Defence hike: Europe is making a big mistake

Observer

30-06-2025

Leaving Brussels by train, the Audi factory is one of the first things you see. Made up of gray, rectangular buildings, the site was long one of Belgium's biggest car producers. Slick and productive, it was a fitting symbol for the capital of Europe. Early this year, however, it succumbed to the industrial crisis overtaking the continent and was unceremoniously shut down. Spots of graffiti are already visible on its once pristine walls.
In recent months, the story of the Audi factory has become the story of Europe. Both are down on their luck, in danger of being swept away by the century's new geoeconomic tide. In Brussels, the response to the predicament has been equally in tune with the times — as part of a wider military revamp, ministers claim, the former car factory should be turned into a weapons producer. Such a relaunch, proponents say, would aid Europe's strategic autonomy and create 3,000 new jobs.
Across Europe, policymakers are converging on the same strategy, hoping to kill two birds with one stone. On the one hand, increased military spending would make Europe safe from Russia and independent from America, at last securing its superpower status. On the other hand, it would revive Europe's ailing industrial sector, under pressure from Chinese competitors and rising energy costs. Pumping money into the military, so the argument goes, is the way to fight the twin crises of geopolitical vulnerability and economic malaise.
These hopes are likely to prove delusive. Europe's militarisation push, suffering problems of both scale and efficiency, is unlikely to work on its own terms. But it carries a bigger danger than failure. By focusing on defence at the expense of all else, it risks taking the European Union not forward but backward. Rather than a major advance, breakneck rearmament could well amount to a historic mistake.
Europe's new approach is usually given an older name: military Keynesianism. Originally, the concept referred to the tendency of mid-century governments to counteract economic downturns through increases in military spending — a combination supposedly first pioneered by the Nazis in the 1930s, then globalised by the Americans in the 1940s. More recently, the term has been applied to President Vladimir Putin's war economy in Russia.
Yet it is far from clear whether Europe's current efforts warrant such a description. For one, the continent is simply undergoing a return to military spending levels before 1989. At its peak in the 1960s, for instance, German military expenditure reached just under 5 per cent of gross domestic product; Chancellor Friedrich Merz's target, announced last week, is 3.5 per cent. Such a restoration hardly qualifies as a great leap forward — certainly not matching the concept of the 'Zeitenwende", or 'turning point", that has been used to describe the change in approach.
The public benefits of the strategy — the Keynesianism part — remain equally unclear. Though Germany has slightly eased its debt rules, European policymakers remain reluctant to run up budget deficits. More money for the military will strain already tight budgets, taking away from social programmes, infrastructural development and public utilities. Instead of military Keynesianism, a better comparison for Europe's defence bonanza is the Reaganism of the 1980s, in which increased military spending and social retrenchment went hand in hand.
There are more problems with the remilitarisation push. For one, many former industrial sectors will acquire a vested interest in war-making abroad — hardly as reliable a source of profit as consumers buying cars. And more money for the military doesn't necessarily mean better results, either. As the economist Adam Tooze notes, Europeans collectively lavish ample sums on their 'zombie armies' and receive strikingly little in return, both in terms of manpower and material. No European company, for example, ranks in the top 10 defence companies by turnover.
Then there is the quintessentially European problem with coordination. With tanks and hardware already expensive, the costs of continental rearmament will be multiplied by the union's decentralised decision-making, in which nations separately vie for contracts. Glimpses of such inefficiency are visible in the stalling efforts at shell production for the war in Ukraine. On top of this muddle, the first payouts of Europe's splurge are likely to go to American producers while European factories get up and running. In a telling irony, the initial beneficiaries of the potlatch will be not European but American.
These logistical constraints should be weighed alongside the cultural limits to remilitarisation in Europe. In response to calls for renewed mobilisation, for example, one German podcaster spoke for many: 'I'd rather be alive than dead.' Even so, European policymakers are determined to sell rearmament as a condition for the continent's entry into the 21st century. Last week's Nato summit, at which almost all members pledged to raise military spending in the next decade to 5 per cent of GDP produced a pageant of such views. The number of wars around the world, with a fresh one recently threatened in Iran, supposedly underlines the need for Europe to be a fighting continent once more. This strategy, officials claim, combines military independence with commercial revival.
Neither of these outcomes is likely. On its current course, Europe is headed for neither military Keynesianism with a social dividend nor a defence strategy suitable for an aspiring superpower. Rather, it risks getting the worst of both worlds: a meager economic recovery without long-term prospects for growth, and sumptuous payouts to a defence sector that would not allow Europe to match its peers. A quick journey to Brussels, where the Audi factory still stands empty, should suffice to convince visitors of this truth.