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German industry turns to arms sector

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In the wake of the war in Ukraine, a growing number of German companies are moving into the military equipment and services sector, breaking a widespread taboo against supplying the arms industry.

The Financial Times (FT) reports a surge in production and investment in military equipment and services. Engine maker Deutz, for example, saw its shares rise by more than 20 per cent last week after announcing plans to produce tank engines as well as motorcycles.

The engineering group is among the medium-sized companies, the backbone of the German economy, that have reconsidered or ended the ban on defence contracts.

Due to the legacy of industrial cooperation with the Nazi regime, parts of German business have long shunned the defence sector. Since February 2022, however, some key players in the country’s engineering supply chain, such as laser manufacturer Trumpf and components company Hawe Hydraulik, have targeted military contracts.

“Defence of freedom by military means if necessary…”

Cathryn Clüver Ashbrook, a political scientist and former director of the German Council on Foreign Relations, told the FT that long-held attitudes to the defence sector were changing rapidly. “After three years of war and heavy economic losses on the European continent, Germany is on the verge of a historic change,” she said.

“Russia’s war of aggression against Ukraine has certainly raised awareness in our society that freedom must be defended by military means if necessary,” said Daimler, which last month announced a new contract to supply 1,500 trucks to the Canadian military.

War industry no longer “stigmatised”

Karl Haeusgen, chairman of engineering firm Hawe Hydraulik, which will end its ban on defence contracts in 2022, said the Ukraine war and subsequent European pressure to increase military spending had reduced the “stigma” surrounding the defence sector.

“A large part of the defence supply chain has a completely different image than three or four years ago,” Haeusgen said.

The company used to have a policy of not supplying the defence sector, but now its board-level committee considers orders for its valves and pumps, which can be used in military equipment, including vehicles and ships.

“Civilian” production harmonised with military production

This shift also comes at a time when German industry is struggling to recover from weak demand from China. In contrast to the booming defence sector, the country’s car industry has been forced to announce large-scale redundancies at a time when the transition to electric vehicles is proving difficult.

Christian Mölling of the German Council on Foreign Relations argued that Germany is facing the opposite situation to Europe in the immediate post-Cold War period, when companies were faced with the need to convert military production to civilian production.

“They are rethinking how to use [civilian] production capacity, technology and procedures to be more efficient in the military world,” Mölling said.

Work shifts from automotive to defence

Continental, one of the world’s leading automotive suppliers with 200,000 employees, recently launched a plan to transfer hundreds of workers to the German defence company Rheinmetall.

Peter Sebastian Krause, a Rheinmetall executive, said at the time that the Continental workers would bring “extremely valuable” skills to the company.

Laser manufacturer Trumpf, whose customers include the semiconductor industry, including chip-making equipment company ASML, is another company considering lifting the ban on defence supplies.

The company’s lasers are subject to export restrictions, including to China, because the German government considers them to be “dual-use”, with both civilian and military applications.

Hagen Zimer, the company’s head of laser operations, said defence companies had shown interest in military applications for the company’s lasers, such as shooting down drones. The laser could be a powerful defence tool, Zimer told the FT, adding that without the technology “it would be impossible to defend against a multi-pronged attack of 200 drones in war zones”.

Lufthansa enters the military industry

Lufthansa Technik, a wholly-owned subsidiary of the airline group that services around one-fifth of the world’s active fleet, officially launched a military aircraft services division last year. The unit, which has become a fast-growing business, will help maintain Germany’s Chinook helicopters and F-35 fighter jets.

“Based on our relationship with the German government, we decided to take a bigger step into defence in 2019,” said Lufthansa Technik chief executive Michael von Puttkamer, adding that the €100bn earmarked for military restructuring “is an opportunity to step further into the sector”.

“We believe that entering the defence sector is not only a great business opportunity, but also a way to support the ability of our German armed forces to defend our country,” Puttkamer said.

Susanne Wiegand, CEO of tank parts manufacturer Renk, said increased “synergies” between Germany’s civil and defence manufacturing sectors could benefit both sides.

“This is a great way to develop technology. Innovations come from the military world and find their way into civil applications and vice versa,” Wiegand said.

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U.S. sets up new ‘air defence base’ in Poland

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The United States inaugurated a new air defense base in northern Poland on Wednesday, marking a significant move in NATO’s defense strategy. Polish President Andrzej Duda stated that the base strengthens Poland’s security as a NATO member, especially as the war in Ukraine continues.

Located in Redzikowo, a town near the Baltic coast, the base has been in development since the early 2000s. Amid concerns following Donald Trump’s election, some NATO members are uneasy about future commitments. However, Polish officials emphasize that the consistent support of the base project across U.S. administrations underscores the enduring military alliance between Poland and the United States.

“The United States is the guarantor of Poland’s security,” Duda asserted, underscoring that the presence of U.S. troops highlights Poland’s sovereignty and reinforces that it is “not in Russia’s sphere of influence,” despite its historical ties as a socialist state until 1989.

On the other side, Kremlin officials described the base as an attempt to “contain Russia” by positioning American military infrastructure closer to Russian borders.

The Redzikowo base is a vital component of NATO’s Aegis Ashore missile defense shield, designed to intercept short- and medium-range ballistic missiles. Other key elements of this NATO defense shield include a base in Romania, U.S. Navy destroyers stationed at Rota, Spain, and an early warning radar located in Kürecik.

Russia has long viewed the base as a threat, initially opposing the project in 2007. NATO maintains that the shield is “purely defensive” and asserts that it’s not targeted at Russia.

According to military sources cited by Reuters, the Redzikowo system currently targets missiles from the Middle East. Redirecting the radar to intercept missiles from Russia would require a policy shift and complex procedural adjustments.

Polish Defense Minister Wladyslaw Kosiniak-Kamysz recently called for expanding the defense shield, stating that Warsaw would discuss further plans with NATO and the United States.

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German think tank DGAP: Germany and Europe must build military strength in the Asia-Pacific region

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Germany’s leading foreign policy journal, Internationale Politik, calls for significant rearmament and militarization efforts to strengthen European influence in the Asia-Pacific region.

According to Internationale Politik, published by the German Council on Foreign Relations (DGAP), European nations should rapidly expand their armed forces and take control not only of their own continent but also, “if necessary, the Mediterranean, the Red Sea, and the Strait of Bab el-Mandeb,” to “reduce reliance on U.S. troops in Europe.”

If successful, the journal argues, the United States would retain adequate military capacity “in the event of a war in the Indo-Pacific.” In such a scenario, European nations should also prepare for a potential conflict with China and enhance their defense industrial capacity to replenish depleted U.S. munitions if required.

The ‘Asianization’ of security architecture

Calls for a stronger German and European military presence in the Asia-Pacific are driven by the intensifying power struggle between the West and China and the increasing inclination of Asian nations to pursue independent military policies rather than aligning with declining Western dominance.

Felix Heiduk, director of the Asia Research Group at the German Institute for International and Security Affairs (SWP), describes this trend as the “Asianization” of regional security architecture.

Indonesia exemplifies this shift. Since 2007, Indonesia has conducted regular military exercises with the United States, the latest spanning August 26 to September 6, 2024. However, Jakarta has also expanded ties with Russia. During a recent meeting with President Vladimir Putin, Indonesia’s current president and former defense minister, Prabowo Subianto, expressed that he sees Russia as a “great friend” and intends to strengthen relations with Moscow.

Last week, Russia and Indonesia held their first joint military exercises, which Jakarta considers a demonstration of its independent foreign and military policy.

The ‘Indo-Pacific’ as a Japanese-American concept and Germany’s role

The concept of the Indo-Pacific frequently underpins arguments for expanding military activities into the Asia-Pacific. In Internationale Politik, Heiduk clarifies that this term is “neither geographically neutral nor value-neutral” but rather “purely political.”

Heiduk explains that the concept of a “Free and Open Indo-Pacific”, which the U.S. adopted from Japan, aims to encircle China and maintain U.S. hegemony in Asia. He further notes that Germany is also entangled in this geopolitical struggle.

Heiduk points to Germany’s Asia-Pacific military deployments in 2021 and 2024, along with maneuvers involving German air and ground forces in Australia and other countries in the region. These actions align with Berlin’s official Indo-Pacific Strategy—a conflict framework Germany has adopted in alignment with the U.S. in its great power struggle with China.

Europe’s Need to Rebuild Its Land Armies

Max Bergmann, an expert from the Center for Strategic and International Studies (CSIS) in Washington, illustrates the pressure for greater militarization in the Asia-Pacific in a recent article for Internationale Politik.

Bergmann describes European nations as lacking “hard power,” noting that European armies have been underfunded for two decades and that rebuilding ground forces should be the priority. He argues that while Britain and France possess advanced weapons systems, including anti-submarine capabilities, their forces are “too thinly deployed.”

While Russia remains the immediate military priority for Europe, Bergmann sees a long-term role for European security in the Indo-Pacific.

Reducing the U.S. military rresence in Europe

The CSIS expert suggests six strategic steps Europe can take to reduce U.S. military presence.

The first step, according to Bergmann, is for Europe to focus on securing the continent, the Mediterranean, and, if needed, the Red Sea and Bab el-Mandeb. This would allow the U.S. to concentrate fully on the Indo-Pacific if war broke out in the region.

Bergmann notes that in such a conflict, the U.S. could dedicate its full military production capacity to support Indo-Pacific logistics, but only if Europe is militarily fortified.

Beyond the ‘third way’ for Europe

Bergmann proposes additional diplomatic and security roles for European states. He advocates strengthening relations with countries like Vietnam, which have limited ties with the U.S. However, he emphasizes that Europe should not pursue a “Gaullist third way” between the U.S. and China since European interests align closely with U.S. strategic interests.

Finally, Bergmann recommends that European states establish stronger military-political and arms-industrial partnerships within the Asia-Pacific and, ultimately, bolster their own military presence in the region. The most effective way to achieve this, he suggests, would be to organize a European naval mission under the EU flag to coordinate all European naval activities in the Asia-Pacific.

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Green light from CDU for debt brake reform

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Friedrich Merz, leader of Germany’s conservative Christian Democratic Union (CDU), announced on Wednesday that the constitutional debt brake, which limits public deficits to 0.35% of Gross Domestic Product (GDP), could be open to reform under certain conditions.

Merz, the frontrunner to become Germany’s next chancellor after the collapse of the country’s “traffic light” coalition, has previously argued that Germany should adhere to the constitutionally guaranteed debt brake, a measure introduced by his party under Angela Merkel in 2009.

The debate over debt brake reform within the CDU was reignited this year by Berlin’s conservative mayor Kai Wegner. Several powerful CDU leaders from regional governments have also supported the reform push, as these states face more constraints than the federal government and lack the flexibility for new borrowing.

Merz: Revision possible if borrowing is for investment

Pressure is mounting within the party, with CDU state premiers urging Merz to include debt brake reform plans in the campaign for the early elections on 23 February.

Speaking at an event on Wednesday, Merz stated: “Of course, reform is possible. The question is: why? To what end? What would be the result of such a reform?”

Merz emphasized that he would not support reform aimed at increasing consumption or social policy spending. However, he suggested that if additional borrowing were used to increase investment, “then the answer could be different.”

According to the Greens, the only way out of the crisis is a revision of the debt brake

Merz noted that the debt brake was a “technical issue” and stated that he did not wish to engage in the discussion at that moment. Later, a source close to the CDU leader told Reuters that Merz had no immediate plans to reform the debt brake.

However, Bruno Hönel, a member of the Bundestag’s budget committee from the Greens, argued that if Merz assumed power, the debt brake would be reformed immediately, pointing out that the budget could not be financed without borrowing during such a crisis.

Hönel stated, “If you want to work with the budget in a forward-looking way, there is no other way than to reform the debt brake.” He also noted that 80 billion euros would be needed to meet NATO’s 2% defense spending target by 2028, nearly 30 billion euros more than the draft budget for 2025, which currently envisions defense spending of 53 billion euros.

Traffic light coalition collapses over debt brake debate

The debt brake was a key factor in the collapse of the coalition, leading to calls for early elections.

Christian Lindner, leader of the fiscally conservative Free Democrats (FDP), who was dismissed as finance minister last week by Social Democrat Chancellor Olaf Scholz, claimed that Scholz had pressured him to suspend the debt brake.

Suspending the debt brake in an emergency, citing special circumstances, is possible with a government majority. Germany reinstated the debt brake in 2024 after a four-year suspension to allow for extra spending on the COVID-19 pandemic and the energy crisis.

CDU’s sister party CSU opposes reform

However, reforming the debt brake requires a two-thirds majority in both the Bundestag and the Bundesrat.

The CDU premiers from the eastern states support the debt brake reform, while Markus Söder, the leader of Bavaria’s CSU, opposes it. Söder emphasized that “absurd extra spending” must be cut first.

Before discussing the debt brake, Söder argued that the fiscal equality of federal states must be addressed, referring to Germany’s income redistribution system.

The wealthy state of Bavaria recently had to transfer over €9 billion to other states. “This cannot go on,” Söder declared.

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