Presumably budgets. Over the last decade or so, German politics developed the fetishization of the "Schuldenbremse", an attempt to reduce the national debt (which is already fairly low) no matter what. Unfortunately the way they went about it was not to reduce overheads or make processes more efficient (if you want to do anything here in Germany, there's a decent chance there is a form for it), instead they basically cut down on any investment. Fundamentally this means that there is a massive investment backlog in the digitalization of the government and education, in internet, rail and road infrastructure etc.

And now every project seems to maximum demands, minimum budgets and zero flexibility. To make matters even more absurd, we have a ridiculous amount of federal levels, each with their own responsibilities and "approaches" to digitalization (and responsibility to save money).

For example, my mom is an office worker on a city level. The neighboring city developed a software for some process related to state law and offered it to our city. Our city, being the genius it is, does approach this state mandated process a little bit different. Instead of using the software the neighboring city developed and adjusting to their (almost identical) process, they choose to make their own software. But because they have basically zero development experience and engineering resources, they are looking to outsource. But because they don't have the budgets, they are looking for government support programs (that apparently even exist).

So yeah, even easy things are over complicated here

It's likely more sustainable to have people long term and not expensive consultants who come in, finish a project and leave again with no knowledge being retained in the team.

I'd also guess that these projects are not very isolated but very integrated with a lot of other processes and internal projects, so it's not just about converting some specs into code in a vacuum and then leaving again.

They absolutely do. I have friends working as private sector IT consultants with federal agencies as one of their clients. These projects lock them into idiotic bureaucratic processes and extensive internal politics (more than in private sector). You can help improve quite a bit but it's like moving a plowing truck through pure molasses instead of snow.

The teams are often led by government officials who will do everything to keep things as they are to protect their position, of course with little to no repercussions.

If it was in my power, anyone who hires a software consultancy would be immediately sacked.

We do, we have 2-4 people freelancing any given year