Why militarising the European economy won't save our industry

Benjamin Pestieau & Max Vancauwenberge - 18. Juni 2025

An unsustainable market that drives permanent wars

When you're hungry, you buy food. You eat it and then it's gone. So it has to be produced again to satisfy the next hunger. And so on and so forth. We need to travel to get to work, see our family or go on vacation. We use public transport or a private vehicle to do that. Continually using them wears them out. And after a certain amount of wear and tear, these vehicles need to be repaired or replaced. Moreover, you need to invest in the development and maintenance of transport infrastructures and vehicle production. The life cycle of a product ensures the sustainability of an economic model that meets the needs and demands of society.

In turn, investing in weapons feeds a vicious circle in which peace becomes a threat to profits. As long as conflicts - like the war in Ukraine, the genocide in Gaza, the occupation of Eastern Congo supported by Rwanda (with the blessing of the EU) - rage on, weapons will find a "market". But if states stockpile them without using them, the market becomes clogged and saturated. To survive, manufacturers need these weapons to be used on the battlefield, generating new orders.

So the militarisation of the economy creates a structural incentive for war, reinforced by industrial lobbying. Even worse, conflicts are used as commercial showcases. Some companies, like those supplying Israel, do not hesitate to boast of equipment "tested under real conditions", turning massacres into a marketing argument ¹

Investment in weapons feeds a vicious circle in which peace becomes a threat to profits. Weapons need a "market".

The United States fully embodies this destructive logic. As the only country to have built up a huge military-industrial complex, and thus a strong industrial sector based on weapons, they wage one war after the other. Since 2001: Afghanistan (2001-2021), Iraq (2003-2011), Libya (2011), Syria, Yemen, support for Ukraine and support for Israel's genocidal war against the Palestinians. This permanent war situation feeds a colossal industry: In 2024, US arms exports reached $318.7 billion, up 29% in one year (Reuters, January 2025). The State Department itself justifies these figures because they "need to replenishing stocks sent to Ukraine" and "prepare for future major conflicts" ²

Contrary to the official line, militarising the economy offers no protection - it only increases the risk of war. Europe's history bears witness to this: the waves of rearmament in the 20th century, particularly in Germany, led to two world wars and a continent in ruins. Reproducing this pattern today would mean sacrificing more and more lives, destroying societies and communities to feed an industry ready to suck up everything, and whose survival depends ... on our own insecurity. Economist Michael Roberts concludes that military Keynesianism can only work in a war situation. ³

The illusion of recovery through military spending

The European economy has reached a dead end. Germany, the continent's leading industrial power, is in recession. "Existing value chains or production capacities in our traditional industries - automotive, steel, aluminum or chemicals - can find new opportunities in the conversion and supply of a growing footprint of the defense industrial base [TDLR]", says the European Commission. 4 ^{But the} hope that the militarisation of the economy will put Europe back on the growth path may be short-lived.

In economic terms, when comparing the effect of different types of investment, we use the so-called multiplier effect. This term refers to the phenomenon whereby an initial expenditure leads to a series of other expenditures, investments and economic activities. For example, when you invest in a wind farm, the energy produced can power factories, attract businesses and create new jobs. Investing in railroads facilitates trade and the transport of goods, which in turn stimulates economic activity. Financing research and development (R&D) can lead to innovations that strengthen industrial development. Producing an excavator or bulldozer helps to construct buildings, roads or bridges. In comparison, a tank produces no energy, no innovation, no transport and no buildings. It mobilises resources, but has no lasting ripple effect on the economy.

Several recent studies have examined the effects of military spending on the economy. According to the Kiel Institute for the World Economy, one of Germany's leading economic research institutes, this spending has a reduced effect on growth because it is disconnected from the needs of society, whether private companies, the state or consumers. ⁵ As Paul Van Rompuy, an economist at the Catholic University in Leuven, recently pointed out, the American investment bank Goldman Sachs calculated that the multiplier of EU defense spending under the "Rearm Europe" program was only 0.5 after two years ⁶

For the GWS (Gesellschaft für Wirtschaftliche Strukturforschung) institute, they may generate a certain economic dynamism in the short term, at the time of arms purchases, but without any significant impact in the long term. ⁷ The CEO of ArcelorMittal Europe, Geert Van Poelvoorde, sums up the situation lucidly: "Supplying steel for defense is not a problem. 1,000 tanks means 30,000 tonnes, which corresponds to just three days' production in a single factory. So no, the revival of defense does not automatically mean the revival of the steel industry. [TDLR]"  ⁸

There will be no strong industry based on military spending, just as there will be no strong industry without affordable, green and abundant energy.

These studies also point out that even these small positive effects depend on a number of factors, including how much of military spending actually benefits local industry, rather than imports, and how this spending is financed - whether or not at the expense of other budgetary items such as infrastructure or public services.

Today, a large proportion of military orders benifits countries outside the European Union, primarily the United States. Between June 2022 and June 2023, 78% of military procurement spending was awarded to non-European suppliers, 63% of which went to US companies. 9 "^We only have a few years to get stronger. We're going to buy from whoever can produce fast. So we're not going to rule out anything. However, after three years of war in Ukraine, many European manufacturers have not really increased their production capacity yet," admits Belgian Chief of Defense (CHOD), General Frederik Vansina. Even the stock market paper L'Echo is concerned: "A massive increase in purchases of equipment 'made in the USA' would deprive the European economy of a major windfall. Furthermore this would only prolong military dependence on the United States, while creating new industrial and technological subjection^."

Second problem: military spending involves a return to fiscal austerity in Europe, wrecking social and infrastructure investments. Carsten Brzeski, Head of Global Macroeconomics at ING, warns: "There will be a negative multiplier effect if part of military spending is financed by cuts elsewhere." In the short term, therefore, military spending will not be an economic driving force: a large part of the money will leave the country, while cuts in social spending and productive investment will have a negative impact on growth.

In the long term, a study by Giorgio d'Agostino, J. Paul Dunne and Luca Pieroni - university professors specialising in the analysis of military spending - shows that military spending has a significant and persistent negative effect on economic growth. Using data on 83 countries between 1970 and 2014, the authors conclude that a sustained increase in military spending reduces the level of GDP per capita, diverting resources from more productive investments¹². Even the RAND Corporation, the think tank linked to the US armed forces, recognises that investment in infrastructure has a greater multiplier effect than military spending¹³. It concludes that an increase in defense budgets at the expense of infrastructure will have a negative impact on long-term growth¹⁴

And, contrary to the idea spread by war-mongers, the defense industry is not the engine of employment they would have us believe. Research in the USA shows that, for the same level of spending, civilian sectors such as healthcare, education and clean energy generate significantly more jobs.¹⁵ A recent Greenpeace study, Arming Europe (2023), also looked at the economic effects of increasing military spending between 2013 and 2023 in Germany, Italy and Spain, and came to exactly the same conclusion for Europe¹⁶

This is why economist Thomas Piketty is calling for priorities to be redirected towards "human well-being and sustainable development", with massive investment in "collective infrastructures (education, health, transport, energy, climate)".¹⁷

The myth of technological spin-offs

Europe's technological lag compared to the United States and China is today's existential challenge. This warning was issued by former head of the European Central Bank (ECB) Mario Draghi, in his report on European competitiveness: "Technological change is accelerating rapidly. (...) The EU runs behind when it comes to the emerging technologies that will drive future growth. [TDLR]"¹⁸

An emblematic example of this lag is batteries, a key technology that is indispensable for industrial transition. The bankruptcy of Northvolt is a sad illustration of this. Founded in 2017 by a former Tesla employee, this Swedish start-up was supposed to symbolise Europe's industrial surge in electric batteries, a strategic sector largely dominated by Asia. Northvolt got spectacular private and public funding (more than 15 billion euros) and started a gigantic factory for batteries in Sweden, hailed at the time as a model of European technological sovereignty. It employed up to 6,500 workers. But in November 2024, Northvolt filed for bankruptcy due to a lack of money, wiping out the EU's ambitions and leaving European taxpayers with unpaid loans. This fiasco highlights Europe's structural shortcomings when it comes to industrial innovation. These seemingly impressive figures take on a whole new dimension when compared to one of China's giant battery factories, which has 25 years of experience in the field and almost 21,000 (!) engineers, exclusively for research and development ¹⁹

The European Union today is lagging in many technological areas, such as advanced digital technology, green technologies, autonomous driving, 5G and soon 6G,.... Its R&D spending is well below that of the USA and China, and its efforts are fragmented. The European Court of Auditors recently published a report with a warning about Europe's critical lag in the microprocessor sector. Microprocessors, or "chips", are at the heart of all electronic equipment, from cars to smartphones, from satellites to artificial intelligence. The European Commission's current strategy, the Court of Auditors adds, will not be enough to make up for this delay.²⁰ A few months before, the European Court of Auditors had also sounded the alarm about the lack of investment in artificial intelligence.[/note]

Now the European Commission tries to reassure us, claiming that "increased investment in defense would have positive knock-on effects for the economy as a whole and would contribute to competitiveness, job creation and innovation in many sectors, from aeronautics to shipbuilding, from steel to space, from transport to artificial intelligence. [TDLR]"²¹ The example most often cited to support this idea is the Internet, presented as the fruit of American military programs.

A tank doesn't produce energy, innovation, transport or buildings. It mobilises resources, but has no lasting effect on the economy.

This reasoning doesn't add up, and this strategy runs the risk of making us even more technologically backward in all these civilian fields. In her bestseller, economist Mariana Mazzucato looks back at the genesis of the Internet, funded in its early days by DARPA, the U.S. Department of Defense agency²². She shows that it was not the military investment that was decisive, but rather the strategic role played by the State: funding long-term research, coordinating universities, companies and laboratories around ambitious projects, regardless of their immediate profitability. Clearly, if the forerunner of the Internet was born in a military context, it was thanks to visionary public policy - not military logic itself. And it was only in a civilian context, and because of the ambition of tens of thousands of researchers and scientists at the European Organisation for Nuclear Research (CERN) to be able to share their scientific discoveries quickly, that the modern form of the Internet was able to develop from the early 90s onwards.

So there's no reason to accept that a detour via investment in military research is necessary. On the contrary, this detour may even prove counter-productive, as defense secrets slow down the spread of innovations for civilian use. Above all, an increase in military funding will be to the detriment of civilian R&D, with a possible negative impact on the overall volume of innovation.

Instead of cradling these illusions of military effects, we need to genuinly plan for massive public investment in the civilian technologies of the future, on a European scale. Without this, our technological lag - and the deindustrialisation that will be its result - will only worsen. We don't have a single euro to waste, nor a single brain to divert from essential technological priorities to military programs.

Military spending at the expense of the energy, industrial and climate transition

Nor is the militarisation of our economy the answer to the current crisis in energy-intensive sectors such as the steel or chemical industries. It will turn away the resources we need to invest in the energy transition. These sectors are caught between rising energy costs and - for a variety of reasons - sluggish industrial demand. Without a structural solution to this dual pressure, the continent's entire industrial future is in jeopardy²³

Energy is the foundation of all economic activity. It makes the trains run, heats up our homes and powers the machines that produce the goods we use every day. Without abundant, affordable energy, there can be no industrial revival. Yet today, Europe is dependant on others for its gas, and that dependency is problematic. Yesterday it was Russian gas, today it's American liquefied gas. This dependency is costly - energy costs are between two and four times higher in Europe than they are in the United States or China²⁴ - unstable, and fundamentally at odds with the necessity of climate transition. We need to walk away from these expensive, polluting fossil fuels that we are dependent on. But that requires massive investments in renewable energy.

To achieve its renewable energy targets, the European Union estimates that it will need to raise over 570 billion euros in investments per year by 2030, and even 690 billion euros per year over the following decade. These colossal sums are needed to finance the production of renewable energies, transport and storage infrastructures, and the transformation of network . Today, however, we are only at about half that level²⁶.

Why is there such a gap between needs and reality? According to economist and Uppsala University professor Brett Christophers, the capitalist market is incapable of meeting this challenge. In his book, he illustrates that short-term profit prospects for renewable energies are too weak and uncertain to attract enough private capital for today's needs²⁷. And yet the European Commission's insists on taking this course: their strategy is market-driven and dependent on the goodwill of the major energy multinationals.

The big energy-intensive manufacturers are also sceptical about the Commission's plans. Aditya Mittal, CEO of ArcelorMittal, emphasises how energy costs make decarbonisation projects difficult to implement in Europe: "It remains essential to tackle high energy costs, which makes it very difficult for the industry to progress with large-scale decarbonisation projects. [TDLR]"²⁸ Wouter Remeysen, CEO of BASF Antwerpen and President of the Essenscia chemical federation, laments: "We're still waiting to hear about the main sore point for the industry: energy costs. Apart from group purchases, I am not getting a lot of meaningful information on this subject. [TDLR]"²⁹ Even if their aim is clearly also to increase pressure for more state aid and subsidies to boost their profits, the energy problem they raise is no less real - and the solutions put forward by the Commission are largely insufficient.

Between June 2022 and June 2023, 63% of military procurement spending went to US companies.

Just to compare, China invested more in renewable energies in 2023 than the United States and the European Union combined. And 2023 is no exception: over the past ten years, China has consistently invested more than these two.³⁰ "China, in the past and still today, is the world leader in solar and wind energy investment - both in terms of solar and wind power plants, producing renewable electricity and in turbine and cell technologies," explains Brett Christophers. These results "are (...) as far removed as possible from market-driven developments. This isn't the private sector identifying investment opportunities, assessing the prospects for profitability and deciding whether or not to invest.  This is the state (...) mobilising all the necessary resources at its disposal to guarantee that it fulfills its commitments [TDLR]," the Uppsala University professor continues.

Meeting this energy challenge is indispensable to relaunch our industry, to reduce our energy dependency and to fulfill our climate commitments. Investing in energy infrastructure would also offer significant opportunities for our industry. The energy transition - from building renewable energy production capacities to energy storage, transport infrastructures and not forgetting everything to do with the insulation of buildings - requires considerable volumes of materials, components and technologies, opening up significant industrial prospects for the steel and chemical industries and the entire industrial fabric.

An IMF study, which also includes European countries, shows that investment in renewable energies has a high multiplier effect: an investment equivalent to 1% of GDP leads to an increase in total GDP of between 1.11% and 1.54% in the years that follow, more than twice as much as equivalent spending on weapons. One of the reasons is that renewable energy generates more local jobs, boosts the domestic economy and is less dependent on imports.³¹

But this requires us to get away from the market doctrine and take back control of the energy sector in order to invest massively. And every euro allocated to the military industry is a euro not going to these vital investments. You cannot build a solid industry on military spending. And there can be no strong continent without a solid industry, and no strong industry without cheap, green and abundant energy.

A social war against the working class

All across Europe, governments are burning holes in their pockets to boost military budgets. In Belgium, the "Arizona" coalition government reached an agreement in April to increase the military budget by a further 4 billion euros a year, in order to reach the 2% GDP standard imposed by NATO. The ease with which these billions have suddenly been "found" is remarkable. For years we have been told that "the budget is tight", that "there's no money" for pensions, healthcare, education or housing.

And this is just the start. At the NATO summit in The Hague in June, the aim is to increase military spending to well over 2% of GDP. The United States puts the number at 5%, and wants "a rapid increase, more than double [TDLR]". NATO Secretary General Mark Rutte sets the bar at "well over 3%, which is really the absolute minimum. [TDLR]"³² And here in Belgium, the Minister of Defense Theo Francken is clear: "We have agreed within the government that we must also achieve this more ambitious goal. [TDLR]" "The only question is this: will NATO ask us to reach 3% within five years? Or 3.5% within ten years? [TDLR]"³³

With the same level of expenses, civilian sectors such as healthcare and education generate far more jobs than the defense industry.

The question that's being asked is "only" at what rate military investments should take place. As for the rest, there's no room for debate on these colossal sums. 3% of GDP would represent almost 18 billion a year for Belgium. This is comparable to the additional annual investment needed to achieve the climate transition in Belgium.³⁴

Who will pay for these out of control budgets? According to NATO Secretary General Mark Rutte, the answer seems obvious: "On average, European countries spend up to a quarter of their national income on pensions, health care and social security. We only need a small portion of this money to considerably strengthen our defense. [TDLR]"³⁵. According to economist Geert Peersman, applying the 3.5% rate of GDP for military spending would mean cutting pensions by 20% in Belgium.³⁶

Defense Minister Theo Francken is clear about what kind of society he wants: "For years, we've mocked Americans for their poverty, their addictions, their lack of a social safety net or the fact that you have to pay $1,000 at the dentist. We didn't want to live there because they spent all their money on hard security. Of course, it's much nicer to spend money on pensions, unemployment and a Cuban healthcare system where you can walk out of the pharmacy with a big bag of medicines for 13 euros. But now who is right? [TDLR]"³⁷. In Germany, there is talk of restraining social rights, allowing personnel to be commandeered and increasing working hours in sectors involved with militarisation³⁸. In Belgium, on the eve of the 31 March strike, Vooruit MP Jinnih Beels published an article in the right-wing nationalist magazine Doorbraak challenging the strike on the grounds of threat of war and geopolitical emergency³⁹

Militarisation is a brutal societal choice and a social war against the working class. By exploiting the fear of war, the government is imposing shock therapy to break social security and subjugate the working class.

Let's reindustrialise Europe rather than militarise it

The crisis of the European industry is due to high energy prices, lagging technology, weak demand and multinationals refusing to invest in tomorrow's industry so as to protect their shareholders' dividends. Deindustrialisation is already underway. And obviously, militarising the economy is not going to stop this process.

As we explained in a previous article - "It's our industry": nine principles to save the European ^industry: ”The European Union has not had a proactive industrial policy aimed at strengthening strategic industrial sectors for decades. Instead, it has left industrial development in the hands of the market. With the Lisbon Strategy in the 2000s, the EU focused on competitiveness through free trade, labour market deregulation, privatisation and liberalisation. From 2010 onwards, the emphasis on austerity has led to a decade of stagnation and public underinvestment. Europe has become a declining power, falling further and further behind the United States and being overtaken by China.”

Militarisation is a brutal societal choice and a social war against the working class.

Today, the European Commission is leading us from one dead end to another: after the failure of the single market approach, we're being drawn into the single war approach. We've disconnected from Russian gas and have replaced it by much more expensive American shale gas, which has plunged European industry into crisis. The ongoing war and the headlong rush into militarisation will only make the situation worse. With plans to militarise the economy, the stock prices of defense companies such as Rheinmetall, Dassault, BAE Systems, Leonardo, Thales and Saab are soaring on the big European stock markets⁴¹. But the weapon dealers' profits are at the expense of the working class and the development of our industry.

Militarising our economy leads either to war or to crisis, and in both cases to the decline of our industry. Crisis, because without war, there are no lasting opportunities. War, because that is then the only way to avoid a crisis in the sector. And ultimately to the decline of our industry as a whole, as military spending comes at the expense of other strategic investments for our industry.

It's time to change course: reindustrialising Europe rather than militarising it is not just a possibility, it's a necessity. And it's not only a question of industry. It's a societal choice. Do we want European workers to make solar panels, wind turbines, build eco-friendly housing and the world's largest high-speed rail network? Or would we rather see them produce weapons designed to kill and destroy? Do we want to invest public money in saving the climate, creating useful jobs, guaranteeing accessible healthcare and decent pensions? Or do we want to squander it on buying F-35s and expanding a military-industrial complex that thrives only in times of war?

This is the fundamental choice we face today - and it is radically opposed to the one the European Commission and the Arizona government want to impose on us. Today's investments will determine the world we live in tomorrow, and the world we leave to our children.

The European industry will not be saved by a war economy logic. This strategy is a dangerous mirage: it would ruin our public finances, fail to boost demand, it would not make up for our technological gap or energy handicap, and it would risk trapping Europe in a spiral of conflict.

Conversely, a long-term industrial policy, democratically planned together with the workers, can respond to economic, social and climate emergencies. This is the path we need to take if we want an industry that serves people, not profit and war.