Industry and demagoguery: the AfD rocks Rheinmetall and Merz’s rearmament plans

It is a sort of side effect. But not really. The fact is that the AfD’s historic electoral victory in Germany – however limited to a single region – risks having an impact on a sector, such as defence, on which the country is relying to revive the economy. Just yesterday, the figures for industrial production in July showed a fall of 1.1 per cent compared with June, bringing the annual contraction to 1.6 per cent, mainly due to the crisis in the car industry. Following Sunday’s election result, the industrial giant Rheinmetall found itself catapulted into the centre of the national debate as the main beneficiary of the military spending programme put in place by Friedrich Merz’s chancellery, which supports Ukraine’s defence against Russia – contrary to the position of the nationalist AfD party. Rheinmetall is worth around 50 billion and employs 44,000 people worldwide. The jolt experienced yesterday morning by the company’s share price on the Frankfurt Stock Exchange – it fell by almost 5 per cent at the opening of trading before recovering somewhat – can be seen as a warning of what a change of course from the spending programme announced by Merz would mean for the German defence industry. The point is not so much that the AfD secured a victory in the state of Saxony-Anhalt, but that, at the same time, the CDU – the moderate party to which Merz belongs – suffered a historic setback, seeing its share of the vote halved compared with 2021. According to analysts at Intesa Sanpaolo, who cover Rheinmetall, the AfD’s victory is putting pressure on the Merz government. “We believe that any weakening of the current national leadership could have repercussions on this front,” they note. “We would also emphasise that, although the AfD is not opposed to the country’s rearmament, the party simultaneously maintains that Germany should no longer support Ukraine and should normalise relations with Russia, a country identified by the current political leadership as the main strategic threat.”

After all, the extraordinary growth of the defence giant is inextricably linked to the shift in defence policy which, amongst other things, is expected to give a positive boost to Germany’s GDP this year, alongside rising exports and investment in infrastructure. Meanwhile, however, mass redundancies in the automotive sector – primarily at Volkswagen – are fuelling discontent amongst the population. Bruno Vespa, whilst presenting the new series of Porta a Porta, observed that the AfD’s major success in Saxony must be scrutinised very carefully, even by those who support it. “That is the poorest region in Germany; there is severe economic hardship and nostalgia for communist Germany.” He added: “There is a very strong tendency to forget Nazism. This is appalling, and I hope it does not gain much ground.” How Rheinmetall fits into this overall picture is straightforward: whilst 140,000 job losses are expected in the automotive sector, according to the latest estimates from German trade unions, Rheinmetall will increase its workforce by at least 30,000 by 2030 to meet new orders. This is the result of a genuine industrial restructuring which will, however, leave a trail of deaths and injuries in its wake. Furthermore, in the region of Saxony-Anhalt, discontent has turned to anger following the collapse of the investment promised by the American giant Intel to invest 30 billion in semiconductor production. Intel’s change of heart – which would have represented an industrial revival not only for the Magdeburg district but for the whole of eastern Germany – has cast doubt on the credibility of the local governing coalition led by the CDU and fuelled the narrative that national politics is indifferent to local business. Against this backdrop, the AfD presents itself as the only political force willing to promote traditional German industry. Yet, precisely to try to maximise the impact of public funding for Rheinmetall, public portals have been set up to enable as many businesses as possible to join the group’s supply chains, including by restructuring their own production processes. But, clearly, these are processes that take time to have a positive impact on the labour market and to heal the wounds of deindustrialisation. Meanwhile, discontent is growing and the far right is on the rise.