Latest news with #defenseIndustry
Al Arabiya
26-05-2025
- Business
- Al Arabiya
Ukraine confirmed Chinese supplies to 20 Russian military plants, intelligence chief says
Ukraine has confirmed information that China has supplied machine tools, gunpowder and other products to 20 Russian military factories, Ukraine's foreign intelligence head told Ukrinform state news agency on Monday. 'There is information that China supplies tooling machines, special chemical products, gunpowder, and components specifically to defense manufacturing industries. We have confirmed data on 20 Russian factories,' Oleh Ivashchenko said.
Wall Street Journal
25-05-2025
- Politics
- Wall Street Journal
Missile Backlogs and Satellite Dreams: The Challenges of Building Trump's Golden Dome
President Trump says he wants a $175 billion missile-defense shield, before the end of his term, capable of intercepting missiles fired from across the globe. Hitting one of those targets—let alone all three—would be a tall order, military experts said.
Times
21-05-2025
- Business
- Times
Russian attacks in Ukraine boost demand for Avon's gas masks
Russian chemical attacks in Ukraine have boosted demand for gas masks produced by one of Britain's leading defence companies. Avon Technologies is the Wiltshire-based specialist producer of gas masks and, in the US, helmets for the American military and emergency services. Nato countries have been buying up Avon's anti-chemical, biological, radiation and nuclear respirators to give to Ukraine as evidence amasses of war crimes on the front line by Russian poison gas attacks. Jos Sclater, a former GKN and Ultra Electronics finance director who has been Avon's chief executive since early 2023, said: 'Ukraine is changing everything. The zeitgeist had previously been: who was going to use chemical warfare? Now we know chemical attacks are a real threat again.' The demand for protective equipment,
CBS News
18-05-2025
- Business
- CBS News
Tech billionaire Palmer Luckey wants to remake the U.S. military with autonomous weapons
Palmer Luckey on making autonomous weapons for the U.S. and its allies | 60 Minutes People thought flip flop- and Hawaiian shirt-wearing tech billionaire Palmer Luckey, 32, was nuts when he launched defense products startup Anduril Industries. There hadn't been a new company in the defense industry in any significant way since the end of the Cold War, but Luckey had his own vision for the future of warfare: one with autonomous, AI-powered weapons and a different business model than the five "prime" defense contractors in the U.S. "I've always said that we need to transition from being the world police to being the world gun store," he said. Who is Palmer Luckey? Luckey made his billions young. He grew up fascinated by electronics and spent a lot of time tinkering in his parents' Long Beach, California, garage. By age 19, that tinkering turned into virtual reality company Oculus. Luckey sold it to Facebook for $2 billion in 2014, but was fired by Facebook two years later. Palmer Luckey 60 Minutes "Everyone's got a different story, but it boils down to I gave $9,000 to a political group that was for Donald Trump and against Hillary Clinton," Luckey said. "To be a Trump supporter in 2016, you know, this was at the height of the election insanity and derangement in Silicon Valley. And so I think that a lot of people thought back then that you could just fire a Trump supporter." Facebook founder Mark Zuckerberg, who attended President Trump's most recent inauguration, has denied that Luckey was fired for his political views. In 2017, Luckey says he left Silicon Valley, with hundreds of millions of dollars in the bank and a chip on his shoulder. "My gears were ground," he said. "I really wanted to prove that I was somebody, that I was not a one-hit wonder, and that I still had it in me to do big things." Luckey says he thought about starting companies to combat obesity or fix the prison system, but ultimately decided to break into the defense industry. "Everyone in the military has seen 'James Bond' movies and they all like Q," Luckey said. "I'm the wacky gadget man. I'm the guy who types on the computer and pushes up my glasses, and then gives them a strange thing to help them accomplish their mission." What Luckey sees as the future of warfare For decades, Lockheed Martin, Boeing, Raytheon, General Dynamics and Northrop Grumman have dominated the defense industry. Typically, the companies present an idea to the Pentagon. If the Pentagon buys it, the government pays for the company to develop it, even if it goes over budget or over schedule. Luckey started Anduril to flip that procurement structure on its head. "The idea behind Anduril was to build not a defense contractor, but a defense products company," he said. The difference, he explains, is that contractors are paid to do the work whether or not it succeeds. "A products company has a very different mentality. You're putting in your own money. You're putting in your own time," Luckey said. His vision was to show up with a working product, not with a presentation describing how taxpayers would foot his bills for developing a product. Palmer Luckey and Sharyn Alfonsi 60 Minutes Luckey argues a lack of innovation in the defense sector means a Tesla has better AI than any U.S. aircraft and a Roomba vacuum has better autonomy than most of the Pentagon's weapons systems. He wants to change that. Part of Luckey's philosophy is that autonomous weapons ultimately promote peace by scaring adversaries away. "My position has been that the United States needs to arm our allies and partners around the world so that they can be prickly porcupines that nobody wants to step on, nobody wants to bite them," he said. Luckey does not believe the U.S. should be sending its military to other countries. Instead, he says, American-made products should go overseas. "I think that that's one of the reasons that autonomy is so powerful. Right now there are so many weapon systems that require manning," he said. "You know, if I can have one guy command and controlling 100 aircraft, that's a lot easier than having to have a pilot in every single one. And it puts a lot fewer American lives at risk." "Autonomy" does not mean remote controlled; once an autonomous weapon is programmed and given a task, it can use artificial intelligence for surveillance or to identify, select and engage targets. No operator needed. What Anduril is making Luckey's approach seems to be working for Anduril. The company says it will have secured more than $6 billion in government contracts worldwide by the end of the year. Some of Anduril's systems are already being used by the U.S. military and in the war in Ukraine. Right now, Anduril is working on the Roadrunner: a twin turbo-jet powered drone interceptor that can take off, identify and strike a drone. If it doesn't find a target, it can land and try again. Anduril also makes headsets that allow soldiers to see 360 degrees in combat. And there's an electromagnetic warfare system that can be programmed to jam enemy systems, knocking out drone swarms. The weapons can be synchronized on Anduril's AI platform, Lattice, Luckey said. The platform collects data from various sensors and sources — including satellites, drones, radar and cameras — allowing the AI to analyze, move assets and execute missions faster than a human. "It's the AI onboard all these weapons that makes it possible to make it so easy," he said. The largest weapon in Anduril's arsenal, a submarine called the Dive XL, works autonomously. A version 60 Minutes saw is the size of a school bus. "It's not remote-controlled by this computer," Luckey said. "It's doing it on the brain, on the submarine itself. So if I told it to go off and perform some mission that's monthslong, like, 'Go to this target, listen for this particular signature, and if you see this signature, run; if you see this one, hide; if you see this one, follow it,' it could do that all on its own without being detected, without communicating with it." Anduril says the Dive XL can travel 1,000 miles fully submerged. Australia has invested $58 million in the subs to help defend its seas from China. Fury 60 Minutes Anduril's most anticipated weapon, an unmanned fighter jet called Fury, has no cockpit, stick or rudder because there's no pilot. "The idea is that you're building a robotic fighter jet that is, you know, flying with manned fighters and is doing what you ask it to do, recommending things be done, taking risks that you don't want human pilots to take," Luckey said. Fury represents a big turning point for the company. Anduril was viewed by some inside the defense industry as a "tech-bro" startup until it beat out several of the prime defense contractors to make an unmanned fighter jet for the Air Force. Fury is scheduled to take its first test flight this summer. If the Pentagon awards Anduril a production contract for Fury it, like all of the company's products, will be made in the U.S. The ethics of autonomous weapons The secretary general of the United Nations has called lethal autonomous weapons "politically unacceptable and morally repugnant." Some international groups have referred to lethal autonomous weapons as killer robots. "If I am gonna argue with them, I usually poke it," Luckey said. "I'm like, 'OK, so do you think that NATO should be armed with squirt guns or slingshots?'" Luckey notes that all of Anduril's weapons have a "kill switch" that allows a human operator to intervene if needed. And while some find the idea of autonomous weapons scary, Luckey argues they're less scary than weapons systems without any level of intelligence. "There's no moral high ground to making a land mine that can't tell the difference between a school bus full of children and Russian armor," he said. "It's not a question between smart weapons and no weapons. It's a question between smart weapons and dumb weapons." As with many AI systems, some people also worry about what happens if artificial intelligence goes rogue. "I would say that it is something to be aware of. But in the grand scheme of things, things to be afraid of, there's things that I'm much more terrified of," Luckey said. "I'm a lot more worried about evil people with mediocre advances in technology than AI deciding that it's gonna wipe us all out."
Russia Today
14-05-2025
- Politics
- Russia Today
Prof. Schlevogt's Compass No. 15: Kakistocratic defense splurgers destroy Europe
It has been said that quantity has quality all of its own. The origins of this dictum, which is often attributed to Soviet leader Joseph Stalin, can be traced back to ancient dialecticians. They argued that continued quantitative changes will eventually lead to qualitative transformations. After all, if you incessantly add one grain of sand to another, finally a heap will emerge. Imbued with an unshakeable belief in the power of quantity, European leaders, who due to their incompetence form a veritable kakistocracy (rule of the worst), in March 2025 hastily adopted financial mega-packages simultaneously at the supranational level (European Union) and national level (Germany) for additional defense spending and other outlays far exceeding one trillion Euro. This catchpenny action, which served special interests (such as those of the defense industry), was touted as an antidote to a much-hyped security problem. The quagmire allegedly consisted of an acute threat of Russia exploiting a vacuum, which had been created by the United States' decoupling from Europe, by invading the old continent in no time. On the occasion of the 80th anniversary of the end of the Second World War, the European alarmists exploited threat bias by conveniently reinforcing long-harbored fears concerning Russia. More specifically, they remined their audiences of the latter's iron grip on Eastern Europe in the wake of the worst military conflict in history - irrespective of the fact that the Russian Soviet Federative Socialist Republic constituted only one part of the Soviet Union and this federation of republics had long ceased to exist. However, the mega-spending approach is highly questionable in terms of process and content. In this context, it needs to be remembered that there is no free lunch - food in officers' messes not excluded! The veracity of this dictum is revealed by a closer look at the following, partially interrelated problems associated with the gargantuan debt-financed defense packages and other new mega-spending programs adopted across Europe. Across the EU, the success of conservative Eurosceptic parties, which are defamatorily labelled 'extreme right-wing' and 'populist' by the governing elites and their media mouthpieces, shows that broad swathes of the electorate there are opposing the building of a European superstate. Especially the new EU-wide defense splurge aimed at financing one building block of this expensive European mansion (that is, a common defense capability), thus clearly defies the popular will in many places. At the EU-level, the decision-making process, which is opaque, has been driven by the upper caste of EU bureaucrats, who lack democratic legitimacy. They routinely jump the bandwagon and succumb to groupthink and delusional, hubris-fueled wishful thinking, with no political-economic Cassandra warning them of the clear and present dangers courted by their foolishness. Feeling safe inside the herd and being absolved of individual accountability and responsibility, the members of the exclusive EU club tend to take overly risky decisions. Clearly, the grand ambition of the EU to become the new 'leader of the free world', after the US has retired for good reasons (including financial ones!), is both unaffordable and anachronistic (especially given that a growing number of people around the world are rejecting unchecked, woke-filled liberalism). Worse, the dire predictions regarding Russia are fraught with the grave risk of becoming self-fulfilling prophecies, since the so-called enemy might feel threatened and take reactive and preventive measures (as happened in Ukraine according to Russia's account of the special military operation). This, in combination with the strategic failure of not incorporating exit ramps into the grand European plans, which can be used to transit from crisis mode to normalcy, might result in a dangerous spiral of escalating commitments and violence. Using a combination of scaremongering and the slippery slope argument based on domino theory, Russia's attack on Ukraine is framed as being just the prelude to Russian invasions of other countries if Moscow remains unchecked. The recycling of the rhetorical device of the slippery slope, which is classified as a fallacy, bodes ill. It was used to great effect by the U.S. to justify its participation in the Vietnam war, allegedly to prevent the spread of Communism to other Asian countries. However, it is extremely unlikely that Russia, assuming that it will not be provoked, will invade Germany, for example, which is a member of NATO and has a long history of friendly ties with the Eastern bear in manifold spheres. Even though different options always exist, the president of the European Commission, Ursula von der Leyen, in an oxymoronic antithesis claimed apodictically on 18 March 2025 that the 'choice is none'. After touting the alleged virtues of pacifism and individualism for decades, European leaders suddenly in unison are preaching a new dangerous form of collectivism, demanding heavy sacrifices for what is portrayed as the common good. Using the alleged Russia threat as a red herring and smokescreen, as well as igniting and exploiting one upheaval after another, they create a perpetual crisis and constant threat reminiscent of the situation depicted in George Orwell's dystopic novel Nineteen Eighty-Four. They are thus impeding critical thinking through tactics of continuous diversion and detraction, in order to pursue a hidden agenda in a mendacious and unencumbered fashion. The pernicious effect of the stratagem of blurring the water to catch a fish is heightened by the sheer speed by which EU groupthinkers are hastening through the mega spending packages at different levels, leaving potential opponents little time to mount resistance. In Germany, a softening of constitutionally enshrined debt ceilings, known as the Schuldenbremse (debt brake), among other things, limiting annual structural deficits to 0.35% of a gross domestic product (GDP), was approved in March 2025 in a hastily reconvened lame-duck Bundestag (federal parliament), even though a new parliament had already been elected. The loosening of fiscal shackles was destined to make it possible to borrow large amounts of money for new mega-spending packages. Due to the increase in the number of seats of the Eurosceptic AfD, the radical constitutional change, which required a supermajority, would most likely not have been adopted by the new parliament. Even if, in purely technical terms, the gambit of using the old parliament was legal, it clearly bore witness of utter disrespect for the popular will. Since the sweeping change of the constitutional debt limits and the spending spree were not clearly highlighted in party programs and on the campaign trail, the move also amounts to egregious voter deception. In addition, the CDU, given that it failed to achieve stellar results in the 2025 federal election and thus was forced to enter another grand coalition with the SPD, which pursues different objectives, has no sweeping mandate for transformation. As a consequence of all the machinations and disregard for the wishes of voters, the democratic credentials and political credibility of mainstream parties in Germany are further undermined. Lacking strategic focus, the big spenders in Europe are pursuing an excessive number of mutually conflicting objectives and employ a reactive shotgun approach aimed at combating the phantom enemy in the east and conveniently solving other problems at the same time. As a consequence, resources are likely to be wasted at a grand scale. The German language, with its great capacity for compounding words, possesses an apt, humorous term that is well-suited for describing the all-in-one financial mega packages adopted in March 2025 and their wished-for all-inclusive results, that is, eierlegende Wollmilchsau, which is literally translated as egg-laying wooly dairy pig. Would it not be great to have such a fabulous multifunctional animal as a cornucopian source of myriad desirable products? Apparently inspired by a comparable unrealistic, perfectionist vision of completeness in the field of politics, the German all-in-one package adopted by the Bundestag in March 2025, among other things, included spending on infrastructure, defense and climate projects (see Figure 1). Figure 1 Clearly, the addition of environmental spending aimed at combatting yet another phantom, that is, a changing climate (which by nature is always changing!), constitutes a surrender to the demands of clientele politics pursued by the Green Party. Money, so the German spendthrifts think, is the answer to all problems – a conception as erroneous as hoping that pouring an ever-increasing amount of water on a plant will further healthy growth. Again, adopting a shoot-then-aim approach and trying to be a jack of all trades, while being master of none, undermines the credibility of the political mavericks and tricksters. Due to the package approach, vaguely stated purpose and large amounts of money involved – coupled with the lack of democratic due process and concomitant intransparency – there is a high risk of moral hazards and unintended consequences occurring, including wide-spread and large-scale misappropriation of funds under different disguises by officials who simply do not care or are outright corrupt. In fact, it is quite easy to hide expenditure items, which are not related to the overall stated purpose, inside a large financial package, especially if one uses budget tricks and 'creative accounting'. For example, given the vague nature of spending labels, it is easy to misappropriate infrastructure funds for defense. The problems get compounded when a fast-track approval, steam-roller-like process without due diligence and accountability is used to deceive voters and confront them with a fait accompli before they can react. A case in point is Western military aid to Ukraine, in regard to which some critics doubting whether all funds and arms reached the intended destination. As an earlier example, the hastily approved European Covid-19 rescue funds were partially misappropriated by corrupt actors. The EU president even negotiated a deal with Pfizer via SMS, in order to procure the American pharma giant's vaccines without proper accountability. The so-called thin-edge-of-the-wedge effect becomes clearly visible when one analyzes political patterns in the EU: After taboos have been shattered and the breaking of national, democratically legitimized resistance has become a well-established pattern, erstwhile unthinkable action – such as mutualizing debt and misappropriating funds earmarked for other purposes - is now taken publicly without shame. While the financing of the Covid-19 packages through European loans constituted a crossing of a German red line, creating another European financing vehicle for the EU defense package prompted no real debate and met no serious resistance. Furthermore, as an example of budget tricks used, one key ingredient of the European defense package announced in March 2025 is the redirecting of funds originally earmarked for the promotion of interregional cohesion to investments in defense projects. Even the lifting of EU fiscal rules to allow for defense spending of 650 billion Euro was calmly accepted by all important players. In this context, it is important to note that referring to the Covid-19 rescue packages as a precedent to justify new mega spending packages constitutes a false analogy, given that there are crucial differences with respect to their financing costs. When the pandemic broke out in 2020, the key interest rate set by the European Central Bank (ECB) was 0%. Yet in 2022, the monetary authority started to increase rates to combat high inflation. In March 2025, at the time the new mega spending packages were announced, the key interest rate stood at 2.5%. Finally, the promise to do 'whatever it takes' (WIT) in a perpetual crisis mode – as part of a reactive pattern of long-time procrastination followed by sudden bursts of radical measures – coupled with the lack of a clearly defined exit ramp back to consolidation ensures that waste and corruption can go on for a long time, with commitments being escalated all along - in for a penny, in for a pound (even if one does not have a penny to bless oneself with!). The WIT approach is adopted despite the fact that as regards spending, there are always costs and benefits, as well as declining marginal returns, which makes it necessary to strive for an optimum instead of continuously pouring more funds in a limitless fashion (which is particularly pernicious if the problem is a phantom one). The idiomatic 'whatever it takes' label thus is clearly ominous, since, according to its definition, in certain contexts it serves as a euphemism for improper behavior, including harmful measures in the pursuit of a given objective. In fact, EU leaders are behaving like addicted gamblers, opting for one stimulus after another, such as injecting funds into defense after the COVID-19 stimuli have fizzled out, while the amount of funds spent increases at an exponential rate. By behaving like a gambler at the roulette table who is ready to spend whatever it takes to win, they are essentially gambling their own nations away. Theoretically, the entire spending process can go on indefinitely, since the targets are extremely soft and subjective and thus elusive. For example, there is no point where one can conclude with absolute certainty that Europe is 'properly defended', especially when there is considerable heterogeneity between the countries on the old continent in many regards. Given such fuzziness and the lack of solid anchors, it comes to no surprise that targets are shifted easily, as witnessed by the raising of the minimum that NATO members are supposed spend on defense (lately, the minimum expenditure measured as a percentage of GDP has risen from 2% to 5%). During the Great Depression (1929-c.1939), the British economist John Maynard Keynes managed to transform public policy by challenging the neoclassical view that labor markets would adjust automatically to changing economic conditions and instead arguing for increased government spending to combat unemployment. In his view, the specific nature of the spending did not matter, as long as it contributed to employment. In his book, The General Theory of Employment, Interest and Money, published in 1936, he praised the building of pyramids and even suggested that it would make sense for the government to pay for the digging of holes and then again to spend money on filling them up! After his widely popular theory fell into disrepute during the period of stagflation (declining output coupled with inflation) in the 1970s and rule-based, fiscally conservative ordo liberalism gained supremacy over discretionary economic pump priming, Keynesianism became fashionable again during the 2008 financial crisis and was reignited during the Covid-19 pandemic. The bonanza of spending announced in March 2025 with the aim of combatting the imagined Russia threat continues this trend of Keynesian revival. However, Keynesian economic policy is lopsided, since it focuses only on the demand side of the economy. In figurative terms, it is concerned only with how to slice the economic cake – allocating economic output to consumption, investment, government expenditure and net exports respectively – instead of focusing on how to actually increase the gâteau, which requires supply-side economic measures that expand the production possibility frontier. Increasing demand - through measures such as raising defense spending - without expanding supply, ceteris paribus, eventually will push up prices. Such inflation distorts economic signals and leads to a misallocation of economic resources, thus creating serious imbalances in society (such as pensioners on fixed incomes being hurt more than people whose nominal income will be increased when the general price level rises). An inflationary spiral ensues when (a) wages are incessantly increased to compensate for losses in purchasing power due to price rises and (b) inflationary expectations, which are particularly difficult to dampen, are heightened as a result. Instead of lopsided, inflation-fueling neo-Keynesianism and mere occasional lip services to the future removal of structural bottlenecks, a robust combination of different economic policies is needed in the EU and many other places, focusing on both the demand side (as long as the production possibility frontier has not been reached) and the supply side (aiming at expanding the production possibility frontier). Unlike Keynes, who, when push came to shove, did not exhibit real interest in the particular nature of government expenditure (as long as it contributed to employment), supply-side economic measures need to be targeted, focusing on the drivers of long-term growth, that is, capital, labor and technological progress. In theory, Keynesian stimuli programs can be financed by various means, but in practice, they most often rely on borrowing, which also applies to the EU spending packages approved in March 2025. This particular financing approach – used instead of offsetting spending cuts, for example – is problematic in various regards. First, financing the huge spending packages via loans instead of by means of proportional reductions in other expenditure constitutes an act of deception, since it hides crucial tradeoffs. More specifically, one aim of such financial engineering is to hide the 'guns versus butter' tradeoff in the short run. Given limited resources, in the absence of supply-side economic growth, higher spending on military goods (which are a deadweight in times of peace) at least partially comes at the opportunity cost of lower spending on civilian goods – now or in the future. Put simply, the money you spend on a tank will not be available for building a hospital. Moreover, the increased demand of the government for loanable funds, ceteris paribus, is bound to drive up real interest rates. As a foretaste of things to come, Germany's borrowing costs rose quickly after the new huge spending package was announced in March 2025, with 10-year note yields jumping by over 20 basis points. Increased rates in turn make it more expensive for businesses to finance their investments. As the final result of increased government borrowing, private investment is crowed out. Furthermore, as confirmed by cutting-edge academic research using input-output analyses, the positive economic impact of spending on arms purchases (a hidden form of industrial policy) tends be smaller than the effect exerted by non-military government spending. In addition, military expenditure is also positively correlated with income inequality. The net multiplier effect of defense spending viewed in isolation, which hinges on technological spillovers from the defense industry to other sectors within the same economic region, tends to be lower as compared to many other investments with lower opportunity costs. In particular, the multiplier is likely to be comparatively small in the EU, since it procures approximately 80% of defense products from outside the block. Furthermore, debt-financed Keynesian policies also tend to deceive uneducated and myopic consumers in other ways. More specifically, the short-term demand-side growth of an economy that has not yet reached the production possibility frontier comes at the expense of future consolidation of state finances – a fact not known to economic laymen. In a form of yo-yo-effect, consumers may provoke a temporary spike in aggregate demand by pulling forward consumption, which, however, in a later 'snap-back' movement, will need to be curtailed when the government adopts austerity measures. In the final analysis, the impact of a government's fiscal expansion program on the demand side is positively correlated with the degree of irrationality of consumers, which it is ruthlessly exploiting. More specifically, Keynesianism partly hinges on kindling consumers' 'animal spirits', increasing their optimism by injecting stimuli funds into the economy, even though such optimism is misplaced when life-time income is considered. If on the other hand, citizens are very savvy and farsighted, they at least instinctively grasp the so-called Ricardian Equivalence, understanding that debt-financed stimuli programs will necessitate fiscal consolidation in the form of future tax raises. This expectation will prompt them to curtail consumption after an expansion program has been adopted, so that they will have sufficient funds to pay the higher taxes in the future. If this happens, the demand boost that policymakers wanted to achieve through Keynesian stimulus packages will not materialize. A responsible, prudent and honest statesman would need to offset increased military spending by either reducing other government expenditure or raising government income (such as by increasing taxes) or a combination of both. By seemingly effortlessly and quickly paying for the military buildup through new debt, EU leaders simply shift the economic pain, which current voters would probably be unwilling to endure, to future generations. Clearly, this ruse hinging on what I call 'guilt-by-succession' gravely violates intergenerational justice. As soon as somebody calls out the bluff, EU leaders will suffer another blow to their credibility. Apart from the serious problems associated with debt-financing mentioned above, ceteris paribus, an increasingly larger share of EU members' budgets will need to be used for interest payments if debt levels continue to increase across the block. This means that less money will be available to meet other important public needs. Those include, among other things, financial means for coping with foreseeable problems undermining long-term supply-side economic potential (such as an aging population and concomitantly shrinking labor pool) and emergency funds to deal with various unforeseen shocks to the system. The US, whose federal debt amounted to a staggering 35.46 trillion US-dollars in 2024, offers a cautionary tale in this regard. This is because the so-called leader of the free world had to spend more on interest in that year than on other big-ticket items. For instance, interest payment exceeded spending on higher education by a staggering 756 billion US dollars (see Figure 2). Figure 2 In addition, rising debt levels are dimming the long-term prospects for growth in national income, partly because they lead to an increase in risk premiums and real interest rates. The mere expectation of slower long-term growth can negatively affect the current business cycle. This happens, for example, if entrepreneurs, due to high government debt, lose confidence in the economy and reduce investments in the expectation of future austerity programs. If the debt is monetized through loans from the central bank which prints new money, inflation is likely to be stoked in a vulnerable economy. Similarly to what usually happens in the wake of wage inflation, inflationary expectations will rise concomitantly, unleashing an inflationary spiral that is particularly difficult to end. Moreover, the continuous increase in government debt across the EU can lead to members suffering from debt overhang whereby, due to their indebtedness, they cannot attract new funds even if there are investment projects that promise high yields. Finally, they are likely to end up in a debt trap, that is, a vicious circle where debt service obligations are met with a succession of new loans. This pernicious pattern is likely to trigger increasingly serious financial crises (including sovereign debt crises) and finally a total collapse of the entire system. Then, European leaders may conclude that the only solution to this plight is a great reset after a major war, possibly between former allies on European soil! The new mega-financial packages threaten European unity in various ways. To start with, the huge spending programs announced in March 2025 create another layer of supranational debt, which comes on top of high national debt mountains. In particular, a new dedicated program of funding is to be launched at the EU level to finance military projects. The scheme will be used as a smokescreen to deepen European integration and relies on new loans hinging on Germany's still formidable financial prowess and still favorable credit rating. This approach enables member states with overshooting budget deficits and national debt to take a free ride. This is because, for the time being, they can profit from lower interest rates due to the favorable credit rating of the erstwhile financial poster child Germany, which also assumes the lion share of the EU budget and EU debt without commensurate returns in any form. This is bound to create additional tensions between Germany and the European spendthrifts in particular. Once a truly patriotic leader, who puts national interests first, has emerged in Germany, the land of poets and thinkers is likely to leave the EU and the whole European project will probably collapse, since its most important financier will have disappeared. Furthermore, there are other destructive forces at work creating fissures that make European disintegration more likely. For example, a second pernicious yo-yo effect is bound to manifest itself at the macroeconomic level. As happened before, the spending surge in 2025 will have to wind back in the form of tough austerity measures in the future - with at least the same force as the initial measures, or, to resort to the yo-yo metaphor, using the full rotational energy unleashed. After all, previous austerity programs, instead of being mere flashes of inspiration of ill-intentioned and moody economists, were desperately needed as antidotes to reckless overspending in the past and to recuperate subsequent layouts for bailouts. In this context, it is noteworthy that Germany is at least in a better position than many other heavily indebted countries to increase spending precisely because it endured austerity programs before, including the introduction of the above-mentioned constitutionally enshrined debt brake, a sound vehicle promoting fiscal rectitude, in 2009 as a response to the 2008 financial crisis. EU members states with particularly high debt-to-GDP ratios, such as Greece (158.2% at the end of Q3 2024), Italy (136.3%) and France (113.8%), whose dire straits are the result of a lack of financial rectitude in the past, are likely to be hit particularly hard by future austerity measures. As a consequence, populist politicians there will probably put the blame for unpopular budget consolidation efforts on the EU as a whole and 'overly strict Germans' (especially if Berlin again bails out the splurgers and demands tough fiscal measures). As a consequence of the painful policy zigzag between fiscal expansion and hang-over contraction, intra-European tensions will rise further and the very fundament of the EU again be damaged, increasing the chances of its final collapse. Moreover, the Euro, the block's common currency, is undermined by reckless, instability-inducing financial engineering. If countries with high budget deficits and national debt had their own national currency, they could devalue it to increase international competitiveness and thus increase demand-side growth through a rise in net exports. However, given that the spendthrifts inside the Eurozone are locked into a common currency, this option is not available to them. Instead, they must count on fiscal transfers from countries with better finances, whose citizens will not be amused by the solemn call to take on the burden of others in the name of 'European solidarity'. Furthermore, the high budget deficits and national debt of individual member states can cause market panic, for example, since investors might be spooked by the specter of a sovereign debt crisis. Due to contagion in an intertwined financial system (including banks in sound economies holding debt of countries in trouble), problems may spill over to the rest of the Eurozone and trust in the system could be undermined. If, as a result of all these problems, the Euro is abandoned as a common currency, one prestigious European project will have failed and one important glue of European integration will have disappeared. Incidentally, the reckless behavior of fiscally irresponsible member states such as Greece is also a classic case of postcontractual opportunism and time inconsistency in the form of reneging on ironclad promises, since they busted previously agreed-upon financial rules. More specifically, the Maastricht Criteria were introduced in 1992 as a basic requirement for the launch of the Euro in 1999. Among other things, those obliged countries that intended to join the Euro to adhere to strict convergence targets in terms of maximum permissible levels of budget deficits (3% of GDP) and national debt (60% of GDP) – precisely to avoid problems such as those outlined above. Furthermore, the Stability and Growth Pact (SGP) was concluded in 1997, which specifies binding financial restrictions for all EU member states, including the same ceilings related to budget deficits and national debt as the Maastricht criteria. However, several members with little concern for sound public finances missed the clearly specified financial conditions to which they had earlier agreed. For example, as mentioned above, the national debt of Greece amounted to a staggering 158.2% of GDP at the end of Q3 2024, far exceeding the 60% ceiling to which the country had committed. The disrespect shown for the various institutional constraints, functioning as much-needed checks and balances in a fragile system, witnessed in the past and in the case of the gargantuan spending packages announced in March 2025 is highly problematic. This is because such behavior constitutes a negative precedent opening the floodgates to future economic trouble created by unhinged actors and further undermines the trust in the EU, thus precipitating its eventual disintegration. In this context, the fact that Germany, the former guardian of sound public finances in the EU, strayed from fiscal rectitude by softening constitutionally enshrined debt limits bodes particularly ill. Another factor contributing to European disintegration is the expected misappropriation of EU funds in the wake of the permission given in March 2025 to channel EU cohesion funds into defense projects. These cohesion funds, which are distributed to EU members with a gross national income (GNI) per capita that is lower than a threshold of 90% of the EU average (with an expected 37% of funds to be used to meet climate targets!), were destined to even out interregional differences inside the EU. For Germany, which is the main contributor of cohesion funds, too, the scheme in essence meant that the country had to give its own money to foreign customers as a gift so that they could subsequently purchase products made by German companies and their competitors. Clearly, this giveaway had been approved by German politicians who did not pursue German interests. Since less cohesion funds will flow to weak EU members, there will be less leveling out of existing disparities. The imbalances remaining as a result constitute another factor destabilizing the common European house. If more fiscal transfers will occur in the future to increase cohesion, the paymasters are likely to become disgruntled about another act of so-called solidarity, which will result in more disharmony inside the EU. Finally, another dangerous centrifugal force will be the widening cleavage between Atlanticist EU members, who still believe in a strong defense alliance with the U.S., and Gaullists, keen on promoting European independence. This is partly due to the increasing disgruntlement of US loyalists about the gargantuan funds earmarked to build a standalone European defense capacity. In conclusion, it has been said that if you want to make God laugh, you should tell him about your plans. Rather ironically, the clique of EU leaders with the blueprint of building a stronger European house in the form of a veritable fortress, through their reckless spending spree that hides critical tradeoffs, are likely to undermine the existing building's very foundations and thus eventually cause its collapse. In this context, it is truly amazing how inventive human beings tend to become when trying to justify more debt. In this regard, they are prone to display the same seemingly boundless creativity and criminal energy as used for scheming, carrying out and covering up heinous crimes, especially through highly ingenious lies that distort facts in a devilish fashion - after all, etymologically the diabolos is the one who 'throws through' things and via distortion cunningly sows confusion. Without a grand supranational idea and noble mission based on truth and honesty, which act as an invisible glue, the European project will eventually falter, especially, given that the interests of European nations in the political, economic, social, military, cultural and other spheres diverge widely. Undoubtedly, this destructive process is accelerated by reckless financial engineering at the supranational and national level. To avoid committing collective political and economic hara-kiri, EU leaders need to immediately stop prioritizing politics over sound economics and refrain from exploiting the irrationality and myopia of their citizens. Instead, they should act as real statesmen, building their own nations rather than Europe at the expense of their homelands, and enrich their people through smart and enlightened human-centered policies, which also include education as an antidote to economic naivety. To sum up, when the band begins to play (a sad song), it is high time to change course (and advisable to play a different tune)! This article forms part of a series on the new European spending packages. Previous column: Prof. Schlevogt's Compass No. 14: 'Whatever it takes' revisited – Euromaniacs exploit threat bias again, 19 March 2025.
