The threat of war and its economic challenges

Europe has focused on the climate crisis and neglected military threats to its peril. Both needs can be met if it frees up its economy.

Cartoon showing a scale with many more euros going to green economy initiatives than defense.
As European governments pile money into climate-saving initiatives, the continent’s defense readiness remains sorely neglected. © GIS – This cartoon is available for sale in our shop.

While the climate crisis has long been regarded as a significant threat, prompting trillions of dollars of investment in the green economy, Europe now faces another pressing concern: the threat of war. At the moment, this looming specter originates primarily from Russia, yet the continent is also grappling with challenges emanating from developments and conflicts to its south, which could necessitate interventions in Africa and the Middle East.

To address these threats, Europe must fortify its defense, an aspect egregiously neglected for at least the past four decades. Initially overlooked out of convenience, and subsequently viewed as the responsibility of the Americans, this stance is undergoing a critical shift.

To keep Europe from becoming a war zone, it must make proactive preparations for conflict. As the Romans wisely noted, “If you want peace, prepare for war.” Establishing a credible defense requires substantial investment – more than 1 trillion euros additionally within the next five years – a sum currently beyond reach.

Inefficient state intervention

European politicians, including German Chancellor Olaf Scholz, who continuously delays weapons deliveries to Ukraine, have recently pledged – again – to allocate 2 percent of their gross domestic product to defense. Given the existing backlog of security needs, this commitment falls short. The efficacy of such spending will hinge greatly on its allocation.

Consider Turkey: not only does it maintain stringent military standards, it has also cultivated a robust defense industry, excelling in drone technologies and independently producing fighter planes with stealth features.

Both at national and union levels, Europe is increasingly adopting a technocratic approach, evidenced by proliferating regulations and fiscal policies that diminish market influence in favor of government intervention. Mounting tax burdens, driven by expanding state apparatuses and ballooning subsidy systems, further illustrate this trend.

More on European defense

These work together, as states and the European Commission use subsidies to “guide” (in other words, manipulate) the economy. Despite claims to the contrary by self-assured technocrats and politicians, the state’s omnipresence is not inherently beneficial and often results in inefficiency and resource misallocation.

Special projects are funded through so-called “designated assets,” yet these represent debts, ultimately burdening future generations with higher taxes or inflation. Europe’s fiscal system – again, both nationally and at the union level – is already stretched thin, even as trillion-dollar budgets are earmarked for the green economy.

While supporting the green economy is commendable, projects often adhere rigidly to dogmatic parameters and bureaucratic criteria, fostering waste and inefficiency akin to the old Soviet five-year plans. Businesspeople invest less in this system, and when they do invest, it is in the hopes of receiving subsidies or grants rather than creating the most viable venture.

Catalyzing pro-business change

Fortunately, solutions abound. Making the defense and environmental sectors attractive to private investors necessitates less regulation and more market-driven initiatives. Realistic environmental standards and defined defense requirements, coupled with deregulation and favorable tax structures, can incentivize innovation and job creation.

To some, this could sound revolutionary. Overcoming the entrenched technocratic and bureaucratic mindset is crucial. Doing so could unlock substantial economic potential in both the defense and environmental sectors, bolstering job markets and fostering innovation.

The looming threat of war could catalyze a shift toward greater prosperity and freedom by curbing state intervention.

The looming threat of war, coupled with the need for change, could catalyze a shift toward greater prosperity and freedom by curbing state intervention.

Although Europe possesses a solid foundation in the defense industry, past investments were hindered by inadequate budgets and stringent export regulations. Criticism regarding insufficient ammunition production overlooks the imprudence of such investments when domestic demand is lacking, and export opportunities are constrained.

Additional barriers to investment in defense include hypocritical regulatory standards and reputational concerns within the financial industry, which discriminate against involvement in the defense sector.

Europe faces challenges in growth and productivity, largely stemming from an oversized government. The current crisis presents an opportunity for transformation. Historically, threats have often precipitated necessary changes.

Failure to seize this opportunity risks further economic decline and heightened security risks. Peace and prosperity necessitate preparation for war.

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