The government has woken up to the threat, but its thinking is stuck in the past and it risks wasting billions on heavy equipment that will soon be out of date
Bitish readers of a certain age may find it hard to be enthusiastic about German rearmament. As historians, we understand their unease. However, this is not the 1910s or the 1930s. The 2020s are a time when the UK has been in a mutual defence alliance with Germany for close to 80 years; when the Russian invasion of Ukraine is nearing the end of its fourth year; and when Donald Trump’s re-election must raise doubts about the strength of the American commitment to European security.
It is also a time when fiscal constraints make it hard for either Britain or France to make significant new investments in their armed services. Under these circumstances, we should worry not that Germany is rearming, but that it is not rearming rapidly or smartly enough.
Much has happened in the past year to suggest Germany has woken to the realities of today. It changed its constitution to exempt defence outlays above 1 per cent of GDP from the debt brake. The defence budget is set to double over the coming years, to about €150 billion, or more than 3 per cent of GDP. So the financial groundwork for action is in place.
Yet Germany’s rearmament is not going nearly fast enough. While Germany and Europe urgently need more weapons, at the current pace it will take years for them to roll off the production line and to constitute an arsenal sufficient to deter Russia. In no other area will Germany invest as much money in the coming years. And in no area is the absence of economic rationality more pronounced. Without swift changes, Germany is on a path to waste billions in taxpayers’ money for the delayed delivery of partly outdated defence capabilities.
Nearly four years after Russia’s assault on Ukraine, large German defence producers still work in single shifts, five days a week, instead of three shifts, seven days a week. The current production rate for the Taurus long-range guided missile system is only a few a month. The production of the Iris-T air defence system — which could provide crucial support to defend Ukraine’s energy infrastructure this winter and which is also essential for closing gaps in Europe’s air defence — is positively artisanal.
Not only do weapon programmes struggle with slow production, delays and rising costs; the defence build-up also remains heavily skewed towards traditional crewed systems. Drones account for 80 to 95 per cent of the damage inflicted on the battlefield in Ukraine. Yet the Bundeswehr has only a little more than 600 drones. While the German army plans to purchase about 10,000 units in coming years, Ukraine will produce four to five million units this year and plans to increase production to ten million next year. Russian attacks on Ukrainian cities often involve hundreds of drones in a single night, with comparable numbers of counter-drones launched to intercept them. On the Ukrainian battlefield, the stock of drones the Bundeswehr currently envisages would last a couple of days.
Nor is the war in Ukraine in some way unique. It is showing us what all future wars will look like. The recent UK defence review stated it clearly: the battlefield of the future will be autonomous, networked and attritional — the scene of a high-tech conflict driven by continuous innovation and close integration between civilian and military research.
The recent incursions of unarmed Russian drones into Polish airspace made the new defence economics tangible. The Russian decoy drones are likely to cost about €1,000 to produce, while the cost of scrambling Nato fighter jets and using air-to-air missiles to shoot them down could reach €1 million.
The Ukrainian battlefield has also shown that traditional crewed systems such as tanks, which cost north of €20 million a piece, are at great risk from drones that cost a few thousand euros.
Yet instead of making full-scale investments into autonomous systems, the German strategy envisages paying for a manned system (Skyranger) to protect another manned system (the Leopard 2 tank) from attacks by drones. In a country short of soldiers, with a culture keen to minimise battlefield casualties, such a strategy seems, to say the least, questionable. It is fair to ask how far these priorities reflect the lobbying power of the established arms producers more than national-strategic foresight.
From an economic point of view, it is clear that Germany and Europe must pursue a technology-driven defence strategy. This means relying heavily on high-tech investments that maximise the economic spillovers to the civilian sector. Yet here, too, Germany is lagging behind. The Bundeswehr’s research and development budget (barely 1 per cent of defence spending) ranks among Europe’s lowest. The US spends about 15 per cent of its defence budget on R&D.
The UK defence review proposed an 80-20 mix of spending in favour of autonomous, uncrewed systems, with only 20 per cent of future spending going into expensive legacy systems. In Germany, by contrast, more than 90 per cent of the defence spending since 2022 has gone into traditional crewed systems such as tanks, boats, and aircraft — the weapons of the last war, not the next one. Preparing to fight the last war is the professional deformation of military elites. In the past it was not a German failing. It is today.
Other countries — not least Britain — can make the excuse that their manufacturing base has been eroding for years, limiting their capacity for rapid rearmament. Germany has abundant slack manufacturing capacity. Thanks to a combination of Chinese competition and American tariffs, jobs outside the defence sector are being lost every day. In August, Germany’s industrial production sank to its lowest level in 20 years, down more than 22 per cent from its peak. Plant and manpower that could be used for rearmament are going to waste.
The consequences of Germany’s failure to increase production are alarming. In some weapon categories, Russia’s quarterly output now matches the entire stock of the Bundeswehr.
The US has effectively stepped back from giving active financial and military aid to Ukraine. So the war in Ukraine is now Europe’s war. European efforts must urgently fill the gaps to compensate for the daunting mismatch between Russian and Ukrainian manpower and resources. Failure to do so could mean defeat for Ukraine, which would have grim implications for the security of the Baltic states, Finland and Poland.
Unfortunately, Germany and other Nato members base their defence plans on the assumption that American enablers and US support will remain available to them. Yet Trump’s commitment to Nato remains at best lukewarm and there is no guarantee his successor will be an Atlanticist. Europe is in a position of dangerous dependency on Washington, as we saw this summer when Brussels had to back down in its trade dispute with Trump.
The arguments for a more rapid and technologically advanced German rearmament are more than just narrowly military. They are also economic and strategic. We have four recommendations that add up to an “Operation Warp Speed” for German rearmament.
First, Germany needs to scale up weapons production fast. This requires substantial investment in capacity to increase production volumes, realise economies of scale and reduce unit costs. Such efforts can be supported through modern contract designs that financially reward early delivery and upfront investments — similar to the vaccine production contracts during the pandemic. Production clusters from Germany’s moribund automotive industry will need to be brought into defence manufacturing.
This will necessitate closer co-ordination between defence and civilian producers, military planning and industrial policy. Political co-ordination is needed because, in the short time we have, the market will not self-organise. In the world wars, countries appointed industrial co-ordinators — Lord Beaverbrook in Britain, Walther Rathenau in Germany — to align incentives, synchronise supply chains and increase production capacity. Friedrich Merz, the chancellor, needs to appoint a German rearmament tsar to play this crucial role.
Second, Germany has to get serious about planning and building the defence industrial base for a high-intensity war. Credible deterrence not only implies full shelves but also the readiness to sustain and even increase production in conflict scenarios.
That also means answering questions that so far remain open. How many drones should Germany be able to produce by 2027 to ensure it can defend itself — one million or closer to five? How many space rockets and satellites should be the target by 2030? How many military vehicles should be able to roll off the production line in an emergency? Which supply chains could still be relied upon in a conflict, and what access would Europe have to raw materials in such a scenario?
The government here will have to play a role too: there are no incentives for private companies to invest in production capacity in factories that might run idle if there is no war in the next decade. From the public point of view, however, it is absolutely essential that such factories for drones, rockets and other weapon systems exist to deter an aggressor — or to be utilised quickly in case of war.
Such an industrial deterrence strategy must also encompass secure supply chains, including access to critical raw materials such as rare earths, the supply of which is currently dominated by China and Russia.
Third, Germany must build the structures and mindset within its armed forces to embrace the rapid technological advances emerging both from the war in Ukraine and from fast-moving civilian research. That means setting some targets: at least 10 per cent of the defence budget to be spent on research and development; a 50 per cent spending share for new procurement (following the Polish example); at least half of new procurement to be reserved for new technologies such as autonomous systems, as well as disruptive technological moonshot projects and space capabilities.
This will have to be accompanied by policy that combines defence necessities with civilian innovation. No one is offering manufacturers like Daimler Truck or MAN Truck & Bus moonshot contracts to develop and build the autonomous military vehicles that could seed future civilian applications and boost the technological potential of the automotive sector. The danger is real that, much like in the German economy as a whole, the thinking of the German armed forces remains stuck in the paradigms of 20th-century engineering, not adapting to 21st-century digital realities.
Fourth, Germany must plan for a future in which Europe achieves strategic independence from the US. This requires a targeted strategy to replace American enablers in air transport, communications and intelligence, among others. While integrated Nato defence planning provides a baseline, the parallel development of independent European capacities is indispensable.
The most important consequence is that the Bundeswehr must take co-ordination with European partners, including the UK, much more seriously. This applies above all to joint European procurement, which holds substantial potential for reducing costs but has so far been resisted by national militaries. It also extends to the establishment of an integrated European defence market to achieve economies of scale in production.
At its heart, this is a task of industrial scaling, something German industry is well placed to deliver. It will involve retooling parts of the automotive sector for defence. But the alternative is to shutter many of those car plants, rendered obsolete by the dramatic rise of Chinese competition.
As economic historians, we know that without the co-ordinating hand of the government and economic expertise, this kind of crash rearmament programme will not happen fast enough. Going by historical analogies, the obvious path would be to create a national defence industrial board to assess resources, set quantitative production goals, negotiate capacity with industry and fast-track dual-use innovation. Such a board would have the authority to design contracts that reward speed, scale and learning.
This would enable Germany to seize the enormous opportunity of rearmament to shape industrial policy, fusing the country’s renowned engineering strength with defence-tech innovation. In the 20th century Germany and Britain learnt, painfully, how to mobilise for modern war — against one another. Today the task is to realise that economic mobilisation is an integral part of mutual defence and credible deterrence.
“German rearmament” are two ominous words for historians, just as “state co-ordination” is a phrase we tend to eschew as believers in free-market economics. However, in the face of an increasingly dangerous and heavily armed Russia, co-ordinated rearmament is imperative. Above all, it needs to happen at warp speed.
The alternative is to risk a strategic disaster that would threaten all the European members of Nato, Britain included.
Sir Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford University
Moritz Schularick is president of the Kiel Institute for the World Economy
WWSG exclusive thought leader Sir Niall Ferguson is one of the world’s foremost historians of economics, international relations, and global power. His incisive analysis illuminates the geopolitical forces and economic undercurrents shaping the 21st century. From great power competition to emerging security challenges, Ferguson offers unparalleled historical context and strategic insight — helping global leaders, policymakers, and business executives anticipate what lies ahead. To invite Sir Niall Ferguson to your next event, contact WWSG.
This is an Op-ed by WWSG exclusive thought leader, Dr. Scott Gottlieb. Many consumers and medical providers are turning to chatbots, powered by large language…
