GERMANY will today reject international pressure to increase its defence budget and announce big cuts in spending on key arms projects.

The saving, which is aimed at trimming about €6 billion (£3.8 billion) from an already overstrained defence budget, comes amid a heated national debate about economic management.

Gerhard Schröder, the Chancellor, yesterday defended his plans to scrap some tax breaks and to introduce more market elements in the state pension and health systems. However, November’s unemployment figures again rose above four million, showing the fastest month-on-month rise since unification.

The emergency in defence spending highlights Germany’s larger problem: the Government of Herr Schröder is committed to becoming a fully fledged alliance partner able and willing to participate in combat missions abroad (apart from possible war in Iraq). At the recent Nato summit, it pledged to narrow the gap between American and European defence efforts.

However, it cannot finance the changes, the equipment or training needed to turn its conscription army into a flexible, global force.

In spite of its promise, Peter Struck, the Defence Minister, is expected to announce today the reduction of the number of A400M transporter aircraft to be bought from 73 to 60. The price of the Airbus aircraft is likely to increase and Germany, which was contractually bound to 73, will have to compensate its partners. The shortage of a big transport aircraft has been so chronic that German troops have been chartering Antonovs or hitching lifts in allied aircraft to Afghanistan.

Only half of the 200 Tornados scheduled for modernisation will now be re-equipped. The procurement of the Eurofighter, much to the relief of Germany’s partners, will stay at 180. According to some leaks, however, only 600, rather than 1,488, Meteor air-to-air missiles will be bought for those Eurofighters. If true, this will hit Britain, the lead nation in the Meteor project. The French are also unlikely to be pleased by the decision to buy 80 instead of 212 Tiger combat helicopters.

The planned defence cuts run deeper than this week’s announcement. Various drafts are in circulation in the defence planning establishment, suggesting the scrapping of the navy’s 50 Tornado fighter-bombers and its speedboat flotillas. Some strategic as well as housekeeping considerations lurk behind the blueprint. The Tiger helicopter, for example, will now be regarded not so much as an anti-tank weapon as an escort for ground troops. Fewer are therefore needed.

In general, Herr Struck is trying to shift the German Army away from the idea of tank battles. The original calculation was that Germany should be capable of fighting medium-sized operations. The emphasis is now on deployment in several small simultaneous operations. Army troop strength will be maintained at 282,000.

• The number of corporate bankruptcies in Germany is expected to reach a record next year. Creditreform, which collects information on economic research and debt collection, predicted that 40,000 to 42,000 companies would file for insolvency, with 650,000 to 680,000 jobs lost.

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