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German industrialists call for increased militarization ahead of elections

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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.”

Europe

Fico accuses Merz of blackmail over threat to veto EU budget

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Slovak Prime Minister Robert Fico has hit back after German Chancellor Friedrich Merz threatened to veto the EU budget unless funding for Ukraine is secured.

Merz said he would block the EU’s seven-year budget if no agreement is reached on financial assistance for Ukraine.

The chancellor’s intervention has angered Central European leaders who are net beneficiaries of EU funds but do not want to take part in the next round of funding to support Ukraine’s war effort.

“What the chancellor is doing is typical blackmail, and I will not bow to it,” Fico told reporters in Bratislava.

Fico spoke alongside his Czech counterpart, Andrej Babiš, whose government has refused to participate in a future loan to Ukraine.

“I do not know why he said this,” Babiš said, referring to Merz’s stance.

Merz wants EU leaders to discuss Ukraine’s financing needs at a summit in Dublin on Friday.

In a letter to European Council President António Costa, who will chair the meeting, obtained by The Guardian, Merz wrote:

“We must maintain our support for Ukraine in its struggle to defend itself. This is our shared vital interest. Yet bilateral aid provided to Ukraine is distributed unevenly, with the burden shouldered mostly by only a few member states.”

The EU agreed last year to provide a €90 billion loan to Ukraine, intended to cover two-thirds of its military and civilian spending for 2026 and 2027.

Since then, however, Russia’s relentless bombardment has placed a heavier financial burden on Kyiv, prompting President Volodymyr Zelenskyy to ask for €70 billion to plug the budget deficit.

The EU has endorsed Zelenskyy’s figures and pledged to find €45 billion. Ukraine’s other allies, such as Britain and Canada, are expected to cover the rest.

Last year, Merz launched an initiative to tap €210 billion in frozen Russian state assets held in the EU, but the plan fell through due to opposition led by Belgium, which holds most of the funds in Brussels.

The €90 billion loan was the backup plan. Having opted out of that loan, Hungary, Slovakia, and Czechia indicated that they would not take part in the next round either.

Bulgaria joined these three member states following the election of Prime Minister Rumen Radev last April.

The question of funding for Ukraine is now spilling over into the fraught negotiations on the 2028-34 EU budget.

Germany, the largest net contributor, wants substantial cuts to the proposed budget and opposes the EU providing generous funding to member states that refuse to contribute to Ukraine’s financial needs.

Merz states in his letter that a “collective commitment without exceptions” is a “fundamental prerequisite” for closing Ukraine’s financing gap and for “discussing other matters, particularly those with financial implications.”

He also notes that, in the context of the EU’s next seven-year budget, known as the Multiannual Financial Framework, all member states must contribute to a “robust” financial perspective for Ukraine from 2028 onwards.

A German government official said:

“For the Multiannual Financial Framework (MFF) to be successfully concluded, it is vital that all EU member states provide financial support to Ukraine.”

Berlin is also aiming to shift decision-making on funding for Ukraine from unanimity to qualified majority voting, in an effort to prevent a single government from blocking EU decisions.

The letter reflects mounting frustration among the EU’s northern member states, Ukraine’s most generous backers, over lower contributions from other EU countries in Central and Southern Europe.

The task of brokering an agreement on the budget falls to Costa, the former Portuguese prime minister.

Costa wants a deal by the end of the year, ahead of elections in France, Poland, and Italy in 2027 that could complicate the process.

A spokesperson for Costa confirmed receipt of the letter without elaborating on details. “President Costa will dedicate time to the Ukraine issue at the informal European Council meeting in Dublin this week,” the spokesperson said, adding that funding for Ukraine would be addressed at a dedicated summit on the EU budget scheduled for 26-27 November.

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EU expects next Israeli government to adopt less aggressive posture

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The EU expects the next Israeli government to mend its “difficult relationship” with Brussels and adopt a more constructive approach toward Gaza and illegal settlements.

Israeli President Isaac Herzog tasked Gadi Eisenkot, the leader of the anti-Netanyahu bloc, on Sunday with forming a government.

Eisenkot stated that the country faces a “catastrophic diplomatic crisis” as traditional allies begin to reassess their relations with Israel.

Speaking to Rapporteur, several European diplomats stationed in Tel Aviv said they expect ties to get back on track.

“Whatever government comes in, we can try to revitalize relations because Israel is clearly a very important partner,” one European diplomat said, adding that Brussels expects the next administration to be “less aggressive”.

The diplomat noted that relations with Europe are currently “not very good”.

Israel cut off communication with Kaja Kallas, the EU high representative for foreign affairs and security policy, after Rapporteur revealed in June that she had compared Israel to apartheid-era South Africa during a visit to Mexico.

The diplomat stated that this decision, taken ahead of elections, was political in nature. A second European diplomat based in Brussels explained that the announcement came only a few days before an official visit by Dubravka Šuica, the European commissioner for the Mediterranean.

“This could have been interpreted as a tactic to divide Europe, but Israel had asked Kallas to deny the report; she did not do so,” the second diplomat said.

Brussels has repeatedly voiced its frustration with Israel over the humanitarian crisis in Gaza and the expansion of West Bank settlements.

However, EU governments blocked almost all sanctions proposed by the European Commission.

A third diplomat said opposition parties would “almost certainly take the issue more seriously” when it comes to tackling violence by West Bank settlers:

“We see Palestinians being expelled from their homes and new illegal settlements being built in the West Bank. There is a reluctance on the part of the current government to address this issue, which causes problems in our relations.”

The new government is expected to ease pressure on Palestinians and halt construction of the E1 settlement project, a controversial plan to build settler housing in the West Bank east of Jerusalem.

“They will probably try to deal with the problem of extremist settlers in the West Bank,” the diplomat added.

On Gaza, the diplomat described the situation as “a complete nightmare”, with two million Palestinians crowded into an area that accounts for roughly 35% of the territory.

“There are not enough tents for the winter, and not enough vaccines are reaching the area despite an increase in diseases,” the diplomat said.

The European official argued that Donald Trump’s peace plan met all the conditions for Europe. Although the EU had much to offer, neither the US nor Israel appeared interested in EU involvement in the process.

“We are currently training Palestinian police in the West Bank, and if permitted, we could do the same in Gaza,” the diplomat said.

The diplomat disclosed that Israel had agreed with Šuica that Europe would finance two projects aimed at improving sewage and water infrastructure in Gaza, continuing:

“However, none of these projects has started yet because there is a serious problem with dual-use goods. Getting materials into Gaza is very difficult because the Israelis say they could be misused if they fall into the wrong hands of Hamas.”

Israel insists that Hamas must be disarmed before subsequent phases of Trump’s plan can proceed.

With disarmament unlikely to happen in the near term, the EU argues that certain measures can be carried out in parallel.

“We can begin rebuilding sanitation systems in Gaza. We can start building desalination plants. We can begin providing energy and water to Gaza,” one diplomat said.

While Brussels hopes for progress on Gaza and the West Bank, it maintains that expectations regarding the establishment of a Palestinian state need to be “managed”.

The EU continues to advocate a two-state solution, yet most leading Jewish parties oppose the creation of a Palestinian state.

The diplomat noted that the next Israeli government will likely have “a very slim majority and not much room for manoeuvre”.

There is also a “major misunderstanding” between the EU and Israel that must be addressed. According to the diplomat, Europeans fail to recognize the “psychological impact” of 7 October on Israelis.

“This event changed the country and made the two-state solution even more distant than before,” the diplomat said.

In return, some Israeli politicians believe Europe has betrayed Israel despite what they view as a fight against “Islamist terrorism”.

“Their argument is that European politicians are somewhat afraid of the Muslim population in Europe,” the European diplomat said.

Europe strongly opposes Iran and the possibility of Tehran acquiring nuclear weapons, imposing sanctions in response.

However, the diplomat argued that the EU would not participate in a war because it lacks a common army:

“We are a diplomatic and economic power, which is why we resort to sanctions and diplomacy. The expectation that we would take part in a military operation is unrealistic.”

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Germany threatens EU budget veto over long-term Ukraine aid

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Germany has threatened to veto the European Union’s joint budget for the 2028-2034 period, which is currently under negotiation, unless every member state commits to providing financial support to Ukraine in 2027 and subsequent years, German Chancellor Friedrich Merz warned.

According to a report by the Financial Times (FT), Chancellor Merz set out Berlin’s condition for the budget talks in a letter addressed to European Council President António Costa.

In his letter, Merz wrote: “A collective commitment that every single one of us, without exception, will make a fair contribution to closing Ukraine’s budget deficit is an indispensable prerequisite for resolving this budget issue and, in particular, for addressing subsequent matters that carry financial implications.”

The German Chancellor stressed that a formula backed by all member states must be established to provide Ukraine with a reliable, multi-year financial perspective starting from 2028.

Merz also insisted that any agreed solution must cover the interest payments on debts incurred to finance the assistance provided to Kyiv.

Conversely, several countries within the bloc have cut financial aid to Ukraine, and the number of capitals adopting this stance is projected to rise next year.

In December 2025, Hungary, Slovakia, and the Czech Republic approved the EU’s 90 billion euro loan package for Kyiv only on the condition that they would not contribute to its costs themselves.

Alongside these three countries, Bulgaria has also stated that it does not plan to participate in subsequent financial assistance packages for Ukraine.

In France, far-right leader Marine Le Pen, who could potentially win the presidential election scheduled for spring 2027, recently told the FT that Paris has run out of funds.

Le Pen assessed: “The honest approach is to tell Mr Zelensky clearly, and even warn him: ‘Look, we cannot do more. We have already allocated the 90 billion euro EU loan, in which France’s share amounts to 18 billion euros. 18 billion euros is genuinely a huge amount of money.'”

The EU’s 90 billion euro loan, covering the 2026-2027 period, aims to meet two-thirds of Ukraine’s financing requirements.

Brussels expects the remaining 45 billion euros to be covered by other partners, including Canada, the UK, Norway, Japan, South Korea, and Australia.

Germany remains the largest net contributor to the EU budget.

In contrast, the four Eastern European countries seeking to avoid financing Ukraine rank among the largest net beneficiaries of the bloc’s budget.

Leveraging this balance, Chancellor Merz aims to use his influence in the EU budget negotiations to secure uninterrupted support for Kyiv in 2027 and the years beyond.

According to the FT, Berlin is also demanding that future aid packages be decided by qualified majority voting rather than unanimity, which is required under the current system.

A German government spokesperson told the newspaper:

“The issue of Ukraine’s financial needs must be resolved within the framework of the next EU budget. Financial support for Ukraine from all EU members is decisive for the successful conclusion of the budget talks.”

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