Thanks to Putin, business is booming for Germany's defense contractors

The region between Hamburg and Hanover is known for its landscape of heaths and forests dotted by hamlets of red-brick-and-timber houses. What you don't immediately see is much evidence of its long association with Germany's armed forces, the Bundeswehr, and the defense industry that grew up around it. But you can certainly hear it.

Machine gun bursts, artillery rounds and explosions of varying strength, pitch and duration reverberate—whether they come from Rheinmetall AG's testing site, the tank training grounds to the north or one of the other many firing ranges, it's impossible to say. Barbed-wire fences and woodlands laced with signs warning "Achtung! Lebensgefahr! "—Danger of death!—keep most of the activity hidden from public view. And that's just how the Bundeswehr and the industry like it.

Germans have a deep suspicion of military force and weapons exports that's rooted in their nation's 20th century history of aggression. But as governments rearm in response to Russia's invasion of Ukraine, Germany's weapons suppliers are experiencing a bonanza, regardless of public sentiment. In one sign of the times, Rheinmetall, which ranks as the country's largest defense contractor, was just added to the main stock market index.

This part of Lower Saxony claims to be the most militarized region in Germany. Some 100 kilometers (60 miles) south of Hamburg, Unterlüss is home to the weapons and ammunition division of Rheinmetall, which operates Europe's largest private firing range on the outskirts of town. Fassberg Air Base is next door. About 13km further to the northwest, Munster hosts the country's biggest army camp.

That's where Ukrainian forces were trained to operate the Leopard 2, the most commercially successful battle tank in the world. With weapons systems made by Rheinmetall on a vehicle by Krauss-Maffei Wegmann, the Leopard is a testament to Germany's engineering chops—the same ones that have elevated the country's cars and domestic appliances to status symbols.

"It's a very, very effective piece of kit," says Jon Hawkes, a specialist in armored fighting vehicles at Janes, a company that supplies intelligence on the defense industry. The Leopard 2 has been in production since 1979, continually upgraded and improved, according to Hawkes. It even has its own users' club. Rheinmetall and Krauss-Maffei Wegmann have an "enormously successful partnership in global terms," he says. "Certainly, in the European land domain, those two are the kings."

Germany ranked sixth in arms exports in 2022, trailing the US, France, Russia, China and Italy, according to the Stockholm International Peace Research Institute. Its biggest sale last year: three state-of-the-art submarines made by Thyssenkrupp Marine Systems and purchased by Israel, at a reported cost of €1 billion ($1.09 billion) apiece.

The German government was initially hesitant to supply Leopard 2s to Ukraine, ostensibly while it waited for the US to step up with equivalent tanks. But Berlin's reticence also showed how the war has pushed the country out of its comfort zone.

With even pacifist Japan increasing outlays for military hardware, global arms makers are experiencing similar surges in demand. Yet Germany's industry stands out because of what amounts to a state-sponsored coming-out party for companies that have preferred to keep a low profile.

At an emergency session of parliament three days after Russia's attack on Ukraine in February 2022, Chancellor Olaf Scholz declared what he called a Zeitenwende, or turning point. Gone was a longtime ban on sending weapons into conflict zones so as to aid Kyiv, and in came a special €100 billion fund to upgrade the Bundeswehr's equipment. Germany would finally heed international calls to meet NATO's defense spending target of 2% of economic output.

More than a year later, the government's domestic opposition along with international allies complain that Scholz has little to show for his grand pivot. One big obstacle to a speedier deployment of funds for everything from helmets to howitzers is the country's notoriously sclerotic defense procurement system. Still, the go-slow approach suited a sizable minority of voters, many of them appalled at the prospect of German weaponry again being deployed in the killing fields of World War II.

Those conflicting currents are yet to be resolved. But the defense industry feels vindicated. "Many people now understand that security is not a given—you have to fight for security and democracy," Armin Papperger, Rheinmetall's chief executive officer, said in a March 10 interview at the company's Düsseldorf headquarters. "They also understand that we have to spend money on the armed forces. A country like Germany at the moment is relatively incapable of defending itself, because it doesn't have enough military equipment. That has to change."

Paradoxically, the focus on what's perceived as Berlin's foot-dragging on delivering heavy equipment to aid Kyiv has served to highlight that equipment's quality and performance on the battlefield. Diehl Defence's IRIS-T air defense system, equipped with infrared homing missiles that travel at three times the speed of sound, has garnered praise from Ukraine's air force for a 100% success rate in hitting its targets.

Ukrainian troops also have complimented the Gepard antiaircraft tank on social media for its ability to shoot down Iranian Shahed drones. The Panzerhaubitze 2000 has acquired a reputation for being one of the most powerful and rapid self-propelled howitzers around. Both are made by Krauss-Maffei Wegmann. "German defense contractors produce some of the most capable armored vehicles anywhere, and I am happy to see more of them going to help Ukrainians," says Scott Boston, a senior defense analyst at Rand Corp.

As part of the Zeitenwende, Scholz has made a point of visiting military installations and contractors over the past year, allowing himself to be photographed posing in front of a Leopard 2 tank. Germany's ability to defend itself requires "a strong Bundeswehr and a capable arms industry," he said during a January visit to high-performance radar specialist Hensoldt AG. In February, as Hensoldt reported a record €5.4 billion order backlog, it said Russia's aggression has brought the need for an efficient defense industry and military "back into the political and social spotlight."

For some contractors, that's not a comfortable place to be. Neither Krauss-Maffei Wegmann nor Diehl is publicly traded, so there's little chance you'll catch their executives speaking enthusiastically about the new business climate. Both declined to comment for this article.

As a publicly traded company, Rheinmetall is less tight-lipped. And there's been lots to boast about lately. Where it once touted its environmental credentials—the wolves that have returned to rove its testing ground near Unterlüss, the beehives deployed at a site in Kassel, where the company develops tactical wheeled vehicles (the first Rheinmetall honey is due this spring)—it now announces weapons and munitions orders almost every week.

Shares in Rheinmetall have almost tripled since Vladimir Putin's tanks rolled into Ukraine, pushing its market value above €10 billion. On March 16 it reported record earnings, record new orders and a record backlog of €26.6 billion.

In Unterlüss there's little sign of the boom at first glance. Arrayed along the town's modest main street are a budget-chain supermarket, a gas station, a Turkish kebab shop and a railway station. But on a recent weekday, hundreds of cars parked outside Rheinmetall's complex and along the road gave an indication of the buzz of activity inside. An enterprising local gym stays open into the night to cater to workers on rotating shifts.

The company is adding a new munitions assembly line at a cost of more than €10 million. On the mid-February day when this reporter visited Unterlüss, it announced an order of some "three-digit million euros" placed by Germany on behalf of Ukraine for 300,000 rounds of 35mm ammunition for the Gepard.

Rheinmetall declined to grant access to its site, on security grounds. It did welcome German Defense Minister Boris Pistorius later that month, though. "We're running at full steam here," CEO Papperger said during the visit.

This corner of Germany isn't coy about its relationship with the military and all that's entailed over 90 years. The nearby air base in Fassberg dates from 1934, the year after Adolf Hitler became chancellor. Around the same time, a training ground with tank firing ranges sprouted just to the south in Bergen. At the outset of World War II, a prisoner-of-war camp was built on its eastern fringe. The complex, Bergen-Belsen, was later turned into a concentration camp. Over the course of the war, roughly 52,000 captives died from a combination of starvation, disease and exposure.

In all, the region was home to around 20 prison camps, including one at Unterlüss that housed women forced to work at Rheinmetall-Borsig AG, as it was then known. The company paid for a memorial to be built in the town. It officially opened to the public on Feb. 21 of last year, three days before Russian tanks rolled into Ukraine.

Two kilometers away, on the grounds of a Lutheran church, a metal cage covers concrete steps leading down to a wartime bomb shelter where children from a nearby school gathered during Allied raids. A commemorative plaque outside reads: "Europe, have you not learned?"

Following Germany's defeat in World War II, the country was demilitarized. But with the emergence of the Soviet threat, realpolitik prevailed and the occupying powers blessed the creation of the Bundeswehr in 1955. The West German army was a bulwark of NATO's forward defense at the Iron Curtain. At its peak, from the 1970s until just after reunification with East Germany in 1990, it numbered some 500,000 military personnel and 7,000 battle tanks.

As the Cold War threat evaporated, Germany's combined armed forces were culled, compulsory military service was scrapped, and defense spending was slashed. The post of defense minister, once occupied by such political heavyweights as Franz Josef Strauss and Helmut Schmidt, became a backwater.

The Scholz administration's goal of tapping the country's industrial prowess to upgrade the Bundeswehr risks running headlong into public attitudes that can seem at odds with Europe's present reality. Polls consistently show that only a narrow majority of Germans favor arming Ukraine. A "manifesto for peace" calling for an immediate end to weapons shipments and the imposition of a cease-fire has attracted more than 750,000 signatories, among them politicians, religious leaders, artists and lawyers. Scholz addressed the issue in a speech to the Bundestag on March 2: "Peace cannot be achieved by shouting 'No more war' in Berlin and at the same time demanding a halt to all weapons supplies to Ukraine," he said.

Unspoken was the reality that, unlike in the US or the UK, the Russian invasion and its consequences are never far away in Germany. Ukraine is a 10-hour drive from Berlin; Germany hosts a million Ukrainian refugees; and the country is enduring a painful process of weaning itself off cheap Russian gas that puts the viability of swaths of German industry in doubt.

For David McAllister, the former prime minister of Lower Saxony state who now chairs the European Parliament's foreign affairs committee, Putin's aggression has compelled Europe to begin a new chapter in its history. How Germany balances the need to more actively provide for its own security with the population's ingrained pacifism, instead of leaning on the US, still has to be worked out.

"We haven't all 100% realized what epochal change we're going through," says McAllister, whose father was Scottish and who himself served in the Bundeswehr. "A lot of things which were guaranteed even in the coldest days and weeks of the Cold War obviously are now actively put into question by the Russian invasion."

As a gun fitter with the British army in Germany during the Cold War, Malcolm Chamberlain was told he had 24 hours to live in the event of an attack by Warsaw Pact forces across the Elbe River. The assumption was that Soviet tank battalions, having crossed the first major barrier to the West, would roll over all before them.

Having served for seven years, including three tours of duty in Northern Ireland, Chamberlain makes for an unlikely pacifist. After being stationed in Munster in 1974, he left the army to avoid being posted away after he married his German wife, Karin, and they had a son. He's lived and worked in the region ever since, including a brief spell at Rheinmetall.

"It's a terrible situation. I don't know anyone who doesn't sympathize with the Ukrainians, but where's it going to end?" Chamberlain, a lean 70-year-old dual German-British citizen, asks over coffee at his house near Unterlüss, down the road from artillery firing range No. 21. "Everyone says it can only be a diplomatic solution, so how many deaths do we want?"

A loud percussion shatters the late afternoon calm with the force of thunder. The Chamberlains rarely notice the blasts now, but they plan to attend a demonstration in Unterlüss on Easter Saturday calling for the guns to fall silent, an end to war and no more weapons exports.

Germany's military contractors may be quietly toasting their fat order books, but they know that Scholz's Zeitenwende is fragile. "I think that our image has changed for the better," Rheinmetall's Papperger said in December. "But I don't know if it's going to last." 

—With Alexander Michael Pearson, William Wilkes and Marc Champion

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.