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CWA # 1183, 31 December 2023
The World This Year
Germany in 2023: Defence, Economy and Energy Triangle

  Padmashree Anandhan
Padmashree Anandhan is a Research Associate at the School of Conflict and Security Studies, National Institute of Advanced Studies, Bangaluru.

On 14 June, Germany released its first-ever National Security Strategy (NSS). German Chancellor Olaf Scholz announced "Zeitenwende" in 2022, declaring a EUR 100 billion fund to upgrade German armed forces, increasing the expectations of the allies and partners towards a robust German security and defence policy. On 13 July, Germany adopted its first strategy on China. This follows the EU, which recognised China as a "systemic rival" for the first time. Germany and China's relations go beyond the 2008 financial crisis; the strategy served as a base for seeing China as a competitor rather than an economic partner. However, the strategy lays only a foundation for a larger agenda to establish a threshold for German businesses to maintain proximity with China.

On 14 November, Germany adopted a new set of defence policy guidelines called the "fit for war, or kriegstüchtig." Although the policy faced criticism, Germany stands strong in sending military support to Ukraine while investing in the Bundeswehr.

On 13 December, the COP28 summit ended with a debate between Germany and the EU on their position over the inclusion of the term "phase out" for fossil fuels. This demand was considered more political and symbolic than a scientific mitigation. For Germany, closing down its last set of nuclear reactors and cutting gas imports from Russia is seen as more challenging. Thereby, phasing out of coal production and energy transition plan seems ambitious with two wars in Ukraine and Israel.

2023: Major Issues
First, Germany’s Zeitenwende. Zeitenwende implies the need to progress strategic thinking and prepare for challenges ahead in international politics. For more than a year, resources allotted to defence have proven insufficient due to the lack of attention in the past decades to enable Germany to defend itself. Therefore, under the Zeitenwende, the Federal Ministry of Defence took several measures to increase defence industry production and adopt effective mechanisms. The only problem within Germany was having required resources in the federal budget and ensuring fund utilisation funding on sectors outside of defence. Outside Germany, Ukraine and Lithuania were the beneficiaries of the latest defence policies, with Ukraine receiving more than USD 20 billion as aid and boosting Lithuania's combat-ready division and medium-term deterrence. At the regional level, NATO remains Europe's most important security framework. At the same time, Germany stands as a soldier to strengthen NATO's European pillar with its commitment through the first National Security Strategy. While the NSS traces through 'geopolitics', it does not provide a compelling path for Germany's future approach to economic and technological resilience. It could have recognised the importance of improving relations with the Nordic and Baltic and brought out objectives to work closer with the UK.

Second, decoupling and de-risking. Russia and China dominated Germany's economic sphere in 2023. The recently adopted course of economic decoupling from Russia through sanctions, reduction in exports and imports, and realigning projects with Russia. It is essential to allot more resources to end the circumventing of sanctions. The Federal Ministry for Economic Affairs and Climate Action has taken measures to combine with efforts of EU Sanctions to achieve impact. However, expecting sanctions to take immediate effect or trigger significant change in the Kremlin is unrealistic.

Regarding China, the 2023 strategy sets the base for the next version for Germany. Despite recognising China's assertive agenda of increasing the country's reliance while reducing its dependency, setting thresholds is necessary. Germany aims to assert its interest in line with the EU's policy on China but requires more cohesiveness to improve regional cooperation, which can be an advantage in times of crisis, for example, Taiwan. Critical sectors such as electrical, chemical, transport, metal, plastics, pharmaceuticals, and electronics remain especially dependent. 

Third, fossil fuels v. renewable energies. Germany has been persistent over renewable energies and moving out of nuclear power, and the recent war in Ukraine has barricaded its efforts in the energy transition. The shift from climate action and justice into "strategic autonomy and industrial policy." Even though Germany is one of the most important international financiers of renewable energies, it continues channeling more public funds into fossil fuel projects in partner countries than renewable energies. So far, the only measures mentioned are the targeted reduction of inefficient subsidies and demand-side approaches such as the conversion of heating systems and the switch to electric mobility. Following Scholz's ban on the Nord Stream 2 pipeline contract, the pause of natural gas from Russia to Germany and a challenging phase-out from fossil fuel have led it to a new direction in 2023 towards clean hydrogen. Although the resources and time needed to establish a dependable hydrogen supply within Europe may take longer, currently, at the national level, the shift will set down its long-term strategies for 2050.

2024: Looking Ahead
First, military deterrence is key. To upgrade Germany's armed forces and handle Russia, military deterrence should be a key element of its security. The Bundeswehr is to be under focus to defend Germany. For this, a complex mechanism is needed, which includes a higher defence budget, a faster bureaucratic procedure, increased defence production, and, most importantly, institutionalising effective methods for strategic planning.

Second, the foundation for China Strategy 2.0. A strategy 2.0 needs to be drafted to not draw red lines, which is impossible, but to play safe considering the authoritarian nature of China. At the regional level, Germany must work on solidarity and strengthen its economic resilience to add to EU unity amidst Russia and China.

Third, a strategic triangle. In 2023, Germany performed well in supporting Ukraine with an increased range of arms deliveries and improved weapon systems. Recognition of China as a competitor can also viewed positively, given the history of economic relations. At the energy level, 2023 can be a temporary setback for its renewable energy dream. For 2024, considering the defence, economic, and energy challenges present, appropriate measures and agendas need to be set up to ensure a balanced allocation of resources to prevent adding barriers to growth. The 2024 economic and defence budget can be expected to be a contested exercise for the German parliamentarians. 

About the author
Padmashree Anandhan is a Research Associate at the School of Conflict and Security Studies, National Institute of Advanced Studies, Bangaluru.

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