The translation on Drew's linked site (http://www.inthe80s.com/redger3.shtml) is really rather excellent[1]. Thanks, DrooK! Bending over backwards to find fault, these are the only nitpicks I could come up with, so let's get them out of the way:

German	Direct German Translation	Notes on translation
Denkst Du vielleicht grad' an mich?	Are you perhaps thinking of me?	"Do you perhaps think of me right now?"
Und dass sowas von sowas kommt	And that something (like the war) comes from such a thing (the balloons)	"And that such a thing comes from such a thing"
Hielt man fuer UFOs aus dem All	They thought they were UFOs from space	"Were thought to be"
'ne Fliegerstaffel hinterher	A flying squad out there	"A squad of fliers"
Streichholz und Benzinkanister	Matches and petrol cans	Singular, "Match and petrol can"
Heute zieh ich meine Runden	Today I'm doing my rounds	Present tense, "Today I do my rounds"
Seh' die Welt in Truemmern liegen	Seeing the world lying in ruins	Present tense, "See the world lying in ruins"
Hab' 'nen Luftballon gefunden	Found a balloon	Compound past tense, "Have found a balloon"

The one thing I really liked about the English version are these lines; they're really at least as good as anything in the original:

The war machine springs to life
Opens up one eager eye
Focusing it on the sky
Where 99 red balloons go by.

But that's about it, I'm afraid.

So here's the stuff that really changes the meaning of the lyrics:

German	Direct German Translation	English as Sung
Hast Du etwas Zeit fuer mich?	Do you have some time for me	You and I in a little toy shop
Dann singe ich ein Lied fuer Dich	Then I'll sing a song for you	buy a bag of balloons with the money we've got

The original has nothing about being there at the time -- can't have, because it was a damn century ago!

German	Direct German Translation	English as Sung
99 Kriegsminister	99 war ministers	99 Decision Street
Streichholz und Benzinkanister	Matches and petrol cans	99 ministers meet

Wow, that's a huge cabinet, ninety-nine ministers of various portfolios... The original says nothing about ministers meeting. Naturally, because they're all ministers of war, and the ministers of war of different countries wouldn't meet before declaring war on each other. In the English version, they're apparently all from the same country, and therefore not all ministers of war specifically.

German	Direct German Translation	English as Sung
99 Jahre Krieg	99 years of war	99 dreams I have had

The translation totally skips the fact that the war went on for ninety-nine years. That's how it can have the singer be there both to start it by irresponsibly releasing apparently unidentifieable flying objects near a military airbase, and after it. In the German original, the start of the war is just recounted by a singer who obviously wasn't there themselves.

Makes the English version far less poignant IMO. The originals 99 years really drives home the parallel to the saying "I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones"[2] -- whereas in the English, it says nothing about how

There are no ministers of war any more
And No jet planes either

Could all have been over in an afternoon, for all we know.

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Now, as to your central thesis:

There is a portion of the German language describing the people thinking the balloons were UFOs. The reaction was because the people were stupid . That was just generally against the population. The English version has nothing about that. It's all about the war machine. It's all about the other. The people in the audience are not part of the war machine.

It seems they treat the audiences vastly different.

Sorry, but I really think you've got that all wrong. Where do you get the idea that she's talking about the audience, or people in general, in the first place? To begin with, in the world of the song, this is a century later: Whoever is listening to this song about how the war started in The Before Days wasn't around then.

But more fundamentally, all you're building this idea on is "Hielt man für UFOs aus dem All", "Which people thought were UFOs from space" in the subtitles (or "They thought they were UFOs from space" - inthe80s.com, or "Were thought to be were UFOs from space" - me). Huh??? Who says those people who thought the balloons were UFOs were the general public?!? Would all of them even see the same cluster of balloons, on the horizon in some specific place, at the break of dawn? Of course not. Naah, the "they" who got spooked were that war machine that sprung to life; the chain of command from lowly radar operators up to ministers of war. That was, AFAIK, how it was meant and has always been universally interpreted. Your interpretation is... Certainly idiosyncratic; to the best of my knowledge, unique; and, frankly... IMO, rather bizarre.

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Oh, and I hope everybody noticed: The original says nothing about the balloons all being red. As can be seen througohut the video, where she walks around on a field strewn with balloons in all colours. They just needed a single-syllable word to pop in for the original's "Luft", to get the scansion of the English lyrics right.

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[1]: It even gets what she rather clearly sings, "Scramble in the summer sky", right; whereas the subtitles on YT have "Scrambling the summer sky".

[2]: Whether it was Einstein who came up with it or not, https://www.snopes.com/fact-check/einstein-world-war-iv-sticks-stones/

[3]: Which means "air", as most balloons are usually blown up by lung power and thus filled with air. Bit weird for these ones, which would presumably have to have been filled with helium, in order to fly up in the sky and set off the watchful eye of the war machine... But that just simply is what they're called in German. So let's say they're called that because they fly through the air.