Germany After "Pax Americana": From Green Transition to Military Keynesianism
The collapse of Germany’s export driven growth model is forcing a strategic repositioning in which green industrial ambitions are being replaced by military Keynesianism.
Germany’s growth model is in crisis. This is not a temporary slowdown but the structural exhaustion of an export oriented, industry led model that can no longer sustain itself. As Germany’s external anchor, the Pax Americana, is rapidly eroding, the country is being forced into a strategic repositioning. Yet this search is not producing a new developmental path. As the green transformation agenda is steadily watered down, Germany is drifting toward a growth strategy centered on military spending and security driven public investment. What is emerging is not a renewed industrial future, but military Keynesianism filling the vacuum left by a failed model.
The Missing Industrial Policy
A joint report by the international consultancy Deloitte and BDI, titled Supply Chain Pulse Check 2025, lays bare the background of this crisis. Its core finding is stark. German industry has drawn almost no lasting lessons from the multiple crises of recent years shaped by the pandemic, war, and geopolitical tensions. Supply chains remain fragile, and production structures are far from being transformed.
According to the report, 66 percent of firms report rising procurement costs, while 52 percent point to higher administrative costs. 53 percent say profit margins have declined, and 33 percent report falling revenues. The dominant corporate response is not structural transformation but cost cutting. 45 percent of firms have shifted sourcing to cheaper countries, and 41 percent say they have reorganized supply chains due to rising protectionism and tariffs. What emerges is not an active industrial policy, but an industrial order effectively surrendered to short term cost calculations by firms.
The Automotive Sector at the Center of the Crisis
This structural blockage is most visible in the automotive sector. According to reporting by Deutsche Welle, German carmakers are experiencing one of their weakest profitability periods since the 2009 global financial crisis. Both lead manufacturers and suppliers are squeezed by weakening global demand, rising costs, and intensifying competition from Chinese producers.
Assessments by Ernst & Young make clear that this crisis is not cyclical. EY argues that German automakers lag behind Chinese competitors in both costs and technology in the transition to electric vehicles. The closure of Volkswagen’s glass factory in Dresden has become the latest casualty. Lagging performance in battery technology, scale economies, and price competition demonstrates why a green transition stalls when it is left to market mechanisms.
The European Union Steps Back as Climate Targets Are Softened
This impasse has been compounded by recent steps taken by the European Union. The EU has effectively softened its target to ban the sale of internal combustion engine vehicles by 2035. The new framework replaces a strict zero emissions requirement with a 90 percent reduction in average emissions by 2035, allowing the remainder to be offset through biofuels and e fuels.
This retreat shows how climate policy has been rolled back under pressure from the automotive sector. While this may provide short term relief for incumbent firms, it will push Germany and Europe further behind China in the technological race. Firms anchored in old technologies have become the primary force resisting the development of new ones.
From Green Transformation to the Defense Industry
As the green transition fails to generate a new industrial momentum, Germany’s search for growth is increasingly reorganized around the defense industry, infrastructure investment, and military spending. The Deloitte and BDI report indicates that a significant share of firms plan to adapt their product portfolios toward defense and infrastructure as new growth areas.
This shift signals a de facto move from green transformation to military Keynesianism. Public spending and industrial support are no longer justified by climate goals but by security and geopolitical priorities. Tens of billions of euros in defense procurement are currently awaiting parliamentary approval.
The Trump Doctrine, the End of Pax Americana, and Germany
This drift is accelerated by a broader geopolitical rupture. Under the Trump doctrine, US foreign economic policy prioritizes national security centered protectionism over free trade. For an industrial economy like Germany that relies on external demand, especially from the Chinese and US markets, this shift has immediate negative consequences.
German Chancellor Friedrich Merz’s statement to Deutsche Welle that “Pax Americana is over” is a blunt admission of this transformation. This is not only about security architecture. It signals the collapse of the external anchor on which Germany’s growth model rested. In the post Cold War era, Germany deepened its export led industrial model under the US security umbrella. Today, neither unconditional access to the US market nor the stabilizing role of the United States in the global order can be taken for granted.
In short, Germany’s export driven industrial model is unraveling under the pressure of global competition and shifting geopolitical balances. With no new growth path established through green transformation, the response is a turn toward military Keynesianism. Yet this orientation does not resolve the risks of deindustrialization, rising social inequality, or long term productivity problems. The crisis Germany faces today extends far beyond automobiles or supply chains. It reflects a growth model that has reached its historical limits.
Good take. The strategic shortsightedness of the EU, and Germany in particular, is a significant concern. As Akcay aptly point out, rather than pursuing structural change and innovation, current policies appear to be subsidizing outdated business models.
A fundamental—and potentially critical—miscalculation lies in the divergent structures of the US and German economies:
The US Model: The Department of Defense (DoD), with a consistent $1 trillion budget, acts as the primary engine of American innovation. Its demand for advanced technology sustains a massive military-industrial complex that drives the broader economy and has been doing so for a century.
The German Model: In contrast, Germany's current defense industry expansion is reactive. After 7 decades of pacifism, and the historical baggage, you cannot expect to transform a defence industry and with it the whole economy. At best, this "hype" serves as a temporary bandage on a deep, systemic wound rather than a sustainable economic driver.
Sobering data: "Here’s something that should terrify European policymakers. Germany now sources 94% of its LNG from the United States.":
https://themerchantsnews.substack.com/p/europe-the-117-billion-gas-trap?r=tf0g2&utm_campaign=post&utm_medium=web&triedRedirect=true