Executive Summary

In October 2026 I prepared a political-economic proposal for the German Federal Government: Germany as an Industrial Hub for a New Europe. The document diagnosed the erosion of Germany’s post-war industrial model and proposed a transition based on competitive energy, industrial AI, robotics, automated production, new high-tech markets, and European scaling.

The proposal is retained in full as a record of the analysis developed at the time. It is not recommended for implementation in its original architecture.

The reason is structural. The original design treated public procurement — including defence procurement — as one possible way to create initial demand, scale production, and accelerate technologies that might later find civilian markets. In engineering terms that mechanism can be plausible. In political-economic terms it is not neutral.

If defence demand becomes a principal engine of industrial renewal, the livelihoods of firms, workers, investors and regions can become increasingly dependent on continuing or expanding military orders. Actors may then acquire a material interest in larger defence budgets, sustained threat perceptions and the continued expansion of arms production — not necessarily because they desire war, but because income, employment, investment returns and local economic stability become tied to that trajectory.

A programme intended to increase security and prosperity can therefore help create constituencies whose material interests favour continued militarisation, provoke counter-militarisation, and narrow the room for de-escalation. That is a security-dilemma dynamic. The original proposal did not establish sufficient safeguards to keep defence procurement a limited, subordinate instrument rather than a central driver of industrial policy.

For that reason the proposal is closed as an unsuccessful strategic case. This is not a conclusion that industrial renewal, automation, affordable energy or European economic cooperation are undesirable. It is a conclusion that the architecture presented in the original paper does not adequately separate civilian industrial development from the self-reinforcing incentives of an arms race.

1. What the Original Proposal Diagnosed

Germany’s post-war industrial model rested on a mutually reinforcing combination:

  • relatively affordable and reliable energy;
  • a strong engineering tradition;
  • dense supplier networks and specialised equipment;
  • a skilled workforce;
  • access to large external markets;
  • the ability to export complex, high-value-added products.

Several of these elements are under simultaneous pressure.

Higher and less predictable energy costs raise unit costs, compress margins and reduce the attractiveness of further investment in Germany. Chinese manufacturers increasingly compete not only on price but on quality and technological capability in segments where Germany historically held a premium. At the same time, the combination of more affordable energy, cheaper robots and accessible computing can change the economics of physical production itself.

The relevant causal chain is:

expensive energy → higher costs → weaker margins → delayed investment → loss of market share → reduced production volumes → weakened supplier networks and skills → lower capacity to develop the next generation of products.

Once a critical mass of specialised suppliers, engineers and serial-production experience is lost, rebuilding the ecosystem becomes substantially harder than preserving it. Industrial capabilities deteriorate non-linearly.

The central threat is therefore not simply the loss of individual markets. It is the loss of the ability to scale complex physical production at competitive costs.

2. What the Original Proposal Sought to Preserve

The proposal distinguished two objectives that are often confused:

  1. preserving the historically established structure of industry;
  2. preserving the country’s ability to turn engineering knowledge, capital and technology into competitive physical products.

The second is more important than the first.

Germany’s Mittelstand — the network of specialised small and medium-sized companies that can be global leaders in narrowly defined technological segments — was identified as a principal carrier of the transition. Existing industries (automotive, machinery, energy equipment, industrial automation) would be expected to transform rather than be frozen in their current form.

The state’s task was defined as enabling the industrial base to move to the next generation of production, not as freezing the existing structure.

3. The Architecture That Was Proposed

The programme integrated four areas:

  1. Competitive energy — multi-layered systems including nuclear, renewables, storage, reserve capacity, grids and interconnectors, evaluated by lifecycle cost, reliability and industrial requirements rather than by political identity.
  2. Automated production — industrial AI, robotics, machine vision, digital twins, predictive maintenance and integrated design-to-production systems, measured by operational outcomes rather than by the number of robots purchased.
  3. New high-tech markets — sectors in which German engineering competencies could create high-value products with substantial automation potential.
  4. Public demand as a bridge — the state as infrastructure builder, first customer and bearer of initial risk, with an intended transition to private and civilian demand.

Dual-use design was proposed as a scaling mechanism: state order → first series → learning curve → cost reduction → civilian applications → larger series → export.

The European dimension was framed as German technological leadership combined with distributed European production, so that other member states would obtain real economic benefit from participation rather than face a national concentration of advantages.

Two political risks were explicitly identified:

  • Risk of the first kind: Germany modernises while trying to preserve its previous industrial concentration → other countries fear dominance → coalition resistance → programme blocked or diluted.
  • Risk of the second kind: Germany delays transformation until its industrial base is too weak → a new European architecture forms around other centres → Germany accepts an assigned role and loses the ability to shape its own industrial future.

The correct sequence was described as using remaining industrial and political weight to transition while the new platform is designed from the outset for European scaling.

4. Why the Architecture Is Closed

The unresolved problem lies in the role assigned to defence procurement.

Defence demand is not economically or politically neutral. When it becomes a significant driver of industrial renewal, employment, investment returns and regional stability can become structurally dependent on the continuation or expansion of military orders.

This creates a conflict of incentives. Actors whose material position improves with higher defence budgets and sustained threat perceptions have a rational interest in the continuation of that trajectory. The question then extends beyond European security to the financial well-being of ordinary households whose wages, jobs, taxes and public services are affected by how resources are allocated.

A security-dilemma dynamic can follow. One state expands military capacity to feel safer; others, unable to know with certainty whether that capacity is purely defensive, expand their own. Each side can interpret its actions as prudent self-protection while interpreting the other’s response as evidence of growing danger. The interaction of threat perceptions, arms competition, political commitments and entrenched economic interests can narrow the room for de-escalation over time.

External powers and suppliers can also benefit from a sustained European defence build-up through sales, investment, components or the reorganisation of production. Once substantial capital, employment and cross-border commercial relationships depend on high military demand, changing direction becomes more difficult.

The original proposal suggested a transition from initial public (including defence) demand to civilian markets and included exit conditions and five-year review points. Those safeguards are insufficient. A five-year review or an exit clause does not by itself dissolve the incentives created by a large and durable defence economy. The design therefore left a fundamental problem unresolved: a programme intended to increase security and prosperity could help create constituencies whose material interests favour continued militarisation.

Replacing the central pillar with the Mittelstand would not, on its own, solve this problem. There is no sufficient basis to claim that one category of company is inherently better suited to provide the answer.

5. What Remains Valid

Closing the proposal as a strategic case does not invalidate every element of the diagnosis.

  • The loss of relatively affordable and predictable energy remains a structural problem for energy-intensive and capital-intensive production.
  • The possible combination of competitive energy, robotics and computing can change the economics of physical production. Regions that master this combination earlier may obtain a lasting advantage.
  • Specialised industrial ecosystems, engineering competencies and the ability to move from development to serial production remain real assets that are costly to rebuild once lost.
  • European industrial cooperation can expand scale and resilience when it is commercially justified and voluntary, rather than administratively imposed.
  • Public support, where used, should be time-limited, measurable and subject to explicit private-demand milestones and exit criteria.

What is rejected is the architecture that makes defence demand a significant engine of industrial renewal without adequate separation from the self-reinforcing incentives of an arms race.

6. The Position Now Taken

Industrial renewal, automation and competitive energy remain necessary subjects of analysis and policy. They should be pursued through civilian demand, private investment, productivity and markets that do not require permanent dependence on military orders.

Any future work on German or European industrial policy should therefore start from a different premise:

Civilian industrial development must be designed so that its success does not depend on, and does not create material constituencies for, the continuation or expansion of military demand.

The original proposal is preserved as a record of the analysis developed at the time. Its passages on defence procurement and dual-use development should be read in the light of this reassessment. Their inclusion documents the proposal as it was originally formulated; it does not mean that the overall architecture continues to be endorsed.

About the Author

Dmitry Kazakov is an independent Software & Systems Engineer with professional software-development experience since 2010 and independent software and systems-engineering practice since 2015. His work spans software, data systems, hardware-adjacent applications, security and industrial systems, as well as technology-oriented businesses and products. His approach combines systems engineering with economic and organisational analysis, with particular attention to interacting constraints, feedback mechanisms and testable system architectures.

This publication is an independent analytical construct. It does not represent the policy of any government, company, research institution or other organisation.

Prepared with analytical assistance from ChatGPT and Grok.

Final Note

The original proposal and this reassessment deliberately separate three questions:

What was diagnosed? The structural pressures on Germany’s industrial model and the risk of irreversible loss of production capability.

What was proposed? A transition architecture centred on energy, automation, new markets and European scaling, with public demand (including defence) as an initial bridge.

What is now rejected? The use of defence demand as a significant driver of industrial renewal without sufficient safeguards against the creation of material interests in continued militarisation.

Keeping these distinctions explicit is essential.

The value of retaining the original document does not depend on whether every element of its architecture is accepted. Its value depends on whether the diagnosis and the subsequent critique make the structural problem sufficiently clear that future proposals can be tested against it.


A whole proposal with reassesment is available by this link.

Related publications:

China: Bridging the Gap Between Production Capabilities and Market Consumption
USA: How to Protect a Critical Production Chain if the Market Itself Produces Its Vulnerability
A Memorandum to the World: Technology Must Not Outrun Humanity