On March 4, 2025, Germany announced a revolutionary fiscal agreement between the Union (CDU/CSU) and SPD parties that will reshape the country's economic and security landscape. This deal includes two major financial initiatives: a EUR 500 billion special fund for infrastructure and a new rule that allows unlimited defence spending. For foreign companies looking at the German market, this dual investment strategy creates huge business opportunities. As administrative law experts who have worked in Germany's complex bureaucracy for many years, we can explain what this means for international businesses interested in both defence and infrastructure markets in Germany.
Understanding the Dual Investment Strategy
Let's examine both components of this historic financial commitment:
The EUR 500 billion Infrastructure Special Fund
This fund, dedicated to rebuilding Germany's deteriorating infrastructure, will be deployed over ten years and represents more than one-tenth of Germany's GDP. SPD leader Lars Klingbeil emphasized that "Germany is running on wear and tear" and requires massive investment to modernize its roads, bridges, railways, and digital networks.
The Defence Spending Reform is equally significant. The constitutional debt brake (Schuldenbremse) will be modified: It will exempt defence spending above 1% of GDP from debt restrictions, allow theoretically unlimited credit-financed defence expenditures, and enable Germany to meet and potentially exceed NATO's 2% of GDP target for defence spending. CDU leader Friedrich Merz has called for a "whatever it takes" approach to defence, signalling a political commitment to substantial military modernization in response to evolving security threats in Europe.
Business Opportunities in Defence
The defence spending reform creates extensive opportunities for international defence contractors and related businesses:
1. Military Equipment and Systems Modernization
With the potential for substantially increased defence procurement budgets, companies in these areas stand to benefit:
- Land systems: Manufacturers of armoured vehicles, artillery systems, and ground equipment will see increased demand as Germany upgrades aging systems.
- Naval capabilities: Companies specializing in submarine technology, naval vessels, and maritime systems will find opportunities as Germany strengthens its naval forces.
- Aerospace and air defence: Producers of fighter aircraft, air defence systems, and military drones will benefit from Germany's focus on aerial capabilities
- Command, control, and communications: Providers of advanced C4ISR systems (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) will see growing markets.
2. Defence Technology and Innovation
Investment will flow to cutting-edge defence technologies beyond traditional defence equipment:
- AI and autonomous systems: Companies developing artificial intelligence for defence applications, including autonomous vehicles and decision-support systems.
- Cybersecurity and electronic warfare: Firms specialising in protecting military networks and developing electronic warfare capabilities will be essential as warfare becomes increasingly digital.
- Space-based defence capabilities: With growing recognition of space as a military domain, companies providing satellite technology and space-based intelligence systems will find new opportunities.
3. Defence Supply Chain and Services
The broader defence ecosystem will also benefit:
- Logistics and supply chain management: Companies that can optimize military logistics and supply chains.
- Training and simulation: Providers of advanced training solutions using virtual reality and augmented reality for military personnel.
- Maintenance, repair, and overhaul (MRO): Firms specialising in the maintenance of complex military systems throughout their lifecycle.
Business Opportunities in Infrastructure
The EUR 500 billion infrastructure fund will create enormous opportunities across multiple sectors:
1. Transportation Infrastructure
Germany's aging transportation networks require comprehensive modernization:
- Bridge construction and rehabilitation: There are thousands of bridges in need of repair or replacement. Companies with expertise in accelerated bridge construction will be in high demand.
- Road development and maintenance: Firms specializing in highway construction, smart road systems, and sustainable pavement technologies.
- Railway modernization: Companies with expertise in high-speed rail, signalling systems, and railway electrification as Germany pushes to improve its rail network.
2. Energy Infrastructure
Germany's infrastructure plans make the energy transition a priority:
- Renewable energy systems: Developers and manufacturers of wind, solar, and other renewable energy technologies.
- Energy storage solutions: Companies offering grid-scale batteries and other energy storage technologies to complement renewable energy.
- Smart grid technology: Providers of intelligent energy distribution and management systems.
- Hydrogen infrastructure: Firms specializing in hydrogen production, storage, and distribution as Germany invests in this emerging energy carrier.
3. Digital Infrastructure
Germany's digital transformation is a critical component of infrastructure modernization:
- Broadband and 5G deployment: Telecommunications equipment providers and network deployment specialists.
- Data centres and cloud infrastructure: Companies building and operating the physical foundation of digital services.
- Smart city technologies: Providers of integrated urban management systems that connect transportation, energy, and public services.
4. Environmental and Climate-Resilient Infrastructure
Germany will prioritise infrastructure that supports climate goals:
- Flood protection and water management: Companies specialising in flood defence systems and sustainable urban drainage.
- Climate-adaptive infrastructure: Firms designing infrastructure that can withstand extreme weather events.
- Carbon-reducing building materials: Providers of innovative, low-carbon materials for infrastructure projects.
The Common Challenge: German Bureaucracy
Despite the massive financial commitment across both defence and infrastructure, foreign companies must understand that Germany's administrative processes remain a significant challenge. The same bureaucratic hurdles affect both sectors:
Administrative Realities in Germany
- Planning and approval processes for major infrastructure projects can take up to 5-18 years.
- Defence procurement processes are notoriously complex and slow-moving.
- Multiple levels of government involvement create coordination challenges.
- Environmental, historical, and social impact assessments add layers of complexity.
These administrative challenges mean that despite the availability of funds, actual project implementation may lag significantly. It is likely though that this will be changed by the Union and the SPD as well. However, companies should have experienced experts at their sides when dealing with the German administration.
Strategies for Success in both Markets
To maximize opportunities in both defence and infrastructure, it is recommended to:
- Form strategic partnerships: Consider joint ventures or partnerships with established German companies that understand the administrative landscape and have existing relationships.
- Invest in regulatory expertise: Build teams that understand Germany's complex regulatory environment, including defence procurement rules and infrastructure approval processes.
- Offer integrated solutions: Companies, that can demonstrate how their offerings address both technical requirements and administrative efficiency, will have advantages.
- Emphasize sustainability and security: Projects that demonstrate alignment with Germany's dual commitment to environmental sustainability and enhanced security will receive priority.
- Be patient but persistent: Adjust business expectations for the reality of German administrative timelines while continuously engaging with stakeholders.
Sectoral Convergence: Where Defence Meets Infrastructure
An interesting aspect of Germany's dual investment approach is the growing convergence between defence and infrastructure priorities. Companies positioned at this intersection will find particularly valuable opportunities:
Areas of Convergence
- Critical infrastructure protection: Solutions that secure energy grids, transportation systems, and communications networks against physical and cyber threats.
- Dual-use technologies: Technologies with both civilian and military applications, such as advanced materials, autonomous systems, and certain types of sensors.
- Resilient supply chains: Systems and services that ensure continuity of critical materials and components for both defence and infrastructure.
- Energy security: Solutions that enhance Germany's energy independence, a concern for both economic and defence reasons.
A Dual Opportunity for International Business
Germany's historic investment in both defence and infrastructure represents a rare dual opportunity for international companies. The scale of investment is unprecedented, creating markets that will evolve over the next decade and beyond. Success will require a nuanced understanding of Germany's unique administrative environment, patience with its bureaucratic processes, and the ability to demonstrate value beyond mere technical capabilities. Those companies that position themselves as partners in Germany's transformation – helping not just to rebuild roads or modernize military capabilities, but to improve the systems by which these goals are achieved – will find themselves at the forefront of this historic opportunity. Foreign companies willing to make this investment in understanding and adapting to the German context will find substantial rewards in the next decade as Germany reinvents both its physical infrastructure and its security posture in response to evolving global challenges.
Do you have any questions? Do not hesitate to contact us.
Dennis Hillemann
Johannes Voß-Lünemann
