Germany is gradually shifting from its position as the “industrial engine of Europe” into a country that is losing the key pillars of its industry, while at the same time the political leadership in Berlin is building the largest military budget in postwar history. We recently described the quiet decline in industrial production and employment that began even before the pandemic and the war in Ukraine, and which then—through the energy shock and the loss of cheap Russian gas—turned into an open process of deindustrialization. We then went down to the level of specific sectors, from the automotive and chemical industries to steel and mechanical engineering, tracing how cuts are being implemented in factories, regions, and corporations that for decades formed the foundation of the German model.
We now focus on the attempt by the political and business establishment to find a way out in what is increasingly referred to as military Keynesianism. The idea that a wave of rearmament can be turned into a program of economic recovery—that orders for tanks, drones, and ammunition can at least partially replace the faltering automobile assembly line or chemical complex—has acquired the status of an official strategy. At the same time, trade unions, economists, and parts of the media warn of the risk that Germany could become a heavily armed but economically weakened state.
This third part does not view rearmament merely as a security issue. It seeks to answer who the military boom really brings jobs and profits to, who pays its price through the budget and cuts to the welfare state, and what the combination of industrial decline and permanent mobilization rhetoric tells us about the possible contours of Germany and Europe around the year 2030.
Military Keynesianism – Tanks as an Economic Recovery Program
As the industrial crisis deepens, Berlin increasingly speaks of defense spending as a kind of economic recovery program. The logic is simple. The state has to drastically increase the military budget anyway because of the security situation, so it would be “unreasonable” not to use that wave of orders to stabilize industrial employment and support domestic suppliers. From this perspective, “military Keynesianism”—the idea that state rearmament serves as a growth engine—is no longer an academic concept but a very practical political project.
At the Wirtschaftsfaktor Rüstung conference, organized by Handelsblatt in the summer of 2025, the new Minister of Economic Affairs, Katherina Reiche, described the announced rearmament offensive as an “economic and technological opportunity for Germany.” One of the most prominent security experts, Carlo Masala of the Bundeswehr University, called rearmament a “job creator” in the Frankfurter Allgemeine Zeitung. Officially, this line of reasoning gained additional weight in a study by the consulting firm EY and DekaBank from November 2025, which estimates that increased European defense investments by 2029 will secure or create around 360,000 industrial jobs in Germany and raise GDP by about 0.7 percent compared with a scenario without this additional military spending.
Arms manufacturer Rheinmetall has become the symbol of this new logic. Shareholders are celebrating record figures, and management is setting ever more ambitious targets. At its capital markets day in November 2025, the board announced that it aims to increase annual revenue to around €50 billion by 2030—about five times more than in 2024—with a profit margin above 20 percent. CEO Armin Papperger told German television that by the end of the decade the company expects total orders of €40 to €50 billion per year and that in Europe alone it must deliver around 40,000 vehicles, aiming to capture 25 to 30 percent of all NATO defense budgets in the region. In practice, this means rapid capacity expansion. Rheinmetall is building new plants for ammunition and rocket engines, opening component factories for the F-35 and other systems, and in Germany alone plans to increase its workforce from about 30,600 to 40,000 employees by as early as 2027. According to a Wall Street Journal report, in the first half of 2025 the company received around 120,000 applications for about 3,000 advertised positions, and it is specifically recruiting workers who are losing their jobs in the automotive industry.
Similar trends can be seen among other manufacturers. Hensoldt, specializing in sensors and radar systems, is signing long-term contracts to equip Rheinmetall’s air-defense systems and laser weapons. The Renk group is expanding production of transmissions for tanks, while medium-sized engineering firms are reorienting themselves toward components for artillery and missile systems. In a series of reports, German public radio Deutschlandfunk speaks of the phenomenon of “tanks instead of cars” and notes that in some regions the struggling auto sector is indeed replacing part of the lost jobs through orders from the defense industry.
At the macroeconomic level, the EY–Deka study is based on the assumption that European NATO members will gradually increase military spending toward a new target of five percent of GDP, which by the mid-2030s would generate a total of around €2.2 trillion in additional defense investments. In this scenario, Germany would be one of the main beneficiaries, as some of Europe’s largest arms manufacturers are based there. On paper, military Keynesianism appears as an answer to both the security and the industrial crisis: the state borrows money to arm the country, and in doing so fills the order books of domestic industry.
However, two key reservations arise here. The first is scale. Even if Rheinmetall reaches €40 to €50 billion in revenue by 2030, this is still only a fraction of what the automotive industry once generated, with Volkswagen alone recording more than €300 billion in turnover in 2023. The second is structure. The defense industry is capital-intensive but employs relatively few people compared to its revenue volume. The EY–Deka study calculates a total effect of 360,000 jobs across the supply chain, but at the same time other analysts predict that industry will lose at least another hundred thousand jobs in traditional sectors during the same period. Military Keynesianism thus partially cushions the decline, but can hardly reverse it.
Guns Instead of Progress – Who Gains and Who Pays
While the government and some economists emphasize the “business opportunities” in the military sector, criticism is simultaneously growing in the German public, reminding that every euro spent on tanks is missing somewhere else. The motif of “guns instead of progress” is returning to political discourse, this time as a warning about a new distribution of burdens. In its 2025 study, the analytical network IMI notes that rhetoric about supposedly excessive social spending and an allegedly “overextended safety net” is being used to prepare the ground for cuts to the welfare state in order to finance a long-term rearmament offensive.
In Berlin, a dangerous myth is being constructed that rearmament represents a form of industrial policy. Military goods do not enter further production; rather, they constitute “dead consumption” that sits in warehouses or is expended on the battlefield—unlike, for example, investments in railways or the energy grid, which increase the productive potential of the economy. From this perspective, every euro shifted from civilian infrastructure to the military budget represents a missed opportunity for long-term modernization. In an article on German militarization, Overton Magazin estimates that the macroeconomic multipliers of military spending are relatively weak and that the defense industry creates only “islands of employment,” whereas investments in the civilian transition would have much broader effects.
Concrete contracts confirm that military escalation is neither cheap nor efficient. The order for 60 CH-47F Chinook helicopters was initially supposed to cost around six billion euros, but later media estimates and expert analyses by the Bundestag speak of costs of up to twelve billion euros. The modernization of Büchel air base for the F-35—which includes complex infrastructure for U.S. fighter jets and nuclear weapons—had already exceeded its original budget by 2025, and German public radio reports that cost overruns of at least 600 million euros compared to initial plans are expected. Even greater symbolic weight is carried by the record framework contract for 155-millimeter artillery ammunition. The Bundeswehr signed a contract with Rheinmetall worth up to 8.5 billion euros, ordering hundreds of thousands of shells and securing full capacity for a new plant in Lower Saxony. At the same time, the price per shell is rising, as capacity shortages and global demand push prices upward.
Within Germany, fears are also growing that financing this military boom will be offset by cuts elsewhere. Trade union confederations warn that the debate about “excessive social spending” has accelerated precisely as the defense budget is breaking records. In its statements, the DGB emphasizes that citizens are demanding more, not less, social security and that there is no room for additional cuts to social programs. It is warned that the combination of higher rearmament spending and cuts to social rights would be politically explosive in a society already feeling the pressure of inflation and stagnant wages.
On the ground, the IG Metall union refuses to accept the idea that workers’ futures should be tied to the arms industry. In response to a campaign to convert an automotive plant in Osnabrück into a facility for armored vehicles, union representatives warned that the problem cannot be solved in the long term by shifting workers “from cars to tanks” and that the goal must remain an industrial structure based on civilian products.
German Skeptics – Economists, Unions, and Critical Media
Skepticism toward military Keynesianism does not come only from the margins. Some economists and industrial experts argue that the claims of “growth through rearmament” are fundamentally misguided. In an interview with Frankfurter Rundschau, economist Heinz Bierbaum speaks of a “completely wrong path” and points to EY estimates that an additional 100,000 industrial jobs will disappear in Germany in 2025 despite the defense boom. He warns that there is no historical example of long-term sustainable growth being based on the arms industry without simultaneously damaging the structure of the civilian economy.
Germany’s public broadcaster Deutschlandfunk Kultur recently published an interview with economist Patrick Kaczmarczyk, who argues—similarly to others already mentioned—that military spending produces only weak positive effects on growth and employment, while the same amount invested in civilian sectors would yield far higher returns. In his assessment, “the economy barely benefits” from the military boom, because it is a sector with a relatively high import share and low multipliers. Overton Magazin, in the previously cited article “Ist die Militarisierung Deutschlands rausgeschmissenes Geld?” (“Is the Militarization of Germany Money Thrown Away?”), goes a step further, concluding that the current model of rearmament is leading Europe and Germany into “rearmament amid decline,” with resources being diverted into ever more expensive weapons while the industrial base is shaking.
Trade unions find themselves in an ambivalent position. On the one hand, union organizations in industrial regions welcome every new job that appears in arms factories, especially when the alternative is closure. On the other hand, the leadership of union confederations warns of the danger that workers could become hostages of militarization. In its public documents, the DGB insists that “the militarization of society must be stopped” and that defense spending must not be financed through cuts to the welfare state. IG Metall, the largest industrial union, stresses that the organization’s goal remains peace and the prevention of wars, rejecting the idea that workers should build careers in arms plants simply to maintain employment.
Critical media complete the picture from the perspective of political culture. Left-leaning portals and weekly magazines warn that the Merz government, if it wants “the strongest conventional army in Europe,” needs not only billions for weapons but also “hegemony over public opinion,” as one analysis puts it. Particular criticism is directed at the normalization of military presence in everyday life. The Bundeswehr is intensively advertising in schools, sports clubs, and on social media, while content about a “kriegstüchtige Gesellschaft” (“a society fit for war”) is being introduced into political discourse. Here the circle closes. Militarization is not only a budgetary and industrial strategy, but also an attempt to redefine the collective identity of a country that for decades legitimized itself through pacifism and the welfare state.
In such a context, the question is no longer only how many euros are being spent on defense, but what kind of society such a policy produces. Skeptics warn that the combination of industrial decline, social insecurity, and aggressive security rhetoric creates fertile ground for political polarization—at a moment when the political center is already under pressure from both the right and the left.
Strategic Blindness – While the Guns Roar, Industry Leaves
Behind this debate lies another, deeper dilemma. Military Keynesianism may temporarily alleviate the symptoms of industrial decline, but it does not answer the question of why Germany is losing ground in global competition. Industrial investment is increasingly flowing to the United States and China, where companies find lower energy prices, aggressive subsidies, and simpler regulations. Examples such as BASF’s expansion in the U.S. and China, or the relocation of parts of automotive production out of Germany, already illustrated in the first part of this series, show the direction in which capital is moving.
Merz’s one-trillion-euro investment package, including the Germany Fund and new special funds for infrastructure, is supposed to at least partially reverse this trend back toward Germany. Critics, however, warn that the structure of the incentives is flawed. A large share of the planned spending goes to the military and to heavy infrastructure linked to NATO and the defense industry, while issues such as the digitalization of public administration, education, housing construction, and the civilian energy transition are being addressed slowly or only partially. If the investment offensive turns into a series of expensive military projects and partially renovated highways, without deep reforms in education, innovation, and regulation, Germany may become safer—but not more competitive.
An additional problem is the European dimension. Germany is de facto assuming the role of the continent’s “armed core.” This partly aligns with Washington’s wishes for a greater European contribution to NATO, but at the same time it increases Europe’s dependence on U.S. technology. Large contracts for the F-35, the Chinook, and U.S. air-defense systems mean that a significant portion of European military spending flows to American manufacturers. In an ideal version of a military industrial policy, Germany would, together with France and other partners, develop its own platforms and thereby create a new generation of dual-use civil-military technologies that could be exported. In practice, however, the easier route of buying “off the shelf” from the United States is often chosen.
The strategic blindness lies in treating defense investment as a substitute for a serious industrial strategy, rather than as one of its elements. Instead of first defining what kind of industrial structure Germany wants in 2030—in electromobility, renewable energy, digital services, medical technology—and only then fitting the military sector into that picture, defense policy becomes the backbone and everything else is adjusted around it. For a country that until recently prided itself on a civilian export model, this represents a historic shift.
Scenarios for 2030 – War Economy, Smart Reindustrialization, or a Slide into the Middle League
If current trends continue, three broad scenarios can be sketched for the start of the next decade.
In the first scenario, which can be discerned in Merz’s current policies, Germany becomes a kind of semi-war economy in permanent readiness. The military budget remains at around or above 3 percent of GDP, special funds stay in circulation, and the Bundeswehr moves closer to the goal of being “kriegstüchtig by 2029.” The defense industry consolidates itself as an important—but not dominant—employer, while civilian industry continues to slowly shrink or relocate abroad. The economy stagnates but does not collapse dramatically, because military and infrastructure projects push GDP just enough to avoid a deep crisis. The price is permanent strain on the budget, pressure on the welfare state, and a society that becomes accustomed to constant mobilization rhetoric. This is primarily an economic analysis, but everyone understands what this implies politically: amassing such quantities of weapons will not simply fill warehouses in the long run. Sooner or later, Berlin will also seek military action.
In the second, more optimistic scenario, the military wave is used as a lever for smart reindustrialization. Defense funds are deliberately tied to domestic development projects with high civilian potential—cybersecurity, telecommunications, space technology, energy storage—and European projects are used to minimize dependence on U.S. suppliers. The Germany Fund and the infrastructure fund genuinely attract capital back to Germany, alongside reforms that make investment in civilian sectors easier. In this case, defense becomes one—but not the only—engine of a new industrial structure, and Germany manages to preserve its status as a technological heavyweight in Europe.
The third scenario is that of “sliding into the middle league.” It combines the worst elements of both worlds. Rearmament remains expensive but inefficient. Projects are delayed, costs rise, and the industrial and infrastructural effects fall short of expectations. At the same time, civilian industry continues to lose ground: investments flow abroad, innovation lags, and productivity stagnates. Germany ends up as a heavily armed but economically mediocre country—too wealthy to be considered peripheral, yet not innovative enough to remain at the core of the European economy. In this scenario, militarization is not the cause of all problems, but it accelerates the misallocation of resources and diverts political attention away from what should be central: long-term industrial transformation.
Conclusion
Germany today finds itself in a rarely seen situation. On the one hand, there is what are described as “security threats in the east” and an increasingly unreliable reliance on the United States—arguments Berlin uses to justify taking defense seriously after decades in which the military was marginal. On the other hand, the industrial base that sustained the welfare state and financed European integration is showing cracks that can no longer be ignored. The response offered by Friedrich Merz’s government is to address both problems with a single move: massive rearmament that is supposed to strengthen both security and the economy at the same time.
An analysis of German sources, however, shows that this calculation only partially holds. The defense “boom” does indeed save some jobs, fill the capacity of certain factories, and boost GDP in the short term. But the scale of deindustrialization—especially in the automotive, chemical, and steel industries—is far greater than what the military sector can absorb. Moreover, military orders have weaker long-term effects on productivity than civilian investments, and their cost increasingly translates into pressure on the welfare state and public services. Critical voices from academia, trade unions, and parts of the media rightly warn that Germany risks replacing industrial strength with a temporary military doping.
If military Keynesianism becomes a substitute for a genuine industrial strategy, Europe could by 2030 be left with a well-equipped but economically weakened Germany. Optimists argue that if defense is embedded within a broader plan of technological and social renewal, it is possible that today’s Zeitenwende will not end as a turning point toward permanent militarization, but as a short, expensive episode in which Germany nevertheless managed to combine security, industry, and social stability into a new balance. However, since economics is inseparable from politics—and given how aggressively Berlin is pushing for the continuation of the war in Ukraine—we can conclude that the optimistic scenario is in fact rather utopian, while the reality for Germany may be far more tragic, either through its own economic weakening or—if aggressive policies continue—through some new and terrible conflict on European soil.
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