Germany’s Workers Are Being Asked to Pay for Its Industrial Crisis
Germany’s Workers Are Being Asked to Pay for Its Industrial Crisis
In 2023, Germany’s GDP contracted by 0.9%. In 2024 it contracted by 0.5% and barely grew in 2025 when GDP expanded by 0.2%. The German economy has spent three years in contraction and stagnation.
Germany’s industrial production is falling faster than employment. Since 2017, it has fallen by more than 15%. Manufacturing is the most important component and makes up close to 80% of industrial production. Employment has fallen much more slowly than output.
Trump’s tariffs put pressure on German exports in 2025, while cheaper Chinese exports created additional pressure for German manufacturers. In 2026, Trump’s war with Iran increased energy costs for German manufacturers.
Now, certain executives in Germany want longer working hours. They want the working week to increase to 40 hours from 35 hours. And they want workers’ pay to stay the same. No increases. Martin Brudermüller, chair of Mercedes-Benz Group AG’s supervisory board, said, “Labour has become too expensive here by international standards,” and that “We should seriously consider a return to the 40-hour week.”
Brudermüller says German labour is “too expensive” and that Germany has lost its productivity advantage, and he reduces the answer to the problem to one variable that he can control: workers should give five more hours for the same weekly wage. It is an easy adjustment because it puts the cost on workers rather than shareholders or the state. Workers offer an easy solution.
The problem is moved to labour. They are too expensive. But the causes of lower production are much broader: energy costs, Chinese competition, the transition to electric vehicles, trade policy, infrastructure, management decisions and government policy. Yet labour is being asked to carry part of the cost.
Germany’s Federal Employment Agency says manufacturing lost 177,000 social-security jobs in 2025. This is about 14,750 a month on average. The auto sector alone lost 52,000.
“The manufacture of motor vehicles and motor vehicle parts, the metal industry and mechanical engineering are among the sectors that have contributed significantly to the decline in employment in the manufacturing sector. For example, the motor vehicle and motor vehicle parts manufacturing sector had 52,000 fewer employees at the end of the year; the metal products manufacturing sector had 24,000 fewer; and the mechanical engineering sector had 28,000 fewer. This is shown by the quarterly employment statistics by economic sector published today.” (Bundesagentur für Arbeit, July 2026)
At the same time, Germany is increasing defence spending and troop numbers. The Defence Ministry budget increased from €62.4 billion in 2025 to €82.7 billion in 2026, a rise of about 33%.
On top of that, the government plans to spend another €25.5 billion from the Bundeswehr special fund. Under NATO’s definition, Germany expects defence spending to reach about 2.8% of GDP in 2026, with the government planning to reach 3.5% by 2029.
The German government is planning another large step in 2027: the Defence Ministry budget is set to rise to €109.7 billion, before additional money from the special fund.
The troop numbers are equally striking. As of 31 July 2026, the Bundeswehr had 186,705 military personnel. The government wants at least 260,000 active soldiers by the mid-2030s, plus 200,000 reservists; a total force of roughly 460,000. That means Germany wants to add about 73,000 active-duty personnel alone, an increase of roughly 39% from today’s level.
The German finance minister Lars Klingbeil commented:
“We are doing everything to ensure that we can continue to live safely in Germany and that our children can grow up in a secure environment. Peace in Europe is threatened by Russian aggression. Balancing the budget at all costs can’t be the top priority if we want to defend Germany against Putin. We need to make up, within a very short space of time, for three decades during which there was no investment in Germany’s defence capabilities. This is the moment when we need to protect ourselves. This is our responsibility.”
Russia invaded Ukraine. That poses a perceived security threat to Europe. But Russia’s invasion of Ukraine does not, by itself, establish that Putin intends to invade Germany or other NATO states.
And I must ask: with Germany losing its manufacturing base, does the security crisis also make enormous defence spending economically convenient?
There are signs that the two developments are intersecting. Rheinmetall plans to convert two German automotive plants so that they produce defence equipment. Hensoldt has looked to Bosch and Continental for workers. KNDS agreed to take over an Alstom plant and use it to produce Leopard 2 tanks and Puma infantry fighting vehicles. Hensoldt’s chief executive, Oliver Doerre, told Reuters: “We are benefiting from the difficulties in the automotive industry.”
The German government is responding to a lagging economy with enormous public spending. Some spending goes to infrastructure and innovation. But defence spending is rising rapidly.
And where they are spending is important.
Troops and bombs.
What happens when an economy can no longer deliver the prosperity people expected, workers are asked to absorb the losses, and an increasingly important source of industrial growth is organised around weapons and military power?
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