The German economy has weathered the recession better than any other in Europe, with many now believing that the German economic model of the most stable and sustainable around. With GDP growth of what looks likely to be around 2.5% over the course of 2011, it seems possible that the expectation for a very long dip in German defence spending will not be as protracted as was initially expected. However, defence spending for the remainder of 2011 is still expected to be reduced by at least 1.5% against the already austere 2010 budget, amounting to at the minimum EUR450mn less for big defence projects.

Despite recent positive economic signals, such as the figure of 3.6% growth over 2010, the German government still looks set to reduce overall spending by around EUR80bn by 2014. This is mainly due to a 5% contraction in GDP over the course of 2009, which led the deficit to rise to around 5.5% over the course of 2010. Chancellor Merkel has, however, re-stated her intention to stick to austerity plans, concentrating on budget consolidation than offering a ‘recovery rebate’ through tax cuts.

However, international expenditure on arms did not show any vast slowdown throughout the recession. SIPRI data has global arms sales growing by 8% over the course of 2009, which was the height of the economic crisis, leaving the expectation that 2010 (when data are released) will also have shown strong growth. This view is reinforced by early results from Rheinmettal, which achieved a 6% defence section growth over 2010. The defense section order book also increased by EUR182mn from the previous year.

This spending is now coming more than ever from non traditional markets, such as India. Germany has a variety of companies competing for contracts in the world’s largest democracy. This includes the Eurofighter, produced partially by EADS, being touted as one of the front runners to be bought by the Indian Airforce, in what could be a US$11bn deal. This competition pits the Eurofighter against offerings from France, Sweden, United States and Russia. Part of the offered deal would be for India to become a strategic partner in the Eurofighter project, with the potential for substantial production facilities to be built there.

Furthermore, a newly floated subsidiary of the Hinduja group, Ashok Leyland Defence Systems (ALDS), has signed a Memorandum of Understanding (MoU) with Krauss-Maffei Wegmann to design and produce new defence platforms for India and other surrounding countries. This form of engagement with non traditional markets can only be good news for the German defence industry as a whole, as it will act to assist it in maintaining profitability through a time when more developed markets have needs which are far more difficult to meet, or indeed, far less desire for advanced weapons systems. The German military itself is undergoing one of the biggest reforming periods in its history, and at least since the end of the cold war. This has involved a dedicated fat-trimming exercise, with the end of some much vaunted institutions, such as conscription. This movement was headed by the very popular former defence minister, Theodor zu Guttenberg. His resignation, following accusations of plagiarism in his PhD thesis, has led to a shake-up in the upper echelons of the Ministry, including the replacement of his Deputy. While thus far it remains unclear what difference to the reforms a change in personnel will have, it does seem that this replacement has acted as a catalyst for those who are unhappy with the reform package to air their voices, and may act if nothing else as a slowing agent to much needed changes in the Bundeswehr.

Key Benefits

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TABLE OF CONTENTS

Executive Summary

SWOT Analysis
Germany Security SWOT  
Germany Defence SWOT  
Germany Political SWOT
Germany Economic SWOT
Germany Business Environment SWOT  

Global Political Outlook  
The United States  
China  
Japan And The Koreas  
Russia
Europe  
India
Brazil  
Turkey
Iran
Egypt, Saudi Arabia And Pakistan
Terrorism  
Africa  
Space  
Competition  
Wild Card In Global Politics
Conclusion  

Europe Security Overview
The Strategic Outlook For The 2010s
Europe In A Global Context
Europe's Key Security Issues Over The Coming Decade

Western Intervention In Libya? Challenges Assessed
The West's Military Options  

Security Risk Ratings
Table: Europe Security Risk Ratings  
Table: Europe State Terrorism Vulnerability To Terrorism Index
Germany’s Security Risk Ratings  
City Terrorism Rating
Table: BMI’s Western Europe City Terrorism Index

Political Overview  
Domestic Politics  
Eurozone Politics  

Germany Security Overview
Domestic Terrorism  
Latest Developments
Timeline: Internal Threats  
International Terrorism  
Latest Developments
Timeline: External Threats

Armed Forces And Government Spending
Defence Posture
Defence Reform  
Conscription
International Deployments
Table: Germany International Deployments
Coordination And Joint Operations  
Weapons Of Mass Destruction

Market Overview  
Arms Trade Overview

Industry Trends And Developments
Procurement Background
Table: Key Players In Germany’s Defence Industry
Latest Developments
Timeline: Defence And Procurement  

Industry Forecast Scenario
Armed Forces
Table: Germany’s Armed Forces, 2000-2008 (‘000 personnel)
Table: Germany’s Available Manpower For Military Services, 2008-2015 (aged 16-49)
Defence Expenditure
Table: Germany’s Government Expenditure, 2008-2015  
Defence Trade
Table: Germany’s Defence Exports, 2008-2015 (US$bn)
Table: Germany’s Defence Imports, 2008-2015 (US$bn)
Table: Germany’s Defence Trade Balance, 2008-2015 (US$bn)
Macroeconomic Outlook
Table: Germany – Economic Activity, 2008-2015

Company Profiles  
EADS  
Krauss-Maffei Wegmann
Rheinmetall Group  

Country Snapshot: Germany Demographic Data
Section 1: Population
Table: Demographic Indicators, 2005-2030
Table: Rural/Urban Breakdown, 2005-2030
Section 2: Education And Healthcare
Table: Education, 2002-2005
Table: Vital Statistics, 2005-2030
Section 3: Labour Market And Spending Power
Table: Employment Indicators, 2001-2006
Table: Consumer Expenditure, 2000-2012 (US$)
Table: Average Annual Manufacturing Wages, 2000-2012