Weakening of a Whole Series of Industries, from Automobiles to Steel, Leads to a New Military Doctrine. Cars, chemicals, and steel are losing ground, while Berlin simultaneously builds the largest military budget in German history – and calls it a “turning point”
Germany’s industrial decline has been a long and quiet slide downward that began even before the pandemic and the war in Ukraine, then accelerated through the energy shock and the loss of cheap Russian gas. Yet the statistics themselves still leave the impression of something abstract and distant. Only when one looks at what is happening with automobiles, the chemical industry, steel, and mechanical engineering does this “structural shift” actually turn into a very concrete series of closed halls, reduced shifts, and layoffs.
In this continuation, we descend to that level, onto the ground. First, we will follow how the breaking of the global market and the surge in energy prices are reflected in the fate of several key industrial pillars – from the automotive assembly line in Cologne to the chemical complexes in Ludwigshafen and the steel mills in the Ruhr. These are the places where it is clearest what it really means when a country accustomed to the status of “Europe’s workshop” begins to lose the fundamental branches of its production.
Then we will connect this industrial terrain with the political summit in Berlin. The second part of the text enters Merz’s version of the “Zeitenwende” – explaining how Germany went from the former dogma of austerity and “cultural discomfort” toward the military to the largest military budget in its history, special funds outside the classic budget, and the goal of making the Bundeswehr the strongest conventional army in Europe. Only when these two layers are read together – industrial decline and military boom – does the real question open up: is this an attempt to save the model or the beginning of an entirely different Germany?
Industry Under Attack – Automobiles, Chemicals, Steel, Mechanical Engineering
While aggregate figures show a decline in industrial production and employment, concrete cases in key sectors give this process a very tangible form. The most visible is the stress in the automotive sector. Germany has relied for years on strong exports of vehicles and components, and the transition to electric vehicles has opened space for new competitors, especially Chinese ones, while at the same time cutting into parts of the business models of traditional manufacturers. Ford’s plant in Cologne, which was supposed to become one symbol of the electric transformation, entered a phase of capacity reduction in 2024 and 2025. The company announced that up to a thousand jobs in the electric vehicle factory would be eliminated due to weaker-than-expected demand, and production would shift to single-shift work. This move is part of a broader restructuring plan in Europe, in which several thousand jobs are being cut overall, nearly three thousand of them in Germany.
A similar pattern, though with a different product structure, is visible in the chemical industry. BASF, the world’s largest chemical group, announced as early as 2023 that it would eliminate around 2,600 jobs globally, with about two-thirds in Germany, along with the closure of certain facilities in its home complex in Ludwigshafen. The company cited exploding energy prices in Europe and weaker economic conditions, with a plan to save 500 million euros annually starting in 2024, primarily in administration and logistics in Germany. In 2025, the new CEO of BASF confirmed that the state of the chemical industry is “probably the worst in the last 25 years” and that certain unprofitable lines in Ludwigshafen have already been shut down, while at the same time announcing new investments to preserve as many of the remaining jobs as possible. Here too, a double movement is visible. On one hand, old capacities are being shut down due to energy costs and global competition; on the other, investments are being directed toward segments with higher added value and less energy dependence, often with simultaneous expansion abroad.
The pharmaceutical-chemical group Bayer is carrying out its own very extensive restructuring. As early as the beginning of 2024, it was announced that due to a new organizational model, the number of jobs in Germany would be significantly reduced by the end of 2025, with some media mentioning a “significant” or “massive” cut, especially at the headquarters in Leverkusen. During 2025, it was announced that Bayer plans to eliminate around 2,700 jobs in Germany, while globally it concerns 13,500 jobs, and that part of the facilities will be closed or sold, including the pharmaceutical complex in Frankfurt am Main. The group emphasizes that the transition will be “socially acceptable” through severance packages and employee support programs, but the message for the industrial structure is clear. In this sector too, one of Germany’s leading companies is cutting domestic capacities and seeking a new business model under pressure on prices and costs.
The development in the steel sector is even more dramatic. Thyssenkrupp Steel Europe, Germany’s largest steel producer, agreed with the IG Metall union at the end of 2024 and in 2025 on a far-reaching restructuring program that provides for the elimination or outsourcing of around 11,000 jobs – about 40% of the total workforce – and a reduction in production capacity from 11.5 million tons to around 8.7 to 9 million tons annually. The explanation cites weaker economic conditions, high energy costs, and pressure from cheap steel from Asia, while at the same time speaking of the need for major investments in “green” steel to survive long-term on the market. The restructuring agreement, approved by the majority of IG Metall members, also includes a noticeable reduction in additional employee benefits, which further shows the depth of the crisis in one of the traditionally strongest branches of German industry.
In addition to individual companies, regional and sectoral data round out the picture. In the federal state of North Rhine-Westphalia, where metal, electrical, and chemical industries are concentrated, the Unternehmer NRW association warns that production in the metal and electrical industry has fallen by around 23% compared to 2018 or 2019, while the chemical industry is operating at only about 70% capacity. The same source reports that around 2,100 highly paid jobs – with average annual earnings of about 65,000 euros – disappear every month in these branches, with direct consequences for tax revenues and social funds. At the national level, the Gesamtmetall association states that around 250,000 jobs have been lost in the metal and electrical industry since 2019, or 6.1% of the workforce, while production in these branches is about 15% below pre-crisis levels.
When these data are put into the same picture, it becomes clear that deindustrialization is not happening as a uniform withdrawal of industry, but as a concentrated blow to several key pillars of the German model: primarily the automotive industry with its suppliers, the chemical sector, steel, and mechanical engineering. Each of these branches has its specific reasons – from poor strategic decisions and global competition to the energy shock – but the common denominator is that Germany is simultaneously losing capacities and jobs on multiple fronts. In such a situation, the political promise to fill the “gaps” with the military industry gains additional weight, because it is obvious that the scale of the industrial decline is far greater than what the military sector can absorb in the short term.
Zeitenwende, Merz Version – From “Austerity” to Military Boom
The first major change in German security policy came already in 2022, when Chancellor Olaf Scholz, after the Russian attack on Ukraine, announced the so-called “Zeitenwende” and a special fund of 100 billion euros for modernizing the Bundeswehr. This move already represented a departure from the long-standing policy of restraint and budgetary discipline, embodied in the constitutional “debt brake.” But only with Friedrich Merz’s arrival in the Chancellery in 2025 does this turn acquire firm contours of a long-term armaments strategy, with open acceptance of further debt increases for security goals.
In his first government statement in the Bundestag in May 2025, Merz clearly formulated the ambition that the Bundeswehr should become “the conventionally strongest army in Europe” and emphasized that the federal government would make all necessary financial resources available to the military to meet the expectations of allies. He repeated that Germany must permanently meet and exceed NATO’s 2% of GDP defense spending target and rhetorically linked security and economy with the message that “only a strong economy can defend itself, and only a secure country has a strong economy.” At the same time, he tried to dispel fears of new militarism by claiming that the CDU is not a “war party,” but insisted on the need for Germany to take greater responsibility in NATO and the European Union.
The key instrument for implementing this strategy is not only the special defense fund but also a far-reaching change in the attitude toward borrowing. Even before taking office as chancellor, Merz, in collaboration with the then-SPD government, pushed the concept of creating two large “special funds” with a total value of up to 900 billion euros, of which around 400 billion would go to defense and around 500 billion to infrastructure and climate transition. To realize such a plan, a constitutional amendment was necessary to allow defense expenditures and expenditures from special funds to be excluded from the calculation of the classic budgetary “debt brake.” In 2025, parliament passed several legislative packages that do precisely that. Defense expenditures and infrastructure investments are increasingly financed through special funds that formally stand outside the basic budget, although in reality they increase the overall state debt.
The Figures Show the Scale of the Change
According to data from the Ministry of Defense and the Bundestag, in 2025 the Bundeswehr has more than 86 billion euros at its disposal, of which around 62 billion comes from the regular budget and about 24 billion from the special Bundeswehr fund. For 2026, a defense budget of 108.2 billion euros has been adopted, with 82.7 billion in the regular budget and 25.5 billion from the special fund—this represents the largest military budget in the history of the Federal Republic of Germany and approximately 2.4 to 2.5 percent of GDP. Some media outlets and left-wing analysts openly call this package a “war budget” and warn of planned further increases in the military budget up to 150 billion euros by the end of the decade. At the same time, reports show that total new federal budget debt reaches around 140 billion euros in 2025 and close to 180 billion in 2026, while it is formally still claimed that the “debt brake” is being respected, since a significant portion of the debt goes through special funds and exempted items such as military expenditures.
Merz and his allies in the CDU/CSU and SPD defend this shift by arguing that the threat from Russia and uncertainty regarding American security guarantees have fundamentally changed the strategic environment. In a financial plan analyzed by the Financial Times, the goal of the roughly trillion-euro package is not only to strengthen the Bundeswehr but also to modernize outdated infrastructure, hospitals, schools, and the energy grid—thereby Merz attempts to combine traditional conservative rhetoric of fiscal responsibility with the real increase in borrowing. Critics, including Veronika Grimm, a member of the Council of Economic Experts, warn that Germany could find itself in a situation where it “fires all its financial ammunition” without a clear strategy for how these investments will sustainably increase economic potential and defense capabilities in the long term, and that there is a real danger that a significant portion of the industrial investments stimulated by these programs will end up abroad rather than in Germany.
Politically, Merz’s version of the Zeitenwende means abandoning the dogma that German security policy must necessarily be tied to minimal military spending and strict austerity. Instead, a narrative is being built according to which, in the conditions of the war in Ukraine and general instability, it is morally and strategically necessary to borrow in order to create a strong army and renew infrastructure. Within this framework, the military budget acquires the status of a priority expenditure that is exempted from classic debates about cuts and consolidation, while many civilian areas must compete for the remaining funds. It is precisely at this crossroads—between the declared “necessity” of armaments and the real state of industry and public finances—that the question arises: to what extent does the military boom serve as a response to real security threats, and to what extent is it a political instrument used to compensate for or conceal the weaknesses of the industrial and economic model.
In the third and final part of this analysis (tomorrow), we will take a detailed look at how the long-term shift toward a military economy is being prepared. These are plans that, once launched—and they are precisely now being launched—will leave no room for a “return to the old ways,” which will undoubtedly lead to significant changes not only in Germany but across all of Europe.
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