Responding to fears Germany’s famous automobile sector is no longer the key to the country’s financial success – and a leading bank has said the car industry could pivot to making tanks instead. Car building behemoths Volkswagen and BMW are still two of the biggest companies in the world, worth over £43 and £40 billion respectively, but motor manufacturing generally has seen a global slow down in recent years.
And now with the rising threat of war coming from Russia’s invasion of Ukraine, and increasingly aggressive statements on trade coming from the White House, Germany’s biggest financial institution has suggested the nation should change what it produces. For the past 80 years the central European country has avoided investment in defence because of its historic involvment in the Second World War.
But a recent major constitutional change means that politicians have approved allowing money to be spent on defence and they are aiming to increase the percentage of GDP which can go towards the military. Publication El Economista reports in 2023 arms sales in Germany represented just 0.2% of overall GDP, compared to 5% coming from the car industry. But automobile production has fallen 31% since 2011 and more than 100,000 jobs are currently at risk.
Deutsche Bank said that converting some of the capacity for motor manufacturing into making arms and in particular, tanks could help boost the economy. The law now allows Germany to spend more than 1% of GDP on defence and Deutsche Bank called the move a “game changer” which could lead to spending of 3.5% by 2028.
El Economista said this represented “more than €170 billion in additional spending in just three years”.
George Saravelos, global head of foreign exchange research at Deutsche Bank, said on Wednesday that if recent global turbulence in markets continued, alongside decisions from President Trump, then “we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilise the bond market”.
He said: “This would be very similar to the Bank of England intervention following the gilt crisis of 2022.”
Mr Saravelos added: “While we suspect the Fed could be successful in stabilising the market in the short-term, we would argue there is only one thing that can stabilise some of the more medium-term financial market shifts that have been unleashed: a reversal in the policies of the Trump administration itself.”
