Lorenzo Di Cola/NurPhoto via AP
The 2010s were an economic lost decade for the United States. Unemployment soared after the financial crisis, and full employment was not restored until 2019. Per capita growth fell by about 40 percent, and did not see a serious recovery until the mega-stimulus of the pandemic relief programs and President Biden’s American Rescue Plan.
But it was even worse in the European Union, particularly the eurozone. During and after a recession, sensible nations borrow and spend freely so as to restore full employment and production as quickly as possible. Instead, most of Europe did the opposite, by cutting spending in a supposed attempt to reduce government budget deficits. Thanks to this tremendous austerity—imposed across the continent by the European Central Bank, the European Commission, and the International Monetary Fund—eurozone growth since the Great Recession has been roughly half as strong as the pitiful American figure. Core nations like Germany and France saw weak at best economies, while others like Spain and Greece endured full-blown depressions, with unemployment peaking at over 25 percent. The austerity didn’t even work, as the spending cuts cratered tax revenues.
There were many reasons for the austerity binge. The EU is not very democratic; the European Central Bank in particular is virtually immune from popular accountability. The continent also lacks a fiscal union that would provide some automatic economic stability though centralized funding of social insurance. The austerity forced down Greece’s throat in particular was a smoke screen to conceal a large bailout of German and French banks.
But a more fundamental root cause was the traditional German fixation on austerity and hard money. The euro was designed to be similar to the German deutsche mark, the ECB was patterned on the German Bundesbank, and German elites were heavily behind the austerity push. As former German Finance Minister Wolfgang Schäuble said, incredibly, in response to Spanish and Greek requests for debt restructuring, “Elections cannot be allowed to change economic policy.”
All that might finally be over. Prompted first by Russia’s invasion of Ukraine and now Donald Trump’s syphilitic-emperor foreign policy, Germany and the rest of the European Union are aggressively spending on military rearmament. Plans were recently finalized for 800 billion euros in spending across the continent. In Poland, military spending has now reached 5 percent of GDP, while Greece has topped 3 percent. Most importantly, the German Bundestag recently voted to bypass its constitutional “debt brake,” an utterly idiotic provision that limits “structural” deficits to 0.35 percent of GDP, to enable at least 500 billion euros in borrowing to fund rearmament, plus infrastructure and climate programs.
It’s about time.
On the economic fundamentals, the EU (plus Britain) should be able to defend itself and keep Ukraine supplied with weapons and economic aid indefinitely, even without an investment program. The GDP of that economic bloc is roughly five times the size of Russia’s. What’s more, more than three years of a grinding war of attrition has chewed through most of the vast arsenal of Soviet-era equipment Putin inherited.
The problem is that Europe does not have its own united military structure. Instead, each member state has its own largely independent force, leading to much wasteful inefficiency. Rather than one integrated command and military-industrial base, there are numerous smaller ones producing their own custom gear. And what overall coordination and standardization Europe does possess is premised on American military support through NATO. A great deal of European military spending goes to American products like the M1 Abrams tank, the F-35 fighter jet, the Bradley Fighting Vehicle, and so on, while most European joint exercises are done through NATO. Given that the American people have now elected Trump twice, and he is threatening wars of aggression on Denmark and Canada, that is highly unwise.
It’s obvious enough what ideally needs to happen. The defense economics analyst Perun drew up a sketch of a European Defense Force armed without any American products, in which every EU member and Britain get at least one production contract. Existing capacity is almost enough to equip a world-class force, including a nuclear deterrent, with just a few gaps like strategic bombers. But the politics will be very difficult. A disproportionate share of contracts of necessity must go to countries that have maintained more specialized capacity, especially France, which has long argued that overreliance on the U.S. is foolish. Others will have to be tasked with less lucrative but important tasks like churning out artillery shells or shoes.
Still, even without a proper EDF, which given the EU’s lousy institutional structure may take decades to set up, something similar could still be achieved through coordination. An obvious first step is to redirect orders for American products to European ones. A second is to bundle those orders across countries, allowing for greater investment in capacity and efficiencies of scale—and that is starting to happen. As a result, the stocks of European defense firms are soaring, while American ones are falling. The stock price of Germany’s Rheinmetall has more than doubled since Trump took office, while Lockheed Martin—last seen begging Canada not to cancel its contract to buy 88 F-35s—is down about 10 percent.
More broadly, it is frankly maddening that it took a military crisis to get Germany (and others) to shake off austerity brain. An entire generation of Europeans saw their career prospects diminished or ruined entirely; Greece and Spain endured a catastrophe on par with the Great Depression. But it should be emphasized that austerity also left Europe militarily weak. Without the austerity poison, its infrastructure would be in better shape, its economy would be maybe 20 percent larger, and it would be able to afford rearmament much more easily.
It’s also unfortunate that so much of the spending is going to weapons. For many years, Europe has enjoyed a post–Cold War peace dividend, spending heavily on a luxurious welfare state that makes America look like a crummy backwater by comparison.
But better late than never, and with Putin invading a European state and Trump threatening to do so, Europe has no choice but to arm itself. It’s a dangerous world, and better to work in a weapons factory than not at all.
