Germany's stress map.
The security pivot and its costs.

For seventy years Germany cultivated military reluctance as a matter of identity and constitutional design. The Russian invasion of Ukraine began to change that, and the Merz government has now made the change concrete and irreversible. The 2026 defence budget is a record €108.2 billion, defence spending above 1 percent of GDP has been exempted from the debt brake, and Berlin has announced plans to spend on the order of €650 billion over five years to move toward NATO's new 3.5 percent-of-GDP core target, within an overall 5 percent commitment agreed for 2035. This is the largest sustained military build-out in German post-war history, and it reorders the economy, the budget and the country's strategic posture at once.

The defence build-out is, in effect, an industrial-policy programme, and it is one of the two engines (with infrastructure) carrying the 2026 recovery. Procurement orders flow to German and European defence primes, to the Mittelstand suppliers in their chains, and into research and capability that has civilian spillovers. Defence equities have been among the strongest performers in the European market. But defence spending is a weaker growth multiplier than infrastructure - it raises capacity less and imports more - and it competes for the same fiscal space, political capital and skilled labour as the civilian investment agenda. The build-out supports growth and the industrial base, but it is not a costless economic positive.

The security pivot is where Germany's geopolitical and domestic stresses intersect. The spending was enacted rapidly and with limited popular consent - analysts argue German leaders miscalculated the public's appetite for war spending - and it lands in a political environment where the AfD, sceptical of NATO and EU commitments and opposed to the costs of the transition, leads several national polls. The defence build-out is thus doubly exposed: to the external risk that the European security environment deteriorates further, and to the internal risk that the consent for the spending erodes faster than the threat recedes. A Germany rearming against a Russian threat while a fifth of its electorate questions the entire project is carrying a strategic contradiction.

The security pivot is complicated by the state of the transatlantic relationship. Germany is rearming partly in response to doubts about the durability of the American security guarantee, even as the same American administration imposes the tariffs that are hollowing out German auto exports. Berlin must treat Washington as an indispensable security partner and an economic adversary simultaneously - buying interoperability and deterrence from a country that is taxing its exports. This is the central strategic discomfort of German policy in 2026, and it pushes Germany toward greater European strategic autonomy, more defence spending, and a hedging of its dependence on the United States across both security and trade.