Advertorial Article from the Handelsblatt Journal Security and Defense
The German government's historic decision to massively increase defense spending, and the associated NATO 5 percent target, will trigger a significant macroeconomic stimulus and at the same time send a clear signal.
The new study "The Path to European Sovereignty: Defense" by EY and DekaBank on the economic impact of defense spending shows that European NATO countries need to spend approximately €770 billion per year to achieve NATO's targets by 2035. Of this, around €220 billion annually is for pure defense spending – and this generates significant economic stimulus.
In Germany alone, this is expected to increase GDP by at least 0.9 percent and secure or create approximately 360,000 jobs annually. Across all European NATO member states, investments in defense and military equipment secure around 1.9 million jobs – almost 600,000 of them directly in the defense industry and nearly one million indirectly at suppliers. In addition, there will be new public revenues from corporate and income taxes as well as social security contributions. Cumulatively, these are expected to increase by approximately €4.1 billion annually.
Supply chains benefit
Besides the defense industry, the manufacturing sector, the metal industry, technology and IT companies, and service providers are particularly benefiting from these growth impulses. Furthermore, many companies, for example from the automotive sector, are expanding into the defense industry.
Profitability of the arms sector is increasing; investors have woken up.
The sector's profitability is also rising thanks to the strong order book: Company margins are projected to increase from 10.9 percent in the period 2018-2021 to 13.1 percent in the period 2021-2027. It's no wonder that the new mantra in the financial sector is "security is the new sustainability." Banks are increasingly providing financing, and private equity and private debt funds see attractive investment opportunities in the defense sector.
M&A volume is increasing
Mergers and acquisitions (M&A) deals will also increase significantly. In the first half of 2025, the European deal volume in the defense sector rose to approximately €2 billion, an increase of 35 percent compared to the previous year. European corporations are making targeted acquisitions of specialists in AI, sensor technology, and systems integration to expand their hardware offerings into data-driven, comprehensive solutions.
Positive effect: These targeted activities strengthen Europe's industrial resilience and partially enable the substitution of certain US capabilities, for example in the areas of munitions, intelligence, surveillance and reconnaissance.
Overall, defense is one of the most important economic issues in Germany and Europe in the coming years. Investments in defense not only protect against external threats, but are also the best form of economic development.
Here you can download the complete study „The Path to European Sovereignty: Defense“ for free:
Photos: © EY (Portraits)
