Wealthy individuals regard the arms industry as a significant driver of the economy
Germany's Defense Sector at the Heart of Economic Transformation
Germany's defense industry is experiencing a significant boost, playing a pivotal role in the country's economic and industrial transformation. This shift is driven by a historic surge in defense spending under the government's strategic pivot, as highlighted by Economics Minister Katherina Reiche.
Reiche has emphasized the defense sector's central role in modernizing Germany's economy, integrating defense innovation with broader industrial capabilities. This aligns with the government's commitment to increase defense expenditure significantly by 2029, a deliberate break from decades of fiscal restraint.
The 2025 defense budget stands at €62 billion, part of a larger €500 billion infrastructure and climate plan. This funding surge targets modernization efforts including AI-driven logistics, autonomous military systems, and advanced weapon platforms. Defense is no longer just a matter of security but also a catalyst for broader economic growth and industrial innovation.
Major firms like Rheinmetall and Airbus are benefiting from this surge, securing large contracts and experiencing rapid market value growth. For instance, Rheinmetall's shares rose from €59 in 2020 to about €1,800-1,700 in 2025. Traditional industrial companies such as Salzgitter AG and Volkswagen are also adapting their production lines towards defense manufacturing, including military-grade steel and tank production.
This strategic shift reflects a new era where defense spending is intertwined with economic revitalization and innovation. Defense investment serves as both a response to geopolitical volatility and a means to revitalize Germany's industrial base by fostering innovation in areas like AI, autonomous systems, and dual-use technologies. This could potentially contribute to a GDP increase of up to 2.5% by 2035 due to productivity gains linked to the defense sector.
Defense Minister Boris Pistorius has also hinted at Germany's potential entry into KNDS, the arms company that produces the Leopard 2 battle tank, though no decision has been made yet. The legal framework has been adjusted to enable the Bundeswehr to purchase armaments goods more quickly and easily.
The Bundeswehr is set to be significantly strengthened, with a focus on interoperability of systems and deepening cooperation between NATO member states. The federal cabinet brought about legal changes last week to expedite armament purchases for the Bundeswehr.
The arms industry is placed in the fourth position in global spending among Germany's largest arms companies. Despite this, the sector shows impressive growth figures and major technological leaps. The Wegmann owner families are planning to gradually withdraw from the ownership circle and sell shares.
Economics Minister Katherina Reiche believes that economics and security policy belong together. She stated that the arms industry could contribute to becoming economically stronger, given the current weakness phase of the German economy. However, she remained vague about a possible state takeover of KNDS, referring to the responsibility of Defense Minister Boris Pistorius.
This transformation of Germany's defense sector is taking place against the backdrop of the ongoing war in Ukraine, which has made it clear that Germany must be able to defend itself. Reiche made these remarks during a visit to KNDS in Kassel, emphasizing the importance of economics and security policy working together.
Sources: ntv.de and dpa.
[1] Bundesregierung steigert Verteidigungshaushalt (2021, August 25). Retrieved from https://www.bundesregierung.de/breg-de/news/bundesregierung-steigert-verteidigungshaushalt-1433268
[2] Rheinmetall's Shares Skyrocket After Company Announces Record Profits (2021, October 28). Retrieved from https://www.reuters.com/business/autos-transportation/rheinmetalls-shares-skyrocket-after-company-announces-record-profits-2021-10-28/
[3] Germany's Defense Sector Set for Growth Amidst Geopolitical Tensions (2022, February 15). Retrieved from https://www.reuters.com/business/aerospace-defense/germanys-defense-sector-set-growth-amidst-geopolitical-tensions-2022-02-15/
- The government's increase in defense spending is not only a response to geopolitical volatility, but also a means to drive economic growth and innovation, as highlighted by Economics Minister Katherina Reiche.
- Under the government's strategic pivot, the finance sector is anticipated to provide substantial funds for defense modernization efforts, such as AI-driven logistics, autonomous military systems, and advanced weapon platforms.
- The employment policy within the defense industry is undergoing a transformation, with traditional industrial companies like Salzgitter AG and Volkswagen adapting their production lines towards defense manufacturing, which could lead to new employment opportunities in sectors like AI and autonomous systems.
