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Tailwind for the German arms industry?

March 31, 2024

There is much demand for tanks, missiles, and ammunition, and Chancellor Scholz is not the only one who wants to see more of them produced in Germany. But it's not as easy as it sounds.

Olaf Scholz visits Rheinmetall munitions factory
Olaf Scholz visited Rheinmetall munitions factory in FebruaryImage: Fabian Bimmer/Getty Images

German Chancellor Olaf Scholz loves convoluted sentences; they're often so long that by the end you can no longer remember what he started by saying. But back in February, when Rheinmetall, Germany's largest weapons manufacturer, held a groundbreaking ceremony for the construction of its new ammunition factory, the chancellor was very clear.

For far too long, Scholz argued, the German approach to armaments policy has been like buying a car: just place an order and collect the vehicle. "But that's not how arms production works," he said. "Tanks, howitzers, helicopters, and air defense systems don't just sit on a shelf somewhere. If nothing is ordered for years, then nothing will be produced."

A man in an ars factory works on military equipment
Rheinmetall is a major German arms manufacturerImage: Philipp Schulze/dpa/picture alliance

That is how he outlined the dilemma facing the German government. The need for weapons and ammunition is enormous, and not just to provide Ukraine with further military support.

"We cannot rely on the Americans to always foot the bill for everything or to provide the necessary materials," Green Party Vice-Chancellor and Economy Minister Robert Habeck said at a conference in March. "That means that ramping up military production, the defense and armaments industries, and scenarios including for national defense — these all need to be reactivated again."

At the groundbreaking ceremony, Scholz said how important it was "to have a flexible, modern, and capable defense industry." During the Latvian Prime Minister Evika Silina's visit to Berlin, Scholz added: "We need to do more; we need to ramp up production."

Rheinmetall launches construction of ammunition plant

No interest in 'doing business with death'

After decades of disarmament, this is nothing less than a 180-degree turn. After the fall of the Berlin Wall in 1989 and German reunification in 1990, peace seemed to be Germany's new status quo. The Bundeswehr was downsized and spending on military equipment was cut. According to a study by the Friedrich Ebert Foundation, affiliated with Scholz's Social Democrats (SPD), Germany's defense industry shrunk by up to 60%. Of some 290,000 jobs, just under 100,000 remained.

In line with the German zeitgeist, politicians also kept their distance from the arms industry. In 2014, then-Vice Chancellor Sigmar Gabriel (SPD) said that he was not interested in "doing business with death," nor was the then-chancellor, Angela Merkel, of the Christian Democrats (CDU), particularly interested in the arms business either. Large corporations such as Rheinmetall were increasingly relocating their business abroad, partly to circumvent German export restrictions on weapons.

At the end of 2021, when the SPD, Greens, and the Free Democrats (FDP) formed the current government, there were still plans to further restrict German arms deals. But then Russia invaded Ukraine in February 2022.

But it will be difficult to reverse course. Although a large part of the €100-billion "special fund" — the extra money the Bundestag made available to the armed forces when the war in Ukraine began — was contracted in record time, the delivery will take years and most of the equipment will not be manufactured in Germany. For example, the over 120 wheeled tanks ordered by the German government are to be produced at Rheinmetall's plant in Australia.

Olaf Scholz stands at the podium in the Bundestag
In late February 2022, Scholz majorly reoriented the German position on militarlization when he announced a special military fundImage: /Bildgehege/imago images

The conservative opposition parties, the CDU and CSU, have criticized the government for doing far too little to boost production capacities in Germany. "While Russia has made the switch to a war economy, the German government has not yet taken sufficient steps to strengthen the urgently needed defense industry," the CDU/CSU parliamentary group said in a petition debated in the Bundestag in mid-March.

In the summer of 2023, the government promised to update the 2020 strategy for the security and defense industry. This has not yet happened. The coalition still needs to discuss the issue, Habeck acknowledged. It is important that "questions, concerns, and fears about arms production" are given their due space.

The arms industry: Unlike any other

What Habeck is referring to can be seen in debates in the Bundestag. In the debate on the arms industry, for example, Green Party MP Merle Spellerberg said that it was beyond dispute that military production capacities had to be ramped up as quickly as possible in light of what is happening in Ukraine. "But — and this is important, dear colleagues — we must also be able to reduce them again as soon as the security situation changes," she added.

Merle Spellerberg of the Green Party speaks in the Bundestag
Merle Spellerberg of the Greens acknowledges the need for more arms, but has reservationsImage: Sebastian Gabsch/Geisler-Fotopre/picture alliance

The 27-year-old politician said that arms production must be consistent with values and interests, and there were still many unanswered questions. "Should weapons be used to make profits, and what exactly should be done with these profits? We need policies that prioritize peace and our security, not the profits of individual weapons companies."

Such rhetoric is likely to raise hackles in the arms industry. But arms companies know that they currently hold all the cards in the struggle against Russia. Shortly before Easter, defense industry representatives met with representatives from the Chancellery, the Defense Ministry, the Foreign Ministry, the Finance Ministry, and the Economy Ministry to discuss what guarantees the industry needs in order to increase production.

The defense companies want long-term contracts with fixed purchase commitments, which will require sufficient funds in the federal budget. But this is where the problem lies. The Bundeswehr's "special fund" will run out in 2027, leaving a huge gap that budget experts estimate at around €50 billion ($54 billion) per year.

Where is the money supposed to come from? The Social Democrat chancellor is well aware that his party would not support cuts in social welfare, and neither would many Germans — an issue that is likely to play a role in the 2025 federal election campaign.

The chancellor's call for a new era in defense policy has not yet really registered in the minds of many Germans. This has become apparent in the search for new locations for arms production. "No ammunition factory in Troisdorf, we will not bow to pressure from Berlin!"  is the slogan against Diehl Defence's construction plans currently being used by citizens and local politicians in this small town in North Rhine-Westphalia. One reason cited for the protest is the clearance zones required for security reasons — land that is needed for housing.

Troisdorf is not an isolated case. There were also protests in Saxony when it was announced in the spring of 2023 that Rheinmetall was considering building a factory there. Ultimately, however, the plans are said to have failed because the federal government was unwilling to provide initial funding. At least that is what a CDU member of parliament accused the government of in a speech in the Bundestag.

This article originally appeared in German.

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