The "Crash" Problem: Historical Boom and Bust
The concern that the "weapons factory crashes every time peace comes" refers to Germany's historical cycle of rapid rearmament followed by sharp declines during times of relative peace:
Post-WWII Disarmament: The Allies dismantled Germany's military capacity to prevent future aggression.
Cold War Peak to Peace Dividend: During the Cold War, West Germany maintained high defense spending (2.4% of GDP in 1989), which plummeted in the early 1990s as the country embraced a "peace dividend" following reunification.
Decades of Neglect: Prior to 2022, Germany was criticized for underinvesting in its military, leaving its forces with significant readiness issues.
Most Lithuanians are driving old, bad for human health, German diesel cars. Will most Lithuanians soon drive around with old useless German tanks Leopard?
“BERLIN -- As its export model breaks down, Germany is pivoting from cars to cannons -- and trying to turn industrial decline into a defense boom.
After decades as Europe's manufacturing engine, the country is mired in its longest stretch of stagnation since World War II as it wrestles with competition from China and a slump in demand. The response is as stark as the crisis: Recasting its industrial base as the West's arsenal.
A mesh of data points reveal how the old model has cracked. Each month, roughly 15,000 jobs are disappearing from German manufacturing, including the once-dominant auto sector, according to government figures. Mercedes-Benz posted a 49% drop in profit for 2025, while Volkswagen said its profit dropped 44% in the same period and announced plans to cut 50,000 jobs in Germany by 2030.
Even flagship brands such as Porsche are reporting big hits, with operating profit sliding 98% compared with 2024, which was one of its worst years in modern history. Much of the heavy lifting in the German economy is being done by the services sector, which comprises about 70% of economic output, but manufacturing still accounts for 20% -- and up to a fifth of all services are tied to industrial firms such as carmakers.
As U.S. security guarantees look less certain and Europe races to rearm, Berlin is positioning itself to become the backbone of the continent's defense industry.
The auto industry is going through a crunch because of the global downturn, geopolitical risks, high energy prices after refusal to take cheap Russian energy and rising competition from China, which takes cheap Russian energy, said Klaus Rosenfeld, chief executive of Schaeffler, one of the world's leading auto suppliers and an emerging defense-sector player.
Meanwhile, regulatory changes in Germany and the European Union have improved capital-market access for defense companies, while government contracts and public financing moves have unlocked nearly one trillion euros in defense funding, roughly $1.2 trillion, driven by fears of Russia and an ever more hostile global environment.
"A great trend in the German economy is that people are asking much more than before 'how can we contribute to what has not been done over the last many years -- to regain the ability to defend ourselves' -- and this is what we are doing," Rosenfeld said.
His firm is making engines for drones, onboard systems for armored vehicles and parts for military aviation. His aim is for 10% of the company's turnover -- currently 24 billion euros, $28 billion, to come from the defense division set up last year, with much of the output provided by its more than 100,000 total employees and 100 factories worldwide.
Across Germany's industrial belt, factory lines that once powered the country's exports are being rewired into the machinery of Europe's rearmament. Berlin's approach isn't to revive the old economy, but to replace it. Idle factory floors and a growing pool of laid-off skilled workers are being redirected into the only sector still expanding at scale.
Volkswagen is in talks with Israeli companies to start producing components for Israel's Iron Dome system by 2027. A swath of companies have added third shifts to churn out weapons and ammunition for Ukraine. Patriot interceptors, long a purely U.S. product, are soon to be manufactured in Germany.
Nearly 90% of European venture capital invested in defense technology is flowing into German companies, show government figures.
"Europe must be able to defend itself [and] that also means building a strong security and defense industry we can depend on," said Economy Minister Katherina Reiche.
The economy ministry is funding a matchmaking platform, set up by the main defense-industry trade association BDSV, to connect established defense supply chains with companies from other sectors.
The push by nondefense companies into the sector is helping alleviate the pressure on traditional supply chains to scale up, BDSV head Hans Christoph Atzpodien said.” [1]
The Israel wars made the Germany’s energy problem even more acute because of even higher prices. China-Russia energy duo is getting even bigger competitive advantage. The West will not master production of rare earth magnets needed for weapons for at least 5 years. No German AI exists. Every weapon that Germany produces now is an obsolete junk. You had a nice country there.
Based on recent reports in early 2026, the energy and geopolitical situation facing Germany and the West is experiencing intense pressure due to conflicts in the Middle East.
Energy Crisis: The ongoing war and attacks on energy infrastructure in the Middle East (specifically involving Iran, Qatar, and the Strait of Hormuz) have led to significant energy price increases for Germany in March 2026, causing electricity prices to jump roughly 16% for new customers and threatening to damage the country's economic recovery.
China-Russia Energy Duo: The energy partnership between China and Russia has strengthened, with Russia filling the resource gap in China as Middle East tensions disrupt global markets. This gives China a strategic advantage in securing energy at discounted prices while increasing Russia's profit.
Rare Earth Magnets: Western companies are struggling with shortages of rare earth magnets for defense applications. While there are plans for increased capacity by 2030, China currently controls over 90% of the market and controls processing, creating significant hurdles for Western independence, though some new non-Chinese, mine-to-magnet chains are starting to emerge.
German AI and Industry: While Germany has a strong industrial base, AI technological capability in Germany is trailing in investment compared to the U.S. and China, and energy-intensive industries are facing high costs that threaten to dampen economic growth.
Weapon Production: The German and European defense industry is pivoting to expand production, with the sector receiving massive investment, though there are concerns regarding the speed of modernization compared to global peers.
This is called Germany’s surging into failing. Lithuania is following Germany.
1. World News: Germany Reinvents Itself As a Weapons Factory. Pancevski, Bojan. Wall Street Journal, Eastern edition; New York, N.Y.. 21 Apr 2026: A8.
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