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German machinery manufacturers pivot to defense production as industrial crisis deepens

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The German mechanical engineering sector, severely impacted by a systemic industrial downturn, is increasingly transitioning to defense manufacturing to offset mounting losses and avoid potential insolvency. This strategic shift was underscored at the Hannover Messe industrial trade fair, which concludes Wednesday, April 24, 2026.

Analysis from German Foreign Policy indicates that for the first time, the fair featured a dedicated section for companies serving as suppliers for various weapon systems. This pivot occurs as the crisis in the machinery industry accelerates, characterized by collapsing production figures and a shrinking workforce.

Transitioning to defense equipment provides a commercial lifeline. For instance, a manufacturer of spark plug production machinery noted that its equipment can be readily reconfigured for the manufacture of cartridge cases. A primary advantage cited by industry players is that intense competition from China—a major disruptor in civilian markets—is not a factor in national defense contracts. Industry estimates suggest the share of defense-related production within the mechanical engineering sector could easily double in the coming years.

This militarization of the economy is beginning to influence the daily lives of workers, as an increasing number of individuals become financially dependent on the defense sector and the military for their livelihoods.

Machinery sector crisis deepens

Mechanical engineering, Germany’s second-largest industrial sector, is facing a severe crisis mirrored in the flagship automotive industry and the third-ranked chemical sector. Recent data shows the sector generated €280 billion in annual revenue and employed 933,000 people. This workforce figure represents a decline of approximately 22,000 compared to 2024 and a loss of 70,000 jobs since 2019.

Sectoral output fell by 8% in 2024 and a further 5% in 2025. In the first two months of 2026, production contracted by an additional 2% compared to the same period in the previous year. Factory capacity utilization is currently reported at just 77%.

Order intake is also in collapse, dropping 8% in real terms between December 2025 and February 2026 compared to the prior year. The decline is attributed to several factors: US tariffs, which have hit previously lucrative export markets, and surging competition from China. Chinese manufacturers are now supplying machinery of comparable quality significantly faster and at substantially lower prices. As German exports to China dwindle, imports of Chinese machinery are rising, with both trends eroding the sales of German firms.

Reshaping civilian industry for military requirements

In response to these headwinds, many machine tool manufacturers are pinning their hopes on the defense industry. According to the German Engineering Federation (VDMA), the defense sector currently accounts for an estimated 2% to 5% of total mechanical engineering revenue. Given the rapid expansion of German arms production, this share is projected to double within three to five years.

VDMA President Bertram Kawlath acknowledged that this growth will not fully compensate for the “decline in orders from the automotive industry.” Nevertheless, an internal VDMA survey revealed that 63% of member companies view the defense sector as an “important” or “very important” future client.

More than 40% of these companies anticipate double-digit sales growth to arms manufacturers in both 2026 and 2027, largely because Chinese competition is absent from the defense segment.

The newly established VDMA Security and Defense Forum is experiencing high demand. Similarly, the German Machine Tool Builders’ Association (VDW) recently launched an “Arms Industry Monitor” for its specialized clientele due to a significant surge in interest. Köln-based toolmaker Alfred H. Schütte, which produces machinery for spark plug manufacturing, exemplified the trend by noting its equipment can be easily adapted to produce explosives or cartridge cases.

Hannover Messe highlights scale of militarization

The shift toward defense production is affecting broader industrial structures. Hannover Messe, traditionally dominated by civilian mechanical engineering, introduced a dedicated Defense Manufacturing Area this year, described by organizers as a “new, forward-looking exhibition format.”

While the fair did not display finished weapon systems or main battle tanks, Handelsblatt reported that approximately 40 companies in the defense section demonstrated technologies such as automated artillery shell assembly and high-security IT workstations for government data.

At the event, which organizers still claim is the world’s largest industrial fair, exhibits included robots designed not only for testing ammunition quality but also for integration into armored vehicles for military missions. Exhibitors displayed armored steel and various IT solutions for weapon systems, alongside “hardened” devices designed to operate under extreme conditions, such as intense heat.

Emergence of new political and industrial standards

The defense stands at Hannover Messe were organized in close cooperation with the newly established DSEI Germany (Defence & Security Equipment International). This defense exhibition is scheduled to debut as an independent event in Hannover from March 9–12, 2027.

The initiative aims to bring together defense contractors, suppliers, and policymakers. Jochen Köckler, CEO of Deutsche Messe AG, stated that DSEI Germany intends to “set new standards both politically and industrially.” Major German defense firms, including Rheinmetall, Hensoldt, and Diehl Defence, have already confirmed their participation. Organizers emphasized that DSEI Germany will focus heavily on “next-generation” weapon systems.

This is not the only new defense fair emerging amid the sector’s boom; another event, Euro Defence Expo (EUDEX), has been announced for Essen from September 22–25, 2026. DSEI Germany will be held biennially in coordination with the British DSEI, which has been hosted in London since 2001.

The militarization of daily life

The growing importance of the arms industry to the struggling mechanical engineering sector illustrates how individual companies and major industrial events are being drawn into a cycle of militarization.

The consequences of this shift extend into the daily lives of the workforce. Companies producing directly or indirectly for the German Armed Forces (Bundeswehr) must comply with additional security regulations. Employees involved in defense production often undergo specialized security screenings and are subject to strict confidentiality requirements.

An increasing number of households are becoming financially dependent on arms production. This trend is not confined to mechanical engineering. For example, the medical technology firm Dräger, known for the ventilators used during the COVID-19 pandemic, also produces gas masks and constructs field hospitals for installation on naval frigates.

As the defense industry penetrates previously civilian sectors of the economy and the labor market, and as the Bundeswehr gains rapid prominence, changes in public consciousness are occurring that threaten to deeply transform German society. According to German Foreign Policy, political and economic militarization is increasingly being accompanied by a broader societal militarization.

Europe

Vučić scrapped plan to hold power after phone warnings, report says

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Former Serbian President Aleksandar Vučić was preparing to retain power by force following the country’s parliamentary elections, according to a report by the British newspaper The Times, citing politicians and a former commander of a specialised police unit.

However, he abandoned this scenario after receiving phone calls urging him to back down.

Spasoje Vulević, the former head of the Serbian police counter-terrorism unit, told the newspaper that 4,000 police officers and 3,000 people whom he described as “thugs” were deployed to central Belgrade on voting day, 25 October.

According to Vulević’s assessment, Vučić was preparing to reject the election results.

Vučić’s spokeswoman denied the claim. Speaking to The Times, she said the police presence in Belgrade was a response to threats of violence from protesters and was unrelated to any attempt to seize power.

Member of the European Parliament Sandro Gozi also said he received alarming messages from diplomatic sources on election day indicating that Vučić was preparing for a scenario involving the use of force.

According to the newspaper, Gozi’s political group issued a statement around 21:00 local time, as initial projections were being released, warning that supporters of Vučić’s party could be mobilized to provoke clashes.

Where did the calls forcing Vučić to back down come from?

Radomir Saičić, a leading candidate from the winning Student List, also argued that plans had been made to alter the results by force if the vote margin between the sides was narrow.

“If the results were close, there were plans to overturn the outcome of the vote by brute force,” Saičić said. “However, according to the information I obtained, numerous calls to him from the police and other figures prompted him to change his mind. They convinced him that executing this plan would end very badly for him.”

Former commander Vulević, on the other hand, was sceptical that police officers could have played a decisive role.

Noting that Vučić personally selected the unit commanders in Belgrade and that these figures were unlikely to oppose him, Vulević said: “I suspect that representatives of European governments called Vučić; these were talks conducted at the highest level.”

European Parliament member Gozi did not confirm the claim that the telephone calls had a decisive effect.

“I cannot rule out the possibility that phone calls took place, but in any case, the vote margin against him was far too large,” Gozi said. “Vučić was stunned.”

According to The Times, roads were closed in Belgrade during the evening, gendarmerie personnel appeared on the streets, and groups of men dressed in black headed toward the city’s Pioneers Park (Pionirski Park).

Vulević claimed these individuals arrived in groups of 20 to 30. However, the newspaper reported that at 21:30, an hour and a half after polls closed, Vučić backed down and his assembled supporters dispersed.

From the Novi Sad collapse to early election defeat

Early parliamentary elections were held in Serbia on 25 October.

According to Election Commission data, after processing results from 8,139 ballot boxes, the Student List secured 52.65% of the vote, while Vučić’s United Serbia coalition remained at 39.22%.

Vučić conceded defeat without waiting for the final results.

“It is obvious that we have lost these elections. The Student List has won,” the politician said, attributing the opposition’s success to support from European countries and the US “deep state”.

Prior to the election, the country was the scene of prolonged mass protests that began after the collapse of a railway station canopy in the city of Novi Sad in November 2024.

Protesters initially demanded accountability for those responsible and an investigation into corruption allegations, before subsequently calling for the government’s resignation.

Having dissolved parliament in September 2026 and announced his resignation from the presidency, Vučić was subsequently nominated as the candidate for prime minister by his party.

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EU scrambles for takers for remaining €21B in SAFE defence loans

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The European Commission has until the end of the year to convince EU member states to take up around €21 billion in unused defence loans and support Ukraine’s defence.

The worsening security situation in the Black Sea could encourage Romania to seek additional loans. Bucharest has already secured €16.7 billion under SAFE.

The remaining figure became final after Hungary and Italy significantly scaled back their requests under the EU’s €150 billion Security Action for Europe (SAFE) programme.

On Wednesday, after approving Hungary’s spending plan, the final pending application, the Commission announced that it would soon launch a second call for applications.

The situation is very different from August 2025, when Brussels was confident that demand would far exceed the available €150 billion.

Applications from 19 EU countries eventually exceeded that sum by around €40 billion.

Now, national elections and pressure on public finances may make governments reluctant to take on additional debt.

Some EU diplomats told Rapporteur that the conditions for the second round remain unclear, making it difficult to say whether their countries would apply.

The Commission must publish the second call by the end of December. Unlike the first round, where countries could use the loans for national procurement contracts until May 2026, the remaining money must be spent on joint procurement.

Poland benefited from the previous flexibility, securing €43.7 billion, the largest national allocation, and moved quickly to sign contracts.

Warsaw announced that 90% of the money would go to Polish companies.

Brussels also hopes the remaining money will be used to bolster Ukraine’s defence.

In July, during an official visit to the country, Commission President Ursula von der Leyen suggested that around €10 billion in unused SAFE loans could be directed to Kyiv.

Defence Commissioner Andrius Kubilius mentioned the Freyja anti-ballistic missile project among the initiatives under consideration while discussing the second SAFE call at an E5 meeting in Paris this week.

Military sources told Rapporteur that participation in the second round had been considered under Romania’s previous government, but the proposal would now require a fresh political assessment.

Diplomatic sources in Athens told Rapporteur that Greece has also shown interest. The country had previously made an unsuccessful push to increase its allocation by several billion euros.

Polish Deputy Defence Minister Magdalena Sobkowiak-Czarnecka told Polish media this week that Poland was also discussing the conditions for another possible application, while Ireland has shown interest in the remaining funds.

Italy, having already reduced its initial request, is considered unlikely to participate in the second round.

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EU prepares Ukraine peace mission to Abu Dhabi led by Björn Seibert

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The European Union is preparing to take a direct role in the diplomatic negotiations surrounding the war in Ukraine.

According to a report by Euronews television, the European Commission and the European Council are establishing a joint delegation of high-ranking officials to attend an upcoming round of talks between the parties. Björn Seibert, the head of cabinet to European Commission President Ursula von der Leyen, will lead the delegation.

The German diplomat, described in the report as an influential bureaucrat, is expected to head the team attending the talks scheduled to take place in Abu Dhabi in early November.

“We are strongly committed not only to ending the war, but also to achieving a just and lasting peace. This is our goal, and this is precisely the position we defend in the current talks,” a European Commission representative said in a statement on the matter.

Brussels’s key figure behind the scenes

A European bureaucrat of German descent, Björn Seibert has long been recognized as von der Leyen’s closest aide.

Seibert first joined von der Leyen’s team in 2013 during her tenure as Germany’s defence minister, later moving with her to the European Commission.

According to reporting by Politico magazine, Seibert gradually developed into one of the most powerful figures behind the scenes of European politics.

The magazine noted that Seibert has been directly involved in clearing senior appointments and has played an influential role in managing relations with both the European Parliament and the US.

This setup has also sparked controversy within the institution. Critics claim that concentrating power in the hands of the cabinet chief and von der Leyen leads to excessive centralization in administration, whereas supporters argue the model ensures rapid, efficient decision-making.

If these multilateral contacts materialize to bring together delegates from Europe, Ukraine, the US, and Russia under one roof, they will mark the first talks held in this specific format during the peace process.

Diplomatic engagements so far have been conducted either bilaterally between Russia and the US or as trilateral meetings that included Ukraine.

However, the EU delegation’s participation at the negotiating table is not yet finalized, as the issue remains under consultation.

European capitals have actually spent months searching for a similar diplomatic channel. Politico reported in January that EU member states had discussed appointing a special envoy to lead talks with Moscow over Ukraine, an effort backed by French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni.

The Telegraph newspaper reported in October that, alongside Meloni, Finnish President Alexander Stubb, Czech President Petr Pavel, Norwegian Prime Minister Jonas Gahr Støre, and Danish Prime Minister Mette Frederiksen were being mentioned for the European representative role.

The newspaper noted that officials were also weighing the option of creating a joint delegation of representatives instead of choosing a single figure.

Reservations from Moscow over European intentions

Moscow, for its part, views Europe’s position as potentially decisive in resolving the conflict. “It is not enough to talk only with Kyiv; it is necessary to talk with the whole of Europe, which fully backs Kyiv in its desire to prolong the conflict. Perhaps Europe’s stance is of key importance here,” Russian Presidential Aide Yuriy Ushakov said.

Kremlin spokesman Dmitriy Peskov also stated that Moscow would support the emergence of an EU negotiator. “Having a negotiator is good. If that negotiator genuinely seeks to contribute to a peaceful settlement, it would be much better,” Peskov said.

Conversely, Russian Foreign Minister Sergey Lavrov struck a cautious tone on 27 October regarding European countries’ interest in joining the talks. Lavrov stated that Europe wants a seat at the table without altering its outlook toward Moscow.

Arguing that Europe disregards Russia’s position on the root causes of the conflict, Lavrov emphasized that European nations do nothing beyond levelling accusations and demanding a halt to hostilities.

“This merely demonstrates the Europeans’ desire to join the negotiation process. However, the positions with which they would enter the process remain a major question mark,” the Russian minister said.

Despite these conflicting signals, Russian President Vladimir Putin previously noted that Moscow has not closed the door to dialogue with European nations.

As a preferred European negotiator, Putin previously named former German Chancellor Gerhard Schröder.

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