Armaments boom: Deutz AG seizes opportunity in the crisis economy

Armaments boom: Deutz AG seizes opportunity in the crisis economy

The arms boom is making waves in Cologne's economy, while traditional industry is struggling with challenges. A particularly interesting example of this is Deutz AG, the oldest engine manufacturer in the world, which has been producing engines for tractors, combine harvesters and construction machinery for over 160 years. Sebastian C. Schulte, who has served as CEO since February 13, 2022, changed the direction of the company shortly after taking office when, eleven days later, the Russian attack on Ukraine changed the security situation in Europe. In this context, the Tagesschau reports that NATO countries have decided to use 3.5% of their gross domestic product for defense spending, which means great potential for companies like Deutz.

The arms market sees good opportunities for Deutz. Schulte plans to increase the company's share of the defense sector from less than 2% to 5 to 10%. Engines for military applications require special adaptations to be suitable for kerosene. Development engineer Alexander Haas is already working on optimizing an engine model for howitzers. At first it was a difficult step for some employees, but skepticism has subsided as the defense business not only secures new orders but also stabilizes jobs.

Defense spending and its challenges

Financing remains a central aspect of German defense policy. After the new elections in February 2025, the federal government faces similar challenges as its predecessors. Germany has long missed NATO's goal of increasing defense spending to 2 percent of GDP, spending at 2.1 percent in 2024, below the NATO average of 2.7 percent. In response to the conflict in Ukraine, a special fund worth 100 billion euros was created. However, experts warn that without concrete counter-financing measures there is a risk of a financing gap of 21.5 billion euros by 2028, even if the 2 percent target is met, reports the IWD.

The debate over defense spending has been reignited by the conflict in Ukraine. According to the Kiel Institute, increasing spending from 2 percent to 3.5 percent of GDP could cost around 300 billion euros annually. However, this could also stimulate additional private economic activity and thus provide positive impulses for the entire economy. In particular, the development of the next generation of defense equipment requires a realignment of European research and development policy.

Economic alternatives and global comparisons

While the arms boom is inspiring some companies, the question of the overall economic impact remains. Klaus-Heiner Röhl from the German Economic Institute sees the potential from the arms boom as limited. Despite the strengthening arms industry, the automotive industry is about ten times larger and scientists at the University of Mannheim emphasize that investments in education or infrastructure could have more economically sustainable effects.

An exciting picture emerges when you compare the current situation in Germany with the defense spending of the USA, which spends almost 3.4 percent of its economic output on defense. Mark Rutte, NATO Secretary General, recalled that Europe spent over 3 percent during the Cold War. With the current arms boom combined with a financial gap that experts predict, Europe's defense capability could be at stake if timely action is not taken.

It seems that some companies like Deutz have retained a good hand in the arms business, while politicians are faced with the challenge of setting the course for future security. The question remains how these developments will have a lasting impact on the economy in Germany, especially in a city like Cologne. We can't wait to see the next steps!