Germany is set to invest directly in defence technology start-ups as part of a broad initiative aimed at revitalizing its economy and fostering innovation. Announced by the government led by Chancellor Friedrich Merz, the plan involves state investments through the development bank KfW, alongside new tax incentives and measures to streamline the process of establishing new companies.
Economy Minister Katherina Reiche emphasized the initiative’s goals to simplify business formation, accelerate growth, and retain innovation within Germany. The move reflects a shift toward a more interventionist industrial policy, responding to longstanding concerns that bureaucratic hurdles and limited venture capital have hindered the country’s start-up ecosystem, especially in comparison with counterparts in the UK and the US.
Germany, Europe’s largest economy, has struggled to rejuvenate growth since last year’s general election. Its economy remains heavily dependent on traditional manufacturing sectors such as automotive production and steelmaking. These industries have come under pressure from competition with lower-cost producers, particularly in China, leading companies like Volkswagen to reduce their workforce and close domestic facilities.
The governing coalition of the Christian Democrats and Social Democrats plans to leverage Germany’s significant defence spending, which is expected to surpass €700 billion by 2030, to generate economic spillover benefits. The government proposal highlights concerns that large financing rounds in defence-related ventures are often led by international investors, which could jeopardize technological sovereignty and the preservation of jobs and value creation within Germany and Europe.
To address this, the government intends to create a dedicated investment vehicle to support start-ups and scale-ups producing products and services with military applications, including those subject to strict export controls. It also aims to make it easier for these companies to participate in public procurement processes.
Among more than 150 proposed measures, the government has committed to developing a more strategically focused arms export policy designed to offer greater reliability for defence and dual-use start-ups. It will also expedite the review of export control licenses and heighten scrutiny of potential technology transfers abroad.
The initiatives have received a mixed reception within the defence technology sector. Marc Wietfeld, CEO of unmanned vehicle developer ARX Robotics, praised the government for signaling the importance of start-ups and scale-ups to Germany’s future. However, some industry participants expressed reservations about state involvement through equity stakes, suggesting that government support might be more effective if directed toward purchasing products rather than taking ownership in private companies.