The German government is exploring the possibility of increasing its involvement in arms-makers and defence projects in certain strategic cases, according to a draft paper from the economy and defence ministries. This move is part of a broader strategy aimed at bolstering Germany’s arms industry in the wake of Russia’s invasion of Ukraine in 2022.
While the proposal has not yet been finalized, it could allow the government to take stakes in companies and projects that it deems strategically important on a more frequent basis. Currently, the government already holds a 25% stake in German defence electronics maker Hensoldt. In addition, there have been discussions between state-lender KfW and private equity firm Carlyle about jointly acquiring a majority stake in Thyssenkrupp’s warship division.
The escalation of tensions with Russia has led to increased defence spending across Europe, including Germany. As a result, the order books and market for defence projects have experienced significant growth. By taking a more active role in the arms industry, the German government aims to strengthen domestic capabilities and ensure national security.
However, this proposed strategy has raised concerns among critics who argue that greater government involvement in the arms industry could have negative consequences. They argue that it may lead to conflicts of interest and reduce competition within the market. Nevertheless, proponents of the plan assert that it is necessary to safeguard the country’s defence capabilities in an increasingly volatile global landscape.
As the government continues to deliberate on the draft paper, the debate surrounding the extent of government involvement in the arms industry is likely to intensify. Ultimately, it will be important for policymakers to strike a balance between supporting domestic defence capabilities and maintaining a competitive and transparent market. Only time will tell how this potential shift in strategy will shape Germany’s arms industry and its position in the broader defence landscape.