1 D helicopters with 122 
NH90 and 30 MH90, 5.2 billion euros, last delivery 2015), 
 
-- d) the "Tiger" Attack Helicopter (80 helicopters, 3.1 
billion euros), and 
 
-- e) the PUMA combat vehicle (410 vehicles, 3 billion euros 
total, to be delivered between 2010-2020). 
 
¶9. (SBU) Despite the budget limitations until 2015, the delay 
of the A400M and helicopter programs could provide the 
Bundeswehr with some flexibility to fund an interim solution 
until the A400M becomes operational.  Although the A400M 
project continues to have difficulties, MOD planning staff 
contacts advise that there is no alternative at this point to 
the A400M, given that this has been primarily a politically 
driven project.  Also the MOD has to await the results of the 
technical reviews which will determine the final capabilities 
(i.e., range and payload) of the new aircraft in the second 
quarter.  In order to cover its needs for current operations, 
such as ISAF in Afghanistan, the MOD is leasing civilian air 
lift, under the Strategic Airlift Interim Solution (SALIS) 
program(leased Russian/Ukrainian Antonovs).  The MOD also is 
considering not purchasing the final tranche of 60 
Eurofighters if another buyer can be found, potentially 
freeing up funds. 
 
OUTLOOK: TRANSFERS LIKELY TO EAT INTO THE MOD BUDGET 
 
¶10. (SBU) The Grand Coalition government is working on 
further reforms to the overall structure of the German 
budget, which could have negative impact on the long-term 
development of the MOD budget.  All real estate owned by the 
federal government (including Bundeswehr installations) will 
be transferred to a special government agency, the Federal 
Real Estate Management Agency (BIMA), by 2011.  After this 
transfer, the Bundeswehr would have to rent back its own 
installations from the BIMA.  Even though the MOD would be 
given additional money to pay the rent, this is a budget item 
that could potentially balloon and have a negative impact on 
the MOD budget. 
 
¶11. (SBU) In addition, MOD contacts advise that it remains 
unclear what will happen with the MOD,s personnel who 
maintained its real estate.  The MOD also is concerned that 
the new set-up would give the MOD less flexibility, such as 
the ability to prioritize military equipment over maintenance 
of military installations. 
 
¶12. (SBU) A past example of this was the transfer of pension 
obligations in FY 2007 to all the respective government 
agencies, which made the MOD responsible for paying the 
pensions of all retired civilian and military personnel. 
While the MOD was compensated for the transfer back in 2007 
(4 billion euros added to the MOD budget to cover the 
transfer), this appears to be a constantly growing budget 
item, since it grew from 4.03 to 4.43 billion euros. 
Additionally, MOD contacts are unable to predict what the 
long-term implications of the financial crisis will be for 
the MOD budget.  However, they do not rule out the 
possibility that the Bundeswehr could be affected by budget 
cuts in the mid- to long-term. 
 
¶13. (SBU) COMMENT.  The German MOD continues to face the 
challenge of seeking more resources from a society that 
remains deeply skeptical about the military and about the 
need for German forces to be deployed overseas.  The 
increases for 2009 are marginal and do not resolve the 
structural difficulties that confront Bundeswehr 
transformation.  While the additional revenue from the 
economic stimulus package will allow the MOD to perform long 
over-due maintenance on Bundeswehr garrisons in western 
Germany, it does not directly support the procurement of new 
equipment needed to transform the Bundeswehr into a more 
expeditionary force. 
 
BERLIN 00000267  003 OF 003 
 
 
Koenig