Influence of the security and defense industry (SVI) on the German economy — Can private capital contribute to deterrence?

From the very begin­ning, the Bundes­wehr was based on demo­cra­tic prin­ci­ples. It was an insti­tu­tion embedded in society that was subject to the law and parlia­men­tary control. Within NATO, the Bundes­wehr earned respect as an effec­tive deter­rent. — Its decline began in the 2000s, when the West seemed to be surroun­ded by friends and Germany relied on check­book diplo­macy. Mili­tary power seemed unneces­sary, budgets and ambi­ti­ons shrank. Afgha­ni­stan made the cost clear: Germany suffe­red losses and reali­zed how depen­dent it was on Ameri­can capa­bi­li­ties. Moder­niza­tion efforts made slow progress. The poli­ti­cal reluc­tance — symbo­li­zed by the long resis­tance to armed drones — still leaves gaps today that are signi­fi­cant in conflicts where unman­ned systems domi­nate the battlefield. 

The force struc­ture was hollo­wed out. Compared to the peak levels during the Cold War, equip­ment stocks fell by around three quar­ters and the number of person­nel shrank by more than half. 

Berlin declared a turning point after the inva­sion of Ukraine. The atti­tude society chan­ged and the willing­ness to invest in defense increased — even under the rest­ric­tions of the consti­tu­tio­nally enshri­ned Debt brake. Recon­s­truc­tion requi­res sustained efforts: Resto­ring opera­tio­nal readi­ness, reple­nis­hing ammu­ni­tion stocks, impro­ving procu­re­ment, deploy­ing modern air defense and long-range weapons, inte­gra­ting drones and anti-drone tools, and rene­wing civil-mili­tary rela­ti­ons. Equally important is the revi­val of the ethos that once made the Bundes­wehr a credi­ble, citi­zen-orien­ted deter­rent force — rooted in lega­lity and respon­si­bi­lity. This legi­ti­macy was expres­sed in the soldiers’ oath to serve the Fede­ral Repu­blic of Germany faithfully and to defend the rights and free­doms of the German people. In trai­ning, the focus was always on restraint, loyalty to the consti­tu­tion and inter­ope­ra­bi­lity within the alli­ance, not ideo­logy or hatred. 

The key ques­tion is whether SVI can become a new growth engine and compen­sate for the losses in the auto­mo­tive indus­try. The German auto­mo­tive and supplier sector will secure around 3.1 million jobs in 2025 — around seven percent of total employ­ment. Data for 2025 is miss­ing for the SVI. As a point of refe­rence: in 2015, there were around 409,000 full-time jobs in this sector, and before the “turn­around” it grew by around 3.8% annu­ally (source: Wifor, BDSV). In terms of sales growth, SVIs clearly outper­form the auto­mo­tive indus­try (annua­li­zed sales growth 2023–2025e). SVIs were between 20% and 50%, Rhein­me­tall even over 50%, while car manu­fac­tu­r­ers stagna­ted or even shrank. The effects of the “turn­around” are obvious. 

Europe now has the poli­ti­cal will to invest in secu­rity and the member states have commit­ted to the 5% of GDP mark. This has also been reflec­ted in natio­nal agen­das: the German armed forces are being moder­ni­zed with a considera­ble injec­tion of capi­tal. Resi­li­ence is back on the agenda and infra­struc­ture is being rene­wed. Defense compa­nies will flou­rish in the coming years and could poten­ti­ally offset job losses in the auto­mo­tive indus­try over a period of around ten years. ESG will include defense as a factor contri­bu­ting to sustainability. 

Private capi­tal will play an important role in the finan­cing of dual-use and KRITIS compa­nies. In five to ten years, there will be pure defense funds in Europe, both in the area of venture capi­tal as well as private equity and private debt. 

From an econo­mic perspec­tive, the need for invest­ment in dual-use goods and KRITIS is enorm­ous in order to compen­sate for 40 years of inac­ti­vity. If you consider the total private capi­tal inves­ted in Germany with the expen­dit­ure for NATO’s 5% target, there is still a lot of room for impro­ve­ment. Accor­ding to the BVK (indus­try asso­cia­tion), cumu­la­tive private capi­tal invest­ments (exclu­ding private debt) amoun­ted to around EUR 11 billion in 2024. Approx. 150 billion euros per year are needed for war readi­ness. Part of this can be covered by addi­tio­nal private capi­tal. There are around 3.5 million compa­nies in Germany, most of which are SMEs that provide services or manu­fac­ture products for the civi­lian sector. Some of these could be used for dual-use and KRITIS applications. 

Private capi­tal is well suited to promo­ting such an ecosys­tem, as it has a proac­tive and long-term perspec­tive that goes beyond pure equity invest­ments. Dual-use and KRITIS will be a mega­trend and growth driver for Euro­pean economies. 

Marko Maschek has been a VC/PE inves­tor in Germany and the USA since 1997. and was co-foun­der of Pinova and Marondo. He was respon­si­ble for 33 tech­no­logy compa­nies that have gene­ra­ted a value of more than 500 million euros, inclu­ding four successful IPOs. He combi­nes engi­nee­ring know­ledge with entre­pre­neu­rial skills. After his mili­tary service, he worked in consul­ting and soft­ware deve­lo­p­ment and applied for patents for seve­ral deve­lo­p­ments in the field of auto­mo­tive appli­ca­ti­ons. Marko holds a degree in elec­tri­cal engi­nee­ring from KIT, a degree in compu­ter science from INSA (Lyon) and an MBA from Cambridge Univer­sity. He is an offi­cer in the German Armed Forces Cyber Reserve. 

Reti­red Gene­ral Chris­tian Badia has been with the Bundes­wehr since 1984. Most recently he was De puty Supreme Allied Comman­der Trans­for­ma­tion NATO, Norfolk, Virgi­nia — USA (2022 — 2025). Previously Head of Plan­ning Depart­ment, Fede­ral Minis­try of Defense gung, Bonn/Berlin (2018 — 2022), previously Head of the Bundes­wehr Avia­tion Office, Colo­gne (2017 — 2018). Among other things, he held posi­ti­ons for the future deve­lo­p­ment of the Bundes­wehr at the Fede­ral Minis­try of Defense (Bonn) and was Comman­dermandeur Euro­pean Air Trans­port Command, Eindhoven.