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The road to a militarized Europe: economic consequences of European rearmament.
- Adriano Benítez
- Mar 27
- 8 Min. reading time
Actualizado: 30 jun
After World War II and the creation of NATO, Western Europe became dependent, in terms of defense and strategy, on the United States.
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Introduction: The turn towards European rearmament: An economic and strategic challenge.
After the collapse of the Soviet bloc, this alliance expanded eastward into Europe, reaching Russia's borders with the incorporation of the three Baltic republics into the Atlantic Alliance. Atlantic Alliance. It seemed that all parties within the alliance were satisfied: the United States gained influence in these countries, while the others benefited from "outsourcing" their defense, saving a large part of the military expenditure. NATO seemed to have won the battle against Russia, but, in a few weeks, everything has turned upside down.
Already in his previous term, Trump harshly criticized how the rest of the Atlantic Alliance countries were not contributing enough, forcing the U.S. to bear the vast majority of the costs of the organization.. He reiterated on several occasions the economic damage of his country acting as "the world's policeman". However, it has been in this second term that the situation has escalated even more, with a rapprochement between the United States and Russia that, until a few months ago, seemed unthinkable. All this has occurred in the context of negotiations to end the war in Ukraine.
Predictably, the Europeans - both the European Union and the United Kingdom (the latter in particular) - have reacted. Faced with the growing feeling that NATO, i.e. the United States, will no longer be the guarantor of their security, there has been a growing discourse in favor of the creation of a European army. creation of a European army and increased military spending in all EU countries. However, beyond political intentions, the creation of such an army poses challenges at all levels: strategic, economic, political and leadership.
The economic impact of European rearmament: Are we ready?
European rearmament would be a challenge for the continent's arms industry, which in recent years has depended on and been highly integrated with that of the United States. Companies such as Airbus, Thales, Leonardo and Rheinmetall would position themselves as leaders in this new arms industry. new purely European arms industry European arms industry, with possible mergers of different business areas to increase competitiveness and eliminate duplication. However, national rivalries and the lack of a common strategy remain barriers.
One of the main challenges is production capacity. The demand for armaments has increased, but many European factories do not have the infrastructure to meet it. Europe needs military reindustrialization to produce autonomously, investing in technologies it has not yet fully mastered. For example, the Puma armored vehicle, manufactured in Germany by Rheinmetall and Krauss-Maffei Wegmann, needs radar technology and licenses from the United States for its manufacture, and many others like it: Eurofighter, Leopard 2, among others.
On the other hand, defense is not just about ammunition and tanks. Europe also needs its own intelligence, cybersecurity and command structure, which today are highly integrated in NATO. Developing this, in addition to money, requires a lot of time, especially everything to do with espionage, intelligence and command integration.. For an army to function it must be cohesive, orders must arrive safely and in a timely manner. Unit action protocols must be integrated, and soldiers and commanders must trust each other. This implies joint maneuvers and training, meetings, structure and military posts, aspects that NATO already has in place, but that the new European army would have to develop.
In 2022, Bloomberg estimated that, in order to reduce dependence on NATO and the United States, the European Union would need to invest some 250 billion euros over 10 years. 250 billion over 10 years. Other estimates raise this figure to double, up to 500 billion. However, these estimates may fall somewhat short, considering that the United States spent 800 billion euros on defense last year. Although these figures may seem exaggerated, they are important to understand the magnitude of the defense investments we are talking about.
To put it in context, comparing what Europeans spend on defense, Spainwith a GDP of 1.5 trillion Euros, spends 15 billion on defense. Russia, with an economy only 20% larger, spent 65 billion, i.e. 4.3 times (430%) more than Spain. And if we already had debt and deficit problems spending what we were spending, how prepared are we to spend enough to have a truly independent army?
Fiscal flexibility in the EU: A new pact for defense
In recent weeks, the European Union has begun to explore new ways to finance rearmament, and one of the most discussed options is the issuance of common defense bonds. According to the plan proposed by European Commission President Ursula von der Leyen, the EU could issue up to one trillion euros in bonds to finance defense projects in the coming years. This measure would oblige the European Central Bank (ECB) to act, as the issuance of one trillion euros to the market would most likely generate inflation. Therefore, the ECB would have two options: to buy the bonds en masse, which would compromise its independence and credibility, as well as purchasing them with money from more debt issuance or transfers from governments; or to raise interest rates, which would make it difficult to finance the governments themselves and all business projects in the EU. So, although this measure could facilitate financing, it would also entail major problems.
The fiscal easing that could be implied by this type of financing faces significant challenges, especially for countries with higher debt levels. The issuance of defense bonds could be a viable solution for countries with lower indebtedness, such as Germany, which has a public debt of 69.3% of GDP. However, for countries such as Spain whose debt exceeds 116.9% of GDP of GDP, France (with a debt of 111.6% of GDP) or Italy (which has a public debt of 144.5% of GDP), such policies could result in a loss of confidence and, therefore, an increase in financing costs. The need to maintain fiscal sustainability could conflict with the interests of rapid funding for a strong European military.
The example of fiscal easing during the COVID-19 crisis provides a precedent, as EU countries were able to temporarily suspend deficit and debt rules to implement stimulus packages. However, rearmament would imply a long-term financial commitmentThis highlights the limitations of fiscal policy in countries with high levels of indebtedness. The EU may be facing a fundamental dilemma: while a more flexible approach may be appropriate for economies such as Germany, in economies with higher debts, rising public debt could lead to a long-term financial sustainability crisis.
Main beneficiaries of European rearmament: Military industry and geopolitics
European rearmament will benefit several key companies in the military sector, such as Airbus, Leonardo, Rheinmetall and Thales. These companies are well positioned to take advantage of increased demand for advanced for advanced defense systems, such as aircraft, armored vehicles, missiles and radars. These large companies will not only benefit from domestic contracts within the EU, but also from the growing need to modernize Europe's armed forces forces in a context of increased global competition. This growth in the military industry may also result in the creation of more jobs and an improvement in the continent's technological capabilities, in areas such as artificial intelligence and cybersecurity. It may even result in better products, also for civilian use.
Countries such as France, Germany and the United Kingdom will be the main beneficiaries of the new defense spending. These countries, with a more developed military industry, will be able to increase their prominence within the new European security system. The UK, although outside the EU, remains a key partner and, at least at this early stage, appears to be aligned with European interests. However, the unevenness in the industrial capacity of European countries could exacerbate the gap between more and less developed nations. Mergers between companies, which we have already mentioned, could lead to excessive concentration, which would increase the problems of territorial inequality. the problems of territorial inequality. Moreover, as we have already mentioned, the increase in debt could have a negative impact on the most indebted countries, generating instability or financing problems.
On the geopolitical side, China could take advantage of the situation if Europe moves away from the U.S. If Europe begins to distance itself from its traditional U.S. ally, China could take the opportunity to strengthen its ties with the EU by offering support for industrial development or buying European debt. Although it is unlikely that Europe is unlikely to align itself completely with ChinaThe growing need for strategic autonomy could generate new dynamics of cooperation in technology and trade, allowing China to gain influence in Europe in the coming years.
Conclusion: Europe's future in a more militarized world
The world is moving towards a multipolar order, and it seems that Europe will not be in the pole of influence of the United States. Trump has already expressed his opinion of the European Union: that it was created against the interests of the United States. against the interests of the United States.. Therefore, the present administration will seek to strengthen other ties, focusing more on reinforcing the relationship with allies such as Israel or countries in the Indo-Pacific. This rearmament in Europe, although it seeks to increase autonomy, could be dangerousas more armament means a greater risk of conflict. As the EU invests more in defense, it also runs the risk of engaging in an escalation of warfare that could be difficult to control, especially with tensions rising.
On the other hand, creating a European army will be a complex and costly task, and on a continent composed of 27 countries with diverse interestsleadership problems are inevitable. While some countries support the idea of a European army, others are opposed, and parties such as VOX in Spain or the AfD in Germany are very critical of this move away from the United States, as they are very close to the current Trump administration. In the long run, this investment in defense we will have to pay for it somehow, either through higher taxes, increased debt or loss of public services. This could lead to a more difficult economic situation, with a direct impact on the lives of citizens, as well as generating inflation and aggravating social inequality in the region. But all this, for the time being, remains to be seen.
Summary table
Introduction: The turn towards European rearmament: An economic and strategic challenge. |
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The economic impact of European rearmament: A ready-made industrial fabric? | A new arms industry
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Fiscal flexibility in the EU: A new pact for defense | Means of financing European rearmament
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Main beneficiaries of European rearmament: Military industry and geopolitics | Key companies in the military sector
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