Europe
Germany loses ground in global innovation race as R&D spending falls behind US and China
The German economy is falling behind its global competitors in research and development (R&D) expenditure, undermining the long-term profitability and commercial returns derived from its technological investments.
Furthermore, despite the federal government’s public declarations of support for a domestic “high-tech agenda,” public spending is increasingly being diverted toward the defense sector.
A recent study conducted by the German Economic Institute (IW) on behalf of the Bertelsmann Foundation reveals that Germany’s share of global R&D expenditure declined from 8.5% in 2008 to 5.6% in 2021.
Similarly, Germany’s share of global patent applications has fallen significantly, dropping from 21.9% in 2000 to just 15% in 2022.
Faced with these domestic headwinds, German companies are increasingly relocating their research departments abroad. This shift places German industry under intensifying pressure within key future-oriented sectors, where it is steadily losing ground, particularly to China.
While the federal research budget remains capped at 4.15% of the total federal budget—prompting complaints of stagnating innovation funding from small and medium-sized enterprises (SMEs)—the official defense budget already accounts for more than 15% of federal spending and is projected to double in the near term.
Relative Decline Against the US and China
The IW study on the innovative strength of German industry assesses R&D expenditure alongside the volume of patent applications as the primary indicators of industrial innovation performance.
The authors conclude that although Germany’s absolute spending on industrial research and development has risen slightly, the country has lost substantial ground in international comparisons.
This relative decline is driven by the United States and China, both of which have accelerated their R&D spending at a much faster rate.
Consequently, Germany’s share of global R&D expenditures contracted from 8.5% in 2008 to 5.6% in 2021, while its share of global patent applications fell from 21.9% in 2000 to 15% in 2022.
This downward trend has particularly impacted the pharmaceutical, chemical, electrical, and automotive sectors. Among major industrial segments, only the German mechanical engineering sector managed to strengthen its international standing in terms of patent applications.
Foreign Control Over Key Technologies Increases
The study highlights the issue of patent ownership and control over key technologies as a matter of geopolitical and economic sensitivity.
According to the research, between 2000 and 2022, 29% of all international patents generated within Germany—amounting to approximately 189,000 filings—were registered by foreign-owned enterprises, primarily based in the US and, increasingly, China.
As a result, operational control over these patents resides outside the Federal Republic of Germany.
By contrast, German companies registered and retained control over only 102,000 patents filed abroad during the same period, leaving the country with a negative net balance in transnational patent control.
To illustrate the strategic implications of this imbalance, the study points to the defense sector. The ongoing debate surrounding Germany’s purchase of F-35 fighter jets from the US defense contractor Lockheed Martin highlights the potential risks of relying on foreign-controlled technologies. Without explicit US authorization, spare parts cannot be secured, and the aircraft may be rendered unable to take off.
Geographically, the state of Hesse recorded the highest share of foreign-controlled patent applications in Germany, at 42%. The primary drivers behind this concentration are the Opel manufacturing facilities in Rüsselsheim—which hold a vast patent portfolio and operate as part of the multinational group Stellantis—alongside the highly concentrated pharmaceutical industry in the Frankfurt am Main region.
Core German Sectors Under Pressure
A sector-by-sector analysis underscores the extent to which the German economy is falling behind in global benchmarks.
In 2021, the German electronics sector ranked sixth globally in terms of R&D investment.
Japan secured the fifth position with spending twice as high as Germany’s.
Meanwhile, China accounted for 35% of global R&D expenditure in the electronics sector, while the US maintained its global leadership.
In mechanical engineering, Germany’s share of global R&D expenditure dropped from approximately 13% in 2008 to below 8% in 2021.
China now commands nearly half of all global spending in this sector, compared to a 15% share held by the US.
Nonetheless, the German mechanical engineering sector has managed to retain its leading global position specifically in terms of patent applications.
In the automotive sector, Germany ranked third globally, with its R&D expenditure accounting for approximately 20% of the world total.
China reached a 22% share, while Japan led the global market at 25%. The US followed in fourth place with 17%.
In the chemical industry, Germany accounted for 9% of global R&D spending. The US held a 15% share, while China dominated global trends with 42% of total investment.
In the pharmaceutical sector, Germany’s share plummeted from 13.1% in 2000 to just 4.4%, placing it fourth internationally.
The top spots in pharmaceutical R&D are held by the US, China, and Japan.
Defense Spending Takes Precedence Over R&D
The federal government maintains that it is actively working to counter these negative trends. Chancellor Friedrich Merz has frequently championed a “high-tech agenda” designed to support and revitalize German industry.
“The federal government will do everything in its power to ensure that Germany remains a successful and innovative business hub,” Merz declared at the Hannover Messe trade fair in late April.
However, the allocation of funds within the federal budget indicates that Berlin’s actual priorities lie elsewhere.
The draft 2026 federal budget, which totals 525 billion euros, allocates 21.8 billion euros to the Ministry of Education and Research. In addition, the ministry is set to receive 1.1 billion euros from the “Infrastructure Special Fund.” According to the ministry, these specific funds are earmarked for initiatives “particularly in the New Space sector,” which holds high strategic importance for the defense industry.
Excluding this special fund, federal innovation spending accounts for just 4.15% of the total budget.
By comparison, the 2026 budget allocates 82.69 billion euros directly to the German Armed Forces (Bundeswehr). When combined with an additional 25.51 billion euros drawn from the military’s own “Special Fund” (Sondervermögen), total defense spending reaches approximately 108 billion euros.
By 2029, Germany’s regular defense budget is projected to rise to 152 billion euros.
The Bundeswehr’s share of the core federal budget (excluding special funds) already stands at 15.75%, and this percentage is expected to increase rapidly.
Corporates Relocate R&D Activities Abroad
As a consequence of these shifting domestic priorities and rising operational pressures, a study by professional services firm Deloitte and the Federation of German Industries (BDI) reveals that 13% of surveyed German industrial companies have already relocated their research departments abroad.
Furthermore, 35% of surveyed firms plan to follow suit within the next three years. According to the Innovation Report published by the Association of German Chambers of Commerce and Industry (DIHK), the German economy’s propensity to innovate has fallen to its lowest level since 2008.
Industry representatives attribute this decline in part to the federal government’s neglect of Germany’s traditional Mittelstand—the small and medium-sized enterprises, alongside established family-owned businesses, that serve as the backbone of the country’s export economy. Key public funding programs for these businesses have stagnated for years.
Of particular concern to the sector are the Central Innovation Program for SMEs (ZIM) and the Inno-Kom program for small businesses, both of which are administered by the Ministry for Economic Affairs and Climate Action.
“In the meantime, more money is flowing to the large players,” stated the Association of Innovative Enterprises (VIU). VIU President Uwe Möhring warned of the structural risks ahead: “In light of this ongoing reallocation of funds, we are deeply concerned about the future of project financing, which is vital for our survival.”
Europe
Ukraine uses British drones for long-range strikes deep inside Russia
Ukraine has for the first time used unmanned aerial vehicles (UAVs) manufactured by two British companies in strikes against targets deep inside Russian Federation territory.
According to a report by The Times newspaper, which cited sources within the Armed Forces of Ukraine, the attacks in question were carried out over the past six months.
The newspaper claimed that facilities in the cities of Volgograd and Yaroslavl were among the targets hit.
According to details reported in the story, a heavy British T-150 drone manufactured by Malloy Aeronautics was used in the Kherson region in April.
In long-range attacks, the jet-powered Nyan drone, developed by BAE Systems subsidiary Callen-Lenz, and UAVs produced by an unnamed second British company were deployed.
Military analysts suggested that Russia might launch retaliatory strikes against British manufacturers due to the support provided to Kyiv. However, the newspaper noted that the likelihood of a direct military confrontation with NATO remains low.
Former British Defence Minister Dan Jarvis stated in June that London would deliver at least 150,000 drones, along with 350 anti-aircraft missiles and radar systems, to Kyiv by the end of the year.
The Telegraph newspaper reported that the total value of the drones was calculated at £500 million, with British authorities intending to cover this cost using frozen Russian assets. The UK also provides Storm Shadow cruise missiles to Ukraine.
The Moscow administration, which argues that military aid prolongs the conflict, condemns the support given to Kyiv. Russia’s Ambassador to London, Andrey Kelin, stated that the United Kingdom is “more deeply involved” in the conflict in Ukraine than any other NATO member.
Russian President Vladimir Putin warned that responses to Ukrainian attacks on Russian territory would be many times stronger.
In April, the Russian Ministry of Defence published a list of production facilities in several Western countries that it claimed were supplying drones and spare parts to Ukraine.
Two factories operating on UK territory were included on the list. In its statement, the ministry noted that the decision by various countries to increase the production and delivery of UAVs to Ukraine “creates the threat of a rapid escalation of the military-political situation across the entire European continent”.
Dmitry Medvedev, Deputy Chairman of the Security Council of Russia, described the facility list as Russia’s “list of potential targets”.
In his assessment, Medvedev stated: “When the strikes become reality depends on what happens next. Sleep tight, dear partners.”
Europe
CDU unrest raises doubts over Merz’s future as chancellor
Germany’s Chancellor Friedrich Merz is facing mounting unrest within his Christian Democratic Union (CDU), with party figures reportedly beginning to push for a change in leadership.
According to Der Spiegel, frustration is growing among influential party members who believe Merz has repeatedly failed to capitalize on political opportunities.
One senior party figure quoted by the magazine said: “The ball is sitting on the penalty spot, the opposing goalkeeper is nowhere in sight, yet Merz somehow manages to score an own goal.”
Der Spiegel added: “It appears there is little hope left within the CDU that Merz can climb out of the hole he has dug for himself.”
After speaking with the chancellor’s allies and figures from the CDU leadership circle, the magazine said the interviews painted the picture of a party that has lost confidence in Merz.
“This is unprecedented in post-war German history. When CDU Chancellor Ludwig Erhard was removed by his own party in 1966, the process unfolded slowly and gradually over several months. In Merz’s case, however, it has been possible to watch his authority collapse within just a few days. And the person dragging him down is not his party colleagues, but himself.”
The CDU has already been on edge after trailing the Alternative for Germany (AfD) in opinion polls for months. The situation has now been compounded by what Der Spiegel described as the “Merz fiasco”.
According to the magazine, even within the CDU’s highest leadership circles, almost no one would now bet that the chancellor will remain in office until Christmas.
According to Politico, public criticism of Merz has come primarily from figures who were removed from government during the cabinet reshuffle.
The leadership issue, however, has not yet been raised openly because of the summer recess.
Elections are due in three eastern German states: Saxony-Anhalt, Berlin and Mecklenburg-Western Pomerania. Polling points to a disastrous outcome for the CDU.
One prominent Christian Democrat wrote: “Things I once thought unimaginable are happening. Merz is in a tunnel; he can no longer reach the party. Everything is over.”
The same CDU figure believes Merz will either have to throw in the towel or be forced to resign by 21 September at the latest.
That date refers to the Monday following the twin elections in Berlin and Mecklenburg-Western Pomerania.
The collapse in confidence surrounding Merz has followed this chronology. On Saturday, 18 July, parliamentary group leader Jens Spahn resigned.
Just three days earlier, Spahn had announced through the Bild newspaper that he and his husband had welcomed a son born through a surrogate mother in the US.
For Merz, this presented a completely unexpected opportunity. He had never trusted Spahn but had hoped he could keep him under control after becoming chancellor.
In recent months, however, the parliamentary group leader had become one of the coalition’s central figures by taking advantage of what the article describes as Merz’s weak leadership.
Nothing moved without him. Spahn had effectively become the CDU’s second most powerful figure.
The chancellor was unhappy with that situation, but Spahn’s resignation suddenly removed the problem on its own. Merz had already been planning a cabinet reshuffle for the autumn.
The chancellor is also reported to have been dissatisfied with several cabinet members and, according to the article, to have displayed a certain “arrogance” in meetings with subordinates.
For example, during an executive board meeting in Rhineland-Palatinate, a letter became public stating that the CDU parliamentary group in the state legislature had cancelled its meeting with Merz because “the minimum level of mutual trust and respect” no longer existed. According to the article, such an insult had never occurred before.
Participants at last week’s Presidium and Executive Committee meetings all noticed the tense atmosphere.
Some believe the CDU leader has “buried himself deep inside his own tunnel” and “is no longer even aware of how serious his situation has become”.
According to later accounts from the group, Rhineland-Palatinate Minister-President Gordon Schnieder even accused the chancellor of lacking professionalism.
What happens next? According to Der Spiegel, the party leadership is avoiding that question. No scenarios are being discussed, even in small groups.
“They do not want to invite disaster. Especially now, when everyone is looking forward to the summer break. Right now, nobody needs a change of chancellor. But nobody believes Merz still has a future as head of government.”
After the elections in eastern Germany, some argue that Merz should be forced to resign.
According to the report, if three experienced state premiers were to advise the chancellor to step down for the good of both the country and the party, Merz would almost certainly comply, or at least that is what his team believes. Even so, they are not entirely certain.
Following such a resignation, North Rhine-Westphalia Minister-President Hendrik Wust is expected to step in. He is the only figure mentioned as a potential successor to Merz.
CSU leader Markus Soeder is reportedly considered unacceptable to the CDU, while the idea that CSU Interior Minister Alexander Dobrindt could become chancellor is described as absurd. As a result, the task would fall to Wust.
Europe
Germany lays groundwork for civilian alternative as conscription looms
In Germany, the Ministry for Family Affairs has already begun working on the revitalization of alternative civilian service, which serves as a constitutionally mandated prerequisite for the reintroduction of compulsory military service.
The federal government is taking measures to implement a new civilian service system in the event that mandatory military service is restored.
The Federal Ministry for Family Affairs confirmed that over recent months it surveyed 23 major associations and organizations regarding the types of opportunities they could offer to conscientious objectors should compulsory military service be reinstated.
A ministry spokesperson stated: “22 out of the 23 associations indicated that, in the event that the military obligation is reactivated, their infrastructure and placements are in principle ready, and they could offer a wide variety of opportunities to those performing civilian service in lieu of military service.”
Thorsten Frei, parliamentary secretary of the Christian Democratic Union (CDU) and Christian Social Union (CSU) faction in the Bundestag, considers taking precautions against the potential entry into force of a new civilian service to be “very sensible and correct.”
Speaking to the channels RTL and ntv, the CDU politician noted that there is currently no new development in the discussions regarding a return to military service.
However, Frei emphasized: “We can never rule out that decisions may need to be taken quickly to prepare for all contingencies. In that case, the resulting consequences must also be clear.”
Criticism regarding the potential reintroduction of compulsory civilian service has emerged from the opposition.
Ines Schwerdtner, co-leader of The Left party, stressed that “the state should not dictate to young people how they ought to spend a year of their lives.” This principle, she asserted, applies as much to compulsory civilian service as it does to compulsory military service.
According to Schwerdtner, young people should not be used “to fill the gaps in a welfare state that the federal government has spent years ruining through austerity policies.”
In statements to the Funke Media Group, the party chair emphasized that there is no need for “state-mandated cheap labor” in care services, emergency rescue services, or social institutions.
Martin Hagen, Secretary General of the Free Democratic Party (FDP), views the preparations by the Federal Ministry for Family Affairs as an admission of failure by the CDU-SPD coalition government.
Pointing out that plans for a new civilian service are already being drawn up, Hagen stated that this demonstrates the coalition government has “zero confidence in its efforts to reach the target personnel numbers for the Bundeswehr through voluntary enlistment.”
Hagen criticized the CDU/CSU and SPD for failing to “make the Bundeswehr an attractive employer and to inspire young people toward military service.”
The Social Association of Germany (SoVD) also expressed concern, presenting arguments similar to those of Left Party leader Schwerdtner.
Michaela Engelmeier, Chairwoman of the SoVD Executive Board, stated that compulsory civilian service would represent a major intervention by the state in the freedom and life plans of young people.
She likewise warned that a new civilian service could be abused to obtain cheap labor and to substitute for regular employment. Instead of focusing on a new civilian service, she argued that the federal government ought to strengthen voluntary work.
According to junge Welt (jW), the German media is applauding this step, with some outlets now demanding further forms of compulsory service not merely for youth, but for everyone.
As the newspaper Neue Ruhr Zeitung (NRZ) acknowledged, the government’s plans imply that “the implementation of general conscription is drawing near.”
It is argued that these compulsory services are necessary “due to the threat originating from Russia and NATO’s shifting objectives.”
The newspaper Die Rheinpfalz expressed regret that the “voluntary community service year” is “unfortunately being overlooked” in the current debate, while echoing the German government’s rationale:
“Ever since the hope for everlasting peace in Europe was shattered by Russia’s brutal attack on Ukraine, Germany once again requires more soldiers.”
Arguing that this idea is “more logical today than ever,” the newspaper continued:
“Everyone devotes a few months to society between school, vocational training, and university. Naturally, it remains up to each individual to decide whether that time is spent in the military, or in a hospital, a care home, or a fire station.”
Even within Redaktionsnetzwerk Deutschland (RND), the prevailing view is that rather than merely debating a new civilian service program for conscientious objectors, a “fundamental and comprehensive debate regarding a period of social service or a general mandatory service year” should be initiated.
The deputy head of RND’s Berlin bureau states that compulsory service requires “public acceptance.” The “enormous potential of a universal mandatory service year” and the “certainty of personally contributing to the country’s security and stability” are highlighted as significant justifications driving Germany toward a new mandatory conscription turning point.
RND writes that women as well as men, and older adults alongside young people, would be included in this framework, adding that people could finally “do something for the state—and consequently for themselves.”
Compulsory military service was suspended in July 2011, which in practice meant the abolition of both military and civilian service. Civilian service was replaced by the Federal Voluntary Service.
At the beginning of this year, a new military service framework came into effect. The foundation of this arrangement relies on a mandatory health examination for young men born in 2008 and later. Through this mechanism, the aim is to recruit volunteers to strengthen the armed forces.
Should target capacity ranges fail to be met, the Bundestag may enact a decision on “need-based mandatory conscription.”
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