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Since the collapse of Communism there has been a dramatic transformation in German Foreign Policy. However, in comparison with its EU and NATO partners, Germany has been reticent to transform its armed forces and defense policy to meet the challenges of peace-keeping and post-conflict reconstruction. This study explains the process and outcome of reforms to the tasks and structure of the German Bundeswehr, demonstrating, in contrast to previous approaches, how the domestic political context and material factors were of crucial importance, despite adaptational pressures from the EU and NATO. The domestic politics of base closures, ramifications for social policy, financial restrictions consequent upon German unification and commitment to EMU's Stability and Growth Pact were critical in determining the outcomes of the reform processes undertaken by post-Cold War defense ministers. It also draws out the important role of policy leaders in the political manipulation of reform and makes an important contribution to the study of German Politics, Europeanization, European Security, Leadership and Policy Studies.