The focus was on how financial markets, technology, and supply chains are holding their own amid the geopolitical pressures of our time. Key topics included the role of global financial capital in the tension between profit, security, and political stability, as well as the booming defense sector: Where does the line between commercial technology and military power lie in the age of dual-use applications?

Other panels examined the transatlantic AI model, the future of the financial system in the digital age, the geopolitical significance of the semiconductor industry, and the new industrial policies of the major powers. The event concluded with a debate on the resilience of global supply chains.

Our sincere thanks goes to Deutsche Bank, which was an outstanding host of the conference.

Der Beitrag Semiconductors, High Tech, Trade Power: The German-American Partnership Seeks New Answers erschien zuerst auf Atlantik-Brücke e.V..

In public discourse, defense still triggers familiar reflexes: images of heavy platforms, complex procurement processes, and cumbersome institutions dominate. But this understanding falls short. Modern warfare is undergoing a fundamental transformation — technologically, structurally, and strategically. In reality, defense is evolving into one of the most dynamic technology fields of our time. The central question is no longer whether technology is changing warfare, but who is developing the systems that will determine Europe’s security and capacity to act in just a few years’ time.

From Product to Capability

[related] A core problem lies in the traditional understanding of procurement. For decades, defense was oriented toward acquiring products: platforms, hardware, clearly defined systems with long life cycles. But the reality of modern operations demands something different. What is needed today are adaptive capability packages that evolve continuously. Software is becoming the central element. Systems no longer consist of self-contained units but of networked architectures — so-called “systems of systems.”

In this context, a drone system is no longer a static product but a dynamic software stack with attached hardware. It requires regular updates, rapid iterations, and immediate user feedback. Equally critical is usability: systems that are not intuitive in the field lose their value regardless of their technical quality. Those who continue to rely on the logic of traditional product procurement risk working past the requirements of modern warfare.

Structural Inertia as the Result of Political Decisions

The often-criticized slowness of existing systems is no accident. It is the result of political priorities set over the past decades. After the end of the Cold War, the deliberate focus was on stability, efficiency, and risk minimization. Today’s system meets precisely those requirements. But it is not designed for speed. With the return of geopolitical tensions and an increasingly dynamic threat landscape, however, the benchmark is shifting. Technological developments and operational requirements are changing in ever shorter cycles. Systems that think in decades are coming under pressure to adapt. The necessary acceleration is therefore less a technical question than a political and structural one.

Innovation Dynamics and Industrial Reality

Technological leaps frequently originate outside established structures. New companies can operate free of institutional baggage, iterate faster, and think consistently from the problem outward. Established players, by contrast, are geared toward stability and long-term commitments. For them, new technologies often mean far-reaching adjustments to existing business models and processes.

This does not create a contradiction but a field of tension: innovation often emerges from new players, while scaling, integration, and long-term operation remain the strengths of established structures. The strategic challenge lies in effectively connecting both worlds.

The Competition for Talent and Technology

It is precisely at this interface that a weakness of the European system becomes apparent. Many technology-driven companies developing solutions to security-relevant problems find only limited suitable conditions in Europe. Two factors are decisive: access to initial contracts and direct contact with users. Without these, innovation stalls at an early stage.

Long procurement cycles and complex procedures make it difficult for young companies to build viable business models. Other innovation ecosystems address this proactively: with rapid pilot projects, early contracting opportunities, and clear pathways to end users. The consequence: talent and companies increasingly gravitate toward locations that enable faster implementation. Europe is not losing this competition for lack of ideas, but because of structural conditions.

Systemic Filter Effects

These conditions act as a filter. Complexity, opacity, and lengthy decision-making processes favor established players, while new companies frequently fail at market entry barriers. The system thus structurally selects against speed. The very players who could contribute to adaptability through new approaches and short development cycles often find no access. At the same time, existing processes reinforce the dominance of established structures. The result is an innovation system that does not fully exploit its own potential.

From Intent to Operational Impact

Numerous initiatives show that the need for innovation has been recognized. Strategy papers, programs, and organizational units are in place. What matters, however, is operational implementation. Effective innovation requires concrete mechanisms: translating real-world needs into actionable problem statements, rapidly deploying solutions in the field, and systematically scaling successful approaches.

This is precisely the unique role of the Bundeswehr’s Cyber Innovation Hub. As a “Bundeswehr startup,” its mission is to identify and implement unconventional solutions for the troops. The approach is deliberately operational: close to the user, iterative, results-oriented. The focus is not on developing abstract concepts but on concretely improving capabilities in the field. The Hub serves as a bridge between technological innovation and military application — addressing exactly the interface where traditional systems reach their limits.

Time as a Strategic Factor

Modern warfare is increasingly defined by speed. The ability to learn, adapt, and implement quickly is becoming a decisive competitive advantage. Time is thus evolving into a strategic resource. Innovation capability in this context means not only recognizing technological developments but translating them into operational impact — under real-world conditions and within short timeframes.

New players have a central role to play here. They bring speed, new ways of thinking, and technological dynamism into a system that has traditionally been designed for stability.

Conclusion

The transformation of defense is well underway. It concerns not only technologies but also structures, processes, and mindsets. For Europe, this presents a clear challenge: to create an innovation ecosystem that enables speed without sacrificing stability. One that integrates new players without neglecting existing strengths. And one that turns ideas into impact — fast. Modern warfare is not decided on the battlefield alone, but in the capacity to adapt. Or to put it more pointedly: new players are not a trend. They are a strategic factor.

Der Beitrag Why New Players Will Decide Europe’s Security erschien zuerst auf Atlantik-Brücke e.V..

The consequences of political misjudgments are often severe and long-lasting. This is especially true for interstate relations. Whether the reasons lie in personal hubris, ignorance, or sheer folly is of secondary importance. Examples of fatal misjudgments that have led to massive instability, crises, and in the worst case war fill entire history books. And yet they keep repeating themselves.

Europe, which for decades saw itself as a bastion of peace, stability, and prosperity, is not immune to this. It studiously ignored Russia’s imperial expansionist ambitions. By 2008 at the latest, when Moscow attacked neighboring Georgia, Europe’s leaders should have grasped that President Putin would not shrink from using massive military force to pursue his fantasies of restoring ‘Russian greatness.’ That he had the pro-European Ukraine particularly in his sights was plain to see for anyone willing to look. It was a classic misjudgment on the part of many European leaders, especially in Germany, to underestimate Putin’s strategic ambitions and his willingness to wage war.

The human, economic, social, financial, and ecological consequences for the people of Ukraine are immense. It will certainly take longer than a generation before Ukraine can recover from Russia’s war. The strategic consequences of the brutal military attacks on Ukraine are equally unforeseeable. This is due above all to a second misjudgment that the majority of European leaders stubbornly cling to even in the fifth year of the war: they continue to hope that the Russian aggressor can somehow be persuaded into a ‘peace compromise’ with the help of U.S. President Trump, provided Moscow is not provoked, the West does not directly participate in Ukraine’s defensive struggle, and Putin is offered the prospect of impunity and coexistence between Russia and the West. Reality shows, however, that the fundamental premises of this calculus are wrong. Vladimir Putin has no interest whatsoever in abandoning his strategic objectives in Europe; and President Trump is neither interested in supporting Ukraine in its defense nor does he view Putin’s Russia as a security threat to Europe. Different as Putin and Trump may be in character, both see themselves as alpha males for whom no rules apply. Europe’s misjudgment of these two central actors means that it remains stuck in a reactive corner, with scarcely any visible capacity to shape the future strategic balance of power on the European continent.

The steps toward European sovereignty have so far been small and tentative

On the other side of the Atlantic, U.S. President Trump is in the process of engulfing the entire Middle East in war and instability. His military campaign against Iran is the product of pathological hubris, a multitude of domestic political motives central to his agenda, and a complete misjudgment of the ethno-religious and politico-economic complexity of the Middle East. That the world would be a better place without the brutal mullah regime in Tehran is beyond dispute. But by what means it could be effectively influenced or fundamentally changed from the outside, which global and regional actors would necessarily need to be involved in such an undertaking, and what multiple consequences for Iran itself, the balance of power in the region, international trade flows, and much more would have to be reckoned with — these and other questions Trump has generously ignored. Instead, he has presented the use of massive military force to the world as being without alternative.

Without being able to predict the concrete outcome of the Iran war, there is already today a wealth of plausible reasons to classify the joint military campaign of the United States and Israel against Iran as yet another historic misjudgment.

Political misjudgments, such as those we have been forced to witness repeatedly in recent years, can be adequately lamented, criticized, or talked up; public and political reactions vary depending on one’s point of view. In theory, however, one could also expect our political decision-makers to acknowledge and correct their mistakes. After all, admitting to errors is still a widespread practice in human relations.

Regrettably, however, Europe’s political decision-makers show no sign of rethinking their fundamental assumptions toward either Putin’s Russia or Trump’s MAGA America. While many capitals are happy to emphasize, frequently and loudly, their willingness to develop greater European sovereignty, the steps in that direction are small, hesitant, and take far too long. Moreover, they are not tied to a convincing narrative of what a future European security order based on democracy and the rule of law could look like.

Yet without a serious political willingness on the part of Europeans to set clear limits on Putin’s military expansionism by all means and above all together with Ukraine, Russia’s war against Ukraine will not end. Without the willingness to distance itself from a kleptocratic Trump-America that is increasingly transforming into an autocratic system, Europe will not learn to stand on its own feet. Those who argue that a deliberate but consistent de-coupling from America is impossible for political, economic, and military reasons are limiting not only Europe’s future prospects but also their own thinking. And those who say that the rules-based order is regrettably dead and that Europe has no choice but to accept the raw power of the ‘jungle kings’ Putin and Trump are reinforcing the already palpably fading belief in Europe. Mistakes can be corrected. Europe should summon the courage to do so.

About the Author: Dr. Stefanie Babst is a German political scientist, strategic consultant, and author. She served on NATO’s International Staff for 22 years—from 2006 to 2012 as Deputy Assistant Secretary General for Public Diplomacy, and subsequently until 2020 as Head of the Strategic Planning Staff. This made her the highest-ranking German woman at NATO Headquarters. Today, she works as a publicist and is a co-founder of the consulting firm Brooch Associates.

Der Beitrag Can Europe Learn from Its Mistakes? erschien zuerst auf Atlantik-Brücke e.V..

By Carsten Breuer

International conflicts and their effects are increasingly coming into our consciousness with great force. They are becoming topics of conversation not only on news programs, talk shows, and in surveys, but also at the kitchen table at home. The defense of our security has long ceased to be an abstract task—it is a concrete necessity. This is especially apparent when looking at Ukraine. Russia’s illegal war of aggression has lasted nearly four years. Above all, it is a war of attrition. We see high-tech drones in trench warfare, archaic violence in war crimes in Bucha, and battles to the bitter end in Bakhmut. Putin’s neo-imperialist ambitions have already cost hundreds of thousands of lives. And there is no end in sight. Russia switched to a war economy some time ago.

Its military now receives more spending than all other policy areas combined. Weapons and ammunition are being produced at full speed or, in some cases, refurbished from old stockpiles. Not all of this goes directly to the front, but also to new military units currently being established along the entire NATO eastern flank. Personnel-wise, Putin is preparing for further confrontations: by the end of 2026, Russian armed forces are expected to grow significantly again, to around 1.5 million soldiers. That is twice as many as before the war began on February 24, 2022. According to military analysts, Russia could be capable of launching large-scale attacks on NATO territory within a few years.

[related] Not necessarily as a campaign of conquest, but perhaps as intensified provocation right at the brink of open war, aiming to undermine the Western alliance system, weaken NATO’s security guarantees, and expand its own sphere of influence in Eastern Europe. This is not a prediction, but a plausible possibility. We must take seriously the intentions and goals behind this massive rearmament. Putin is not interested in expanding his massive empire by a few square kilometers. He wants a new world order, and he wants to achieve it through force. Analysts view 2029 as a potential “culmination point,” but the threat is already real today. Putin has long viewed himself as being engaged in a “(shadow) war” against the West. This is evidenced by the increasing number of hybrid attacks that Europe is exposed to.

Even in Germany, we observe a wide range of systematic attacks in the gray area between peace and war: cyberattacks on critical infrastructure, severed data cables in the Baltic Sea, sabotage planning, drone-assisted espionage, disinformation campaigns on social media, and even foiled attack plans. All these “pinpricks” are intended to shake confidence in our state. They aim to undermine the cohesion of our societies. Germany plays a particular role—as Ukraine’s main supporter in Europe and as a hub for the Allies in deploying to NATO’s eastern flank. These hybrid attacks strike us—deliberately scalable and capable of being scaled—at the boundary between internal and external security, specifically at the intersection of different responsibilities. It is essential to act in a coordinated fashion at this point of entry, both nationally and internationally.

“Russia’s quest for power remains, for the foreseeable future, the greatest and most immediate threat to the Euro-Atlantic area.”

Russia’s quest for power will remain, for the foreseeable future, the greatest and most immediate threat to the Euro-Atlantic area. But it is by no means the only one. Across the globe, other crisis hotspots demand our vigilance. The conflict in the Middle East—or rather, conflicts—continue to concern us and require action. Crises overlap, blend into one another, and reinforce each other. And every conflict has the potential to have global effects. This can be seen, for example, with North Korea, which is supporting Russia in the war against Ukraine with soldiers and weapons. Resources flow back—not only financial, but military expertise and, above all, weapons components, including those for carrier rockets that can be equipped with nuclear warheads. Thousands of North Korean soldiers are fighting against Ukraine—and dying for Russia.

“We must view all the seemingly separate crises and theaters of war in the world as a whole.”

The losses are immense, but this way North Korean soldiers gain combat experience. Their baptism of fire against Ukraine increases the combat effectiveness of all North Korean armed forces. What is already clear: this destabilization through such interactions is occurring not only in Europe but also in East Asia. These complex interconnections make it clear: we must view all these seemingly separate crises and theaters of war around the world holistically, from a 360-degree perspective. We must recognize and discuss dependencies, interactions, and connections at all levels of action. In military terms: we have to consolidate the strategic situation, draw the necessary conclusions—at the speed required. And right now, that speed is very high. We are at the threshold of a new world order. In this period of upheaval, the West—and we—bear the responsibility to defend our liberal values with resolve. If we do not engage, we risk becoming the plaything of autocrats. This is not only a moral duty, but a fundamental realpolitik self-interest.

A world in which the rule of law is replaced by the law of the strong is something we cannot and must not accept. And in terms of global challenges, the world is shrinking: crises, and possible solutions, are moving closer together. This challenges us as never before. And it won’t get easier. That is why readiness is today not only our own currency, but that of the entire NATO. For more than 30 years, we have lived in peace in Europe. That is over, and it is hard to get used to. But we have no choice. Credible deterrence is our “best-case scenario.” At the NATO Summit in The Hague in June 2025, all 32 Allies agreed on how and with what military means they will position themselves in the future. They set out, in binding terms, who will take responsibility in which areas.

After the United States, Germany provides the second-largest so-called capability package. We are on the way to becoming the engine of European defense. This means, for example, that we will establish new combat troop units, broaden our industrial base, and strengthen multinational cooperation. Ultimately, it also means that in the future we will spend 3.5 percent of GDP on defense and 1.5 percent on military infrastructure. With the help of the special fund, we have already set many things in motion: we have ordered tanks, ships, aircraft, drones. We expect key deliveries this and next year; unfortunately, armaments are not available off the shelf like at the hardware store around the corner. With the constitutional amendment that exempts defense spending above 1 percent of GDP from the debt brake, we have made another major step to cope with the expanded range of orders.

We have put security first. We now no longer have a time-limited special fund, but an uncapped budget. Uncapped, however, does not mean unlimited. More than ever before, we must justify every cent to the parliament. We can do that. And we will do so. We have already prioritized which capabilities the Bundeswehr needs most urgently. These include systems for air defense, as well as ammunition and means for electronic warfare, among others. It is important that not only the Bundeswehr now has planning certainty, but also industry and startups that must first ramp up their capacities. Equally important is looking well beyond 2029 at the future of warfare. That is why we must think and plan in at least two categories: In the short term, until 2029, the priority is readiness. In the long term, far beyond 2029, it is anticipation, flexibility, and keeping pace with disruptive developments.

Because we now have new technological possibilities that are changing the established paths of technology development and military strategy. In the past, the military was the driver of technological development—today, it is the reverse: technological progress generates strategic challenges. Long term, this will also influence the development of our doctrine and lead us to rethink war—even down to the battlefield. The innovation cycle for drones in Ukraine, for example, is about two weeks. We need to be similarly agile in peacetime—even without war dictating it. Threats on the battlefield force armed forces to constant adaptation. Therefore, we must also become more flexible, agile, and consequently faster in procurement. Wherever necessary, we must also break new ground. We must ask: Where are we not looking today—what do we not yet know, what can we not yet grasp?

But also: How do we ensure the Bundeswehr becomes both a driver of technology and can quickly and reliably incorporate new technologies? There are cooperation opportunities, for example, in the digitization and flexibilization of defense systems through software-based control, in Software Defined Defence. The use of artificial intelligence to analyze data or to support military decision-making is another field where armed forces depend on research and development in business and industry. Therefore, there must be close coordination between business and military strategy development.

“The responsibility for our security and freedom cannot rest solely on uniformed shoulders. It is a task for society as a whole.”

Clearly, the current threat situation can only be met with a comprehensive societal effort, with united forces—state and private. The armed forces are only as strong as the defense industry that stands behind them. It is not only about the ability to innovate, but also about the willingness to take risks—for a higher good.

Soldiers are trained to take risks. They must be able to fight and win. Because they have to win. This does not only apply to soldiers. NATO currently has around 500,000 men and women in high readiness. But for me it is equally clear: responsibility for our security and freedom cannot rest solely on uniformed shoulders. It is a task for society as a whole. Only together can we defend our country; only together can we deter. We must think and act holistically, even now in peacetime. We must become more closely and strongly interlinked. That lays the foundation for resilience. A combat-ready Bundeswehr is only one side of the coin. On the other side, we need equally resilient civil structures—in other words: a society capable of defense.

Both together create the prerequisites for credible deterrence. We soldiers may be the ones who win battles—but modern wars must be confronted by and with a society. The economy plays a major part. The better and faster we can equip our armed forces, the better we will be able to deter. And we must deter. The more credible our deterrence, the greater our chances of protecting the freedom so dear to us. The better our prospects of living in the future as we do now—and of preventing war in Europe. We will only succeed with this effort together—carried by the certainty that a life in freedom and security is worth it.

About the author: Carsten Breuer is a general in the German Army and, since March 17, 2023, the 17th Inspector General of the German Armed Forces.

[Disclaimer: This text was originally written in German. The English translation was produced with the help of AI.]

Der Beitrag “A whole-of-society effort” erschien zuerst auf Atlantik-Brücke e.V..

By Prof. D. Michael Hüther

Three recent developments are shaping the discussion about how Europe can regain military strength:

1. The Stockholm International Peace Research Institute (SIPRI) reported this week that “in 2024, global arms sales reached the highest level we have ever recorded — totaling 679 billion US dollars.” The 26 European defense companies increased their revenues by 13 percent, outpacing their 39 U.S. competitors, who grew by 3.8 percent.

2. Negotiations between the EU and the United Kingdom over the latter’s participation in the €150 billion SAFE defense fund have so far failed.

3. European armies still operate roughly four times as many weapons systems as the United States — a sign of their fragmented defense market.

The rearmament drive began back in 2015 and continues to accelerate. European NATO members now face the challenge of meeting their defense needs in overheated markets while keeping spending sustainable. A major handicap lies in their inability to overcome the patchwork of small-scale contracts. Military buyers also have a preference for customization — unlike in the U.S., where standardized procurement enables economies of scale, albeit at the price of dependence on a few major suppliers. The 2024 sales figure cited above was generated by just 100 companies worldwide.

Market Order for the Defense Buildup

Europe’s ongoing armament push raises a fundamental question: under conditions of catch-up and accelerated rearmament, how should the security and defense sector be organized according to sound economic principles? Ideally, it would operate in a competitive market that offers governments multiple choices while avoiding excessive profits from strategic urgency.

In practice, defense technology creates tight interdependencies between clients and manufacturers. Production typically relies on complex partnerships and consortia, which reduce competition. Moreover, the Treaty on the Functioning of the European Union (Article 346 TFEU) exempts military procurement from internal market rules.

The EU’s Permanent Structured Cooperation (PESCO), launched in 2017, has so far failed to scale up joint defense projects effectively, as national export and transfer regulations still dominate.

Limited Cooperation So Far

Industrial partnerships — such as the Franco-German effort to develop a “tank of the future” by 2040 — remain rare exceptions and have yielded little evidence of efficiency gains, even if the European Commission granted approval relatively quickly. The EU estimates that roughly 80 percent of defense equipment is still purchased nationally. Appropriately, reforms to speed up procurement are also being advanced at the national level, as shown by Germany’s defense procurement law passed this summer.

The Case for a Common Defense Fund

The SAFE fund aims to create stronger incentives for joint procurement. But London’s participation — after years of obstructing deeper defense cooperation while still in the EU — remains elusive. Brussels’ insistence on a fair financial contribution that reflects both industrial capacity and expected economic benefit is understandable, given the rule that at least 65 percent of contracts must generate value within Europe.

From a competition perspective, that requirement can be questioned, but Europe’s need for technological resilience strongly supports it. Germany’s 2022 purchase of 35 F‑35 jets illustrates the risks of U.S. dependency, as each deal still hinges on Washington’s approval.

A Dedicated Defense Bank

One new idea gaining traction is the creation of a specialized European defense investment bank to finance arms procurement, modeled after the European Bank for Reconstruction and Development. In light of fiscal constraints across the eurozone, such an institution could pool capital contributions from member states to leverage significant lending capacity through high credit ratings. It could then finance both national buyers and defense firms, potentially bundling orders for global tenders — though this might raise concerns about strategic resilience.

Defense Capability as a Fiscal Test

Ultimately, the strain on public budgets cannot be concealed. Europe faces a political and social reckoning over how to allocate tax revenues between domestic spending and defense — a classic distributional conflict. The temporary exemption of defense spending from Germany’s constitutional debt brake cannot last indefinitely if debt ratios are to remain stable.

In the medium term, all defense expenditure must be reintegrated into the federal core budget. The fiscal groundwork for this needs to be laid now. Defense capability, after all, is not just a military issue — it is a matter of societal balance and geopolitical survival.

About the author:
Since 2004, Prof. Michael Hüther has headed the German Economic Institute (IW) in Cologne. From 1995 to 1999 he served as Secretary-General of the German Council of Economic Experts and later worked as an economist in the private sector at DekaBank. Hüther is deputy chairman of the Atlantik-Brücke.

This article was first published by Süddeutsche Zeitung Dossier.

Der Beitrag The costly search for defense capabilities erschien zuerst auf Atlantik-Brücke e.V..

by Robin Fehrenbach, Jakob Flemming, and Julia Friedlander

Since Germany’s reunification, defense spending has been a taboo topic in the country. Russia’s war with Georgia and incursions into Ukraine in 2014 raised relatively few strategic concerns in Berlin, and it took until February 2022 to shake the system loose. From guns versus butter debates to the unwinding of spending orthodoxies and industrial transformations, the last several years have witnessed a small revolution in the national dialogue as well as in the broader economy. The country has begun building a military-industrial complex essentially from scratch and exploiting all means to finance it—including using the public purse, commercial banking, and private capital. Policymakers and industry leads must deliberate what will be financed nationally, in consortium or through European Union (EU) and NATO mechanisms. It is all new.

European institutions are also expanding their mandate. The European Commission appointed Lithuanian Andrius Kubilius as its first commissioner for defense in a bid to draw defense consolidation into the technocratic machine best known for streamlining trade and financial regulation across the bloc. In November 2024 at the Berlin Security Conference, then-Commissioner-Designate Kubilius called for a “Big Bang” approach in defense policy, which would entail “producing a clear Industry Output Plan, based on the analysis of capability gaps according to NATO evaluations and covered by European production of defence equipment where we have capability gaps, with a clear target date to fulfil this Plan around 2030.” [1]

The political will is there – and the private sector is ready to contribute

The June 2025 commitment of NATO Allies to spend 5 percent of gross domestic product (GDP) on security and defense until 2035 provides the new baseline and blueprint for European defense [2]: 3.5 percent is to be invested into weapon systems and ammunition, 1.5 percent into critical infrastructure. NATO Secretary General Mark Rutte articulated this shift after pre-summit consultations with President Donald Trump, but he already had the facts to back up his assertions to the US president [3]. Just weeks earlier, Germany had upended its constitutional debt brake for security and defense investments and created the Sondervermögen for infrastructure.

After years of circuitous debate, the presumed new chancellor, Friedrich Merz, invoked the outgoing German Bundestag mandate to relax the debt brake [4]. The move ultimately gained support across the centrist political spectrum, ensuring that both state-driven and external financing mechanisms would be used to reach NATO pledges. The drastic increases in defense spending remain broadly in line with fiscal principles, requiring what some would call an accounting trick, and others a compromise. Defense investments are now exempt from the constitutional debt brake and can total up to 1 percent of GDP [5]. Anything beyond 1 percent of GDP for defense investments requires credits in special funds, usually referred to as Sondervermögen. While on-budget expenditures and investments in security and defense depend on the incoming tax revenues of the German economy, discretionary spending is effectively freed from these constraints, imposing no specific limit on such extra funding. Defense spending has gone from a crawl to a sprint, overnight.

It is a sea change that the government will now rely on private funding to uphold its national security obligations.

Government stimulus tends to trigger private sector interest, which is poised to play a crucial role in scaling up defense-related resources, increasingly billed as a reliable, growing, and even socially responsible investment sector. Commercial and investment banks as well as private equity and venture capital firms are rapidly developing products for both institutional and private clients, reflecting broader awareness among decision-makers from the public and private sectors that capital is needed to meet defense spending goals. As Deutsche Bank Chief Executive Officer Christian Sewing put it, “we need to efficiently combine public funds with private capital to finance expansion. Banks and investors are ready for this – for example, Deutsche Bank’s corresponding loan portfolio amounts to a mid-double-digit billion-euro amount.” [6]

Two recent high-level events that the Atlantik-Brücke hosted in Berlin brought together stakeholders from the military and private sector to discuss how private capital can fund the German defense build-up, sending a clear signal that private investors are ready to channel capital into Germany’s defense capabilities. It is a sea change that the government will now rely on private funding to uphold its national security obligations.

Based on this assessment, the EU created a program, SAFE (Security Action for Europe), to provide €150 billion in long-maturity loans for procurement efforts and fund projects based on common procurement [10]. SAFE projects should involve “at least one Member State benefitting from SAFE and another Member State, as well as Ukraine and EEA-EFTA [European Economic Area-European Free Trade Association] countries,” but will also temporarily fund individual member states’ procurement in acute security crises. It remains to be seen whether SAFE can fulfill Commissioner Kubilius’ big promise from September 2025 to “unify our fragmented defence procurement.” [11] For the time being, nation-states and private capital will provide the lion’s share of required funding, largely due to the direct economic impulse defense spending gives to national economies and their flagship contractors.

Through defense, Germany’s economy can change in shape and scope

Increased investment in military systems will impact the overall industrial and economic landscape in Germany. In addition to defense allocations, the Sondervermögen also includes €500 billion for infrastructure and climate protection [12]. It has not escaped the governing parties that the security crisis in Europe provides an opportunity to ignite a long-needed growth stimulus for the German economy. Germany remains the third-largest economy in the world, but is poised to record a third consecutive year of zero or negative growth. This year most likely will not bring the turnaround: In the second quarter of 2025, Germany’s economy decreased by 0.3 percentage points compared with the first quarter [13]. All major economic institutes in the country as well as the International Monetary Fund predict hardly any economic growth for Germany in 2025 [14].

Germany’s defense industry will also play a crucial role in building Ukraine’s deterrence capabilities.

Germany’s economy has developed formidable strengths in the automotive, machine engineering, and chemical industries over the past few decades, leading to its export-oriented position in the global economy. This has changed significantly, especially over the past five years, as global competitors have improved their research and development in all kinds of industrial sectors, their labor force skills, and their knowledge. More robust supply chains and much lower energy costs have also contributed to the successes of foreign economies, mostly in the Indo-Pacific region and in South America.

Der Beitrag Waiting for the Big Bang: Executing the European Defense Build-Up in Germany erschien zuerst auf Atlantik-Brücke e.V..