March 18, 2025, will go down in history as the day when a two-thirds parliamentary majority cleared the way for the country to take on unprecedented debt.
German lawmakers , while also lifting the cap on national defense spending. The aim is to provide the necessary funds to make Germany and its armed forces, the Bundeswehr, “ready for war,” as Defense Minister Boris Pistorius has repeatedly demanded since . Shortly after he took office as chancellor earlier this year, Friedrich Merz said he wanted to make the Europe’s strongest conventional army.
This spending spree is great news for companies that build roads and bridges, lay rail tracks and manufacture high-speed fiber-optic internet cables. The German defense industry stands to benefit even more.
For decades, the sector had been losing economic importance. Who in Germany, after all, was interested in buying tanks? In 2020, shares in , Germany’s largest arms manufacturer, sold for €59 — by June 2025, they were trading between €1,700 and €1,800 ($2,116) each. Swiss bank UBS has forecast further share price growth, currently estimating a rise to €2,200.
A ‘gigantic’ economic stimulus package?
These are golden times for German arms manufacturers, with industry top brass insisting that defense spending not only benefits their sector but the economy as a whole.
“Defense spending is a gigantic economic stimulus program,” Oliver Dörre, CEO of defense contractor Hensoldt, told DW at an event in Frankfurt in March.
Lawmakers hope the spending spree will help modernize German industry and boost economic growth. Economists, however, were less euphoric even before parliament agreed the investment package.
“The increase in government military spending will give the German economy a boost, but the economic stimulus will be rather moderate,” wrote Tom Krebs, an economics professor at the University of Mannheim, in a statement for the Bundestag’s budget committee.
Low returns despite high government spending?
Krebs and his colleague Patrick Kaczmarczyk conducted a study examining the extent to which additional government spending will increase Germany’s gross domestic product, or total value of economic output.
The researchers found that military spending would have a maximum impact of 0.5 — meaning that, in the best-case scenario, €1 of government spending will generate just 50 cents of additional economic activity. Investments in infrastructure, education, child care facilities, day care centers and schools would, however, double or even triple the return on investment.
“From an economic perspective, the planned militarization of the German economy is a risky gamble with a low overall economic return,” said Krebs.
Defense spending is like getting insurance
The explanation for this is simple. After a tank is built, it is either parked somewhere or, in the worst case, destroyed in battle. A tank, in other words, does not create any additional economic value. Defense spending is, however, like taking out insurance. You make the payments so that you have protection in case of an emergency. If you don’t need the insurance, the money is simply gone.
If, on the other hand, the state invests in transport infrastructure, goods can be transported to businesses via these roads, bridges and railways. There, they can be used to manufacture products that are then sold. If kindergartens are built, parents are freed up to work and earn money. Investments in schools mean young people get the education they need for their future.
Lack of competition causes prices to rise
Defense production currently only contributes very little to overall economic growth, although German arms companies have seen orders surge.
Rheinmetall, for example, had an order backlog worth some €63 billion ($74 billion) in the first quarter of 2025. Before the start of the Ukraine war, it stood at just over €24 billion ($28 billion). Other German defense companies are also busy, with production at full capacity.
But if supply is limited and demand increases, this usually causes prices to rise. Economists are already warning this could happen. Krebs and Kaczmarczyk write that “greater defense spending does more to grow arms companies’ profit margins and dividends than improve [Germany’s] defense capabilities.”
Other companies want piece of the pie
Companies currently operating outside the defense sector are also looking to get in on the business, especially those suffering amid . Cologne-based Deutz AG, for example, produces engines for lifting platforms, agricultural vehicles, excavators and other large machines. Due to the weak economy, company sales slumped by some 12% in 2024. Deutz, which also manufactures engines for military vehicles, is now set to significantly expand this previously small line of business.
“Defense is a very important and interesting market for us with great growth potential,” CEO Sebastian Schulte told DW in March.
German carmaker Volkswagen is another example. and has already cut thousands of jobs, with its Osnabrück plant facing closure. Now, Rheinmetall is looking into whether tanks could be built there instead.
These are two examples that show how greater defense spending could benefit the wider economy by offsetting losses, rather than generating additional growth. That said, even companies that are doing well are switching to arms production, with demand surging in the metalworking industry.
This article was originally written in German.
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