Germany Defence & Security Report Q1 2008

In Q407 Germany's ruling Grand Coalition of the CDU and SPD parties experienced increasing tensions over a variety of issues, including whether to introduce a minimum wage and how to handle industrial disputes. With the SPD adopting more left-wing policies, BMI expects tensions with Chancellor Angela Merkel's CDU to continue into 2008. On the security front the government tightened its stance on trade with Iran, which was accused by the US of developing a nuclear programme for military ends, and there were warnings that Germany could become more of a target for Al Qaeda extremists because of its continuing role in Afghanistan.

Germany remains a key player in the international community, taking the lead in a number of regional issues, and retains strong international alliances through its membership of NATO, the EU and the UN. In addition, Merkel has sought to strengthen ties with the US. Whilst there are no major conventional military threats to Germany, it faces terrorist threats from radical Islamic groups.

German intelligence services and security forces, whilst well-trained and well-equipped to combat such terrorist threats, lack the same experience as some of their European counterparts.

The German defence industry has grown over recent years, with an increased number of joint ventures enabling German-based companies to penetrate large markets more successfully. Recent legislative developments have provided greater protection of German technological intelligence. The new ThyssenKrupp Marine Systems began trading earlier in 2007 following the merger of ThyssenKrupp Werften and Howaldtswerke Deutsche Werft. In April 2007, the MAN AG industrial group sold its subsidiary MAN Mobile Bridges to Krauss-Maffei Wegmann (KMW).

European aerospace group EADS has finally seen a conclusion to the intense power struggle between the French and German leading executives, but issues remain to be resolved over its current recovery programme.

Exports have increased significantly. Germany is exploring new avenues in Eastern Europe and the Asia Pacific region following recent successes in Australia, where it has become an established supplier. A continuing German inflation differential relative to the euro area average could result in short-term interest rates dampening the regeneration of domestic demand, which has been poor of late.

In April 2005, the budgetary commission of the parliament approved the country's involvement in the transatlantic co-operation project the Medium Extended Air Defence System (MEADS).

Berlin remains the capital of one of the most prosperous and stable countries in Western Europe. It plays an active and significant role in the region and across the globe. Germany boasts the fourth largest armed forces in the region and one of the best equipped. The international deployment of German military forces is constrained under strict constitutional rules, but Germany's deployment in multilateral peace support operations has been increasing over recent years. Over the last two years, Germany's frozen defence budget has placed restrictions on its procurement and R & D projects.

However, the German defence industry continues to thrive through the substantial domestic demand and the extensive trade in arms as one of the EU's major exporters.