Germany and Israel Fail to Agree on Submarine Sale

Germany funded more than 80 percent of the cost of Israel's first three Dolphin submarines in the 1990s.

Germany and Israel have failed to agree on a sale's deal of a German submarine to Israel, a Berlin source said on Friday.

"There is no financial commitment," government spokesman Ulrich Wilhelm said. "There are no concrete negotiations with Israel over a sixth submarine. As for whether there are informal talks -- because of the nature of the matter, I can make no statement on this."

The U.S. journal Defense News reported this week that Chancellor Angela Merkel's government had turned down Israel's request for a discount of up to one-third on the price of a $1.6 billion package including two other warships and torpedoes.

Germany funded more than 80 percent of the cost of Israel's first three Dolphin submarines in the 1990s, and is currently accounting for a third of the cost of two more submarines being manufactured in Germany.

The full cost of the diesel-powered Dolphin class submarine would be some $700 million. Others already in Israel's fleet were extensively underwritten by Germany, which is dedicated to Israel's security, founded in the aftermath of the Holocaust.

With Germany currently reining in public finances in the country's biggest post-war austerity drive, Berlin has made clear it can grant no additional military aid at the moment.

Wilhem's comments appear to confirm the end of a year of negotiations Israel had hoped would lead Berlin to grant large subsidies, as it has in previous sales.

Israel would find it extremely hard to buy the vessels without German subsidies, having decided last week to trim its defense budget by 5 pct in 2011 and in 2012.

It had hoped for similar aid on two Meko corvettes, built at ThyssenKrupp's Blohm+Voss shipyards in Hamburg, and Defense News reported that Israeli Prime Minister Benjamin Netanyahu appealed to Merkel personally on the matter.

Wilhelm said the two leaders spoke on the phone over the past week but could not say whether naval aid was brought up.