Ahead of the Bundestag elections on Sunday, economists, defense company representatives, and business association figures are calling on the next German government to decisively pursue the rearmament of the Bundeswehr and actively support the “militarization of German society.”
While the three leading sectors of the German economy—motor vehicles, mechanical engineering, and chemicals—are in crisis, the defense industry is already experiencing rapid growth. Economists estimate that increasing the military budget to 3.5% of the gross domestic product (GDP) could boost growth by up to 1.5%.
Amid discussions at the EU level of an arms financing package worth several hundred billion euros, Peter Leibinger, President of the Federation of German Industries (BDI), advocates for a “decisively strengthened” defense industry to become “part of a living security and defense social culture” in Germany in the future.
The new government coalition in Berlin after February 23 will, therefore, be immediately confronted with dramatic demands for armaments, including from the arms industry, granting arms manufacturers considerable influence.
Arms manufacturers are experiencing an order boom
Similar to other Western countries, Germany’s defense industry has been booming since the onset of the war in Ukraine.
However, three of Germany’s strongest sectors are facing severe crises: the automotive industry anticipates large-scale layoffs, mechanical engineering recorded a production decline of approximately 8% last year, and the chemical industry can only hope for a slight upturn, at best.
Nevertheless, arms manufacturer Rheinmetall, the largest German arms company after the German-French Airbus, has been consistently making headlines. Rheinmetall increased its turnover to almost 10 billion euros last year and expects to double this figure to around 20 billion euros by 2027. This projection aligns with the substantial order volume, which has recently surpassed 50 billion euros.
Other manufacturers of various combat equipment are also expanding, producing submarines, tanks, ammunition, drones, and air defense systems.
Rising stock markets
The defense industry boom has long been reflected in the stock markets. Rheinmetall shares recently surged by about 25% within a week, currently trading at around 900 euros. At the start of the war in Ukraine, the price was approximately 100 euros.
Shares of the French armaments group Thales rose by about 16% in the same week, while those of the Italian arms manufacturer Leonardo increased by around 18%. Medium-sized German defense companies like Hensoldt and Renk experienced even stronger growth, with increases of 29% and 34%, respectively.
Airbus achieved a modest increase of only 4%; the reason for this weaker growth is reportedly that the group derives “most of its turnover from civilian business, not armaments.”
Economists are pinning their hopes for growth on the arms trade
The sector is expected to continue its upward trajectory.
Moreover, economists increasingly view the armaments boom as a significant source of potential growth, given the persistent weakness in the main branches of German industry.
Economist Ethan Ilzetzki from the London School of Economics (LSE) predicts that if EU countries raise their military budgets to 3.5% of GDP and simultaneously purchase more weapons domestically, this could increase GDP by up to 1.5% annually.
EU-wide arms race
Increasing military budgets in Germany and across the EU has been planned for some time. Last year, the President of the European Commission, Ursula von der Leyen, stated that she considered additional spending totaling €500 billion over the next ten years to be inevitable.
German Foreign Minister Annalena Baerbock confirmed at the Munich Security Conference that the EU is developing a spending program akin to the “bailouts” during the euro and Covid-19 crises.
During these crises, sums of 500 to 700 billion euros were made available. Due to the parliamentary elections in Germany, information is still being withheld, but individual countries are taking action.
Danish Prime Minister Mette Frederiksen, for instance, announced that her country’s military budget should, in the future, be “closer to 5% of Danish GDP than 2%.”
French President Emmanuel Macron intends to invite all parliamentary group and party leaders to discuss increased military spending in the coming days. The European Commission is also preparing to suspend EU debt rules for defense spending.
German Finance Minister Jörg Kukies has also announced a similar change in German budget rules.
Arms dealing is no longer a ‘dirty business’
With the rapid armaments boom, the sector is gaining importance not only economically but also socially. Experts estimate the number of employees in defense companies to be over 100,000, and including employees in supplier companies and the broader security sector, the total is believed to be as high as 400,000.
This figure is only slightly lower than the number of employees in the chemical industry, estimated at 450,000. The defense industry is viewed as a promising source of employment for the large number of automotive industry employees expected to be laid off.
Simultaneously, employees of arms manufacturers contend that the war in Ukraine has significantly improved the sector’s reputation, which was long considered “a bit of a dirty business.” There are increasing calls for arms companies to break existing taboos.
In some universities, such as those in the German state of Bavaria, pressure is growing to ban existing “civilian” substances. Bettina Martin of the SPD, President of the Conference of Ministers of Science, recently stated that “it is unrealistic in the face of changing times to completely exclude research involving ‘dual use’.”
German industrialists desire militarization not only in industry but also in society
In this context, BDI President Peter Leibinger wants the defense industry not only to be accepted by society but also to be actively supported by it.
At an event preceding the Munich Security Conference, Leibinger called for a decisively strengthened defense industry to “become part of a living security and defense culture in society.”
The BDI leader asserted that the German government and Bundestag have a responsibility to “inform the public about the importance and urgency of defense capacities” and suggested allocating more funds to “initiatives that promote the need for rearmament.”
Citing the Marshall Plan after the Second World War, Leibinger noted that the US government had employed an “advertising campaign” to alleviate skepticism about the plan within American society.
Leibinger argued that Germany requires something similar today concerning “rearmament” and called for “winning over” society and “replacing the current passive approval with active participation of all.”