[A-List] Germany: defence policy

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Germany to review defence expenditure
By Haig Simonian in Berlin
Financial Times; Oct 02, 2002

The German government will undertake a full defence spending review once
formally re-appointed this month.

The move is likely to strain relations with the US just as Chancellor
Gerhard Schröder cautiously attempts to mend fences with Washington.
Mr Schröder will fly to Paris this evening for a meeting with
President Jacques Chirac, in a further step to reassure Germany's
closest foreign partners unsettled by the chancellor's stridently anti-
interventionist approach to Iraq during last month's election campaign.

The trip, following last week's immediate post-election meeting with
Tony Blair, Britain's prime minister, will also review efforts to broker
a Franco-German compromise on pressing European Union issues, notably
agricultural reform, which has been a stumbling block to reviving the
Franco-German axis.

But Mr Schröder's overtures to Paris and Washington risk being
overshadowed by the risks that big German defence procurement programmes
might be postponed or trimmed because of severe financial pressures.

The US has sharply criticised several European partners, notably Germany
, for not boosting defence spending. But rather than upping expenditure,
in their first round of talks this week on a new government programme to
2006, Mr Schröder's Social Democrats and their Green junior partners
agreed on the need to save about EUR10bn ($9.7bn, ý6.3bn)in 2003 and
EUR15bn in 2004.

A number of big defence projects will be subjected to particularly close
scrutiny. Attention has focused on Germany 's order for 73 Airbus A400M
military transport aircraft - a centrepiece of European efforts to boost
defence capabilities - and the Meteor air-to-air missile for the
multi-nation Eurofighter Typhoon aircraft.

An EUR18bn production contract was signed with Airbus last December, but
was not activated before the elections because of political snags in
Berlin. The delays and rising financial pressures have prompted
widespread speculation that Peter Struck, the new defence minister, will
scale back the A400M order.

By contrast, the Meteor is expected to go ahead. The project is much
less costly than the A400M. And, following Mr Blair's conspicuous
support for Mr Schröder in the election campaign, there is a profound
political awareness in the SPD of the need to acknowledge the UK prime
minister's contribution by removing any remaining obstacles to a British
defence priority.

The problem is that even a significant cut in Germany's order for the
A400M - possibly to 60 aircraft - would have limited impact on the
government's immediate budgetary crisis.

Under the unconventional terms hammered out by Rudolf Scharping, Mr
Struck's predecessor, Germany will only start paying its accumulated
share of development spending and manufacturing cost per aircraft with
the beginning of deliveries in 2008.

That means any immediate savings in the defence budget can only come
through cutting already stretched personnel and operational commitments
or reviewing existing programmes - the biggest single item being the
Typhoon itself.

"From a longer term point of view, we have plenty of flexibility,
because it's not just a matter of more or less items, but also of when
and with what additional features," said a defence ministry spokesman.
"But short term, there are significantly fewer options."

Mr Schröder's meeting with Mr Chirac will be their first encounter
since the chancellor's electoral victory last month. The deal on
agriculture will be based around vague language stating France's
willingness to accept the guidelines for CAP reform be agreed by 2004,
but that no major overhaul begin before 2006.