Germany, I think, would still build up its naval forces, but the emphasis would be on cruisers rather than battleships. I say that because even with a more german-populist government that Frederick III would foster, there are still going to be colonies founded and the country still needs a way to defend shipping against a French naval action.
Hopefully, effort would be put into securing a friendly but neutral Italy and USA. I think no matter what Frederick III does, Russia is inevitably going to join a French Entente. Which is bad, because there are multiple loose cannons in the Balkans.