This article was 2025's Topic of the Week in the newsletter for week 38.

The security situation changes economic framework conditions

Russia's war of aggression against Ukraine has fundamentally altered the security situation in Europe. Additional conflict hotspots, such as in the Middle East, exacerbate the fragile global situation. German businesses must also adapt to these developments.

These additional challenges weigh particularly heavily on companies because Germany's international competitiveness in various areas has noticeably declined overall. In recent years, crucial decisions that are highly relevant for businesses of all sizes have been neglected. This concerns the general strengthening of Germany's defence capabilities and economic resilience as well as the expansion of civilian and military infrastructure. The Federal Government has reacted by announcing extensive measures to address these deficits in its coalition agreement. For this purpose, the Bundestag has adjusted the framework, including significant amendments regarding the possibilities of credit financing for investments by the security and defence industry and its suppliers. From a business perspective, this area has rightly been defined very broadly and includes civilian aspects. Corresponding adjustments have also been made and continue to be made at the EU level.

Global uncertainties directly impact businesses

Further negative factors amplify the current challenges for companies: International developments increasingly lead directly or indirectly to disruptions in worldwide supply chains. Pressure on energy prices remains high. In addition, new hybrid threats to businesses and critical infrastructures arise.

Companies must therefore invest in their own resilience more intensively than ever to stay competitive in their markets even under challenging conditions. National challenges, such as the necessary personnel growth of the German Armed Forces, directly affect the securing of jobs and skilled workers. Changes here arise, for example, in the wake of current legislative procedures such as the Defence Service Modernisation Act.

Modernising defence service – Consider labour market impacts

On 27 August 2025, the Federal Cabinet approved the draft law for a "new defence service". From a business perspective, it is crucial that strengthening the German Armed Forces personnel does not aggravate competition for jobs and skilled workers as far as possible. Defence service — whether voluntary or potentially mandatory in the future — must be thought of comprehensively and innovatively, taking into account the requirements and needs of the economy. The DIHK emphasises in its statement on the draft law the opportunities that modern defence service could present. For example, it should also be used as an instrument for vocational training and qualification of young people. Training opportunities and the option to acquire professional skills during defence service would make it more attractive. Defence servants with completed vocational training should ideally be able to use their skills "precisely" during their service time.

Defence industry needs stable frameworks

The market for goods of the security and defence industry differs fundamentally from other markets: It is — for obvious reasons — highly regulated, and, essentially, states themselves are the most important demanders and recipients of the products. Companies in these sectors, therefore, require reliable frameworks: long-term sales perspectives to economically plan expansions of production capacities, secure long-term supply contracts, and invest in research and development.

Faster processes demand stricter procedures. With the "Law on expedited planning and procurement for the German Armed Forces" adopted on 23 July 2025, the Federal Government has reacted. Temporary exemptions will facilitate and accelerate the awarding of public contracts. Additionally, innovative, market-available solutions such as fostering procurement for and with partner countries have been announced.

Particular attention should be given to small and medium-sized enterprises in the reforms. Likewise, young companies face special hurdles in complex tender processes, which must also be considered. The requirements for goods production with short development cycles, such as in modern drone technology, should also be precisely addressed. Here, it is essential to achieve a balance between economic development opportunities and an adequate level of security.