Billions for the military: Will rearmament really lead to a solution to the crisis?

Billions for the military: Will rearmament really lead to a solution to the crisis?

In view of the geopolitical tensions and the ongoing discussion about security in Europe, the federal government is planning massive investments in the Bundeswehr. These measures aim to lead the German economy out of recession and at the same time strengthen political legitimacy. In order to achieve these goals, spending on security and defense should be increased to up to 5% of gross domestic product. Current developments show that military build-up is also being pursued by many other European states, especially since the Russian attack on Ukraine in 2022. [freitag.de] reports that these investments are intended to create new jobs and stimulate economic growth.

However, a study by Tom Krebs and Patrick Kaczmarczyk from the University of Mannheim expresses doubts about the effectiveness of these measures. The so-called fiscal multiplier for defense investments is only a maximum of 0.5, probably even lower. This means that the general population hardly benefits from investments in the defense sector, while the defense industry could benefit from new orders. In addition, investments in education, infrastructure and childcare could generate far more added value, according to the study. This makes it clear that every euro that goes into defense investments is missing in social areas and infrastructure projects.

Growth effects and their limits

The Kiel Report, written by Ethan Ilzetzki, professor at the London School of Economics, highlights the political implications of this defense spending. He emphasizes that increased defense spending does not necessarily lead to a decline in private consumption, but that the success of governments in sustaining private economic activity depends on various factors. However, rising military spending financed by higher taxes could negatively impact GDP growth, heightening the debate over funding and priorities. [ifw-kiel.de] highlights that it could be crucial for governments to take on more debt to finance temporary additional spending.

Another important aspect is the technological spillover that could arise from domestic arms production. Around 80 percent of current military spending comes from companies outside the EU, which creates an incentive to strengthen domestic industry. Moritz Schularick, President of IfW Kiel, emphasizes that the development of new defense technologies in Europe could have long-term economic effects that go beyond short-term fiscal benefits.

Long-term perspectives and recommendations

The current situation requires a realignment of European research and development policy. The report shows that the US allocates around 16 percent of its military spending to research and development, while the EU invests just 4.5 percent. Increasing defense spending from 2 percent to 3.5 percent of GDP would cost around 300 billion euros a year, but could generate similar private economic activity. It also recommends that all European governments should organize and jointly finance their military spending at EU level to promote competition and expertise.

In summary, it is clear that the federal government's approach to increasing defense investments is a double-edged sword. On the one hand, this could create jobs and support economic growth in the short term, but on the other hand, research warns of the negative social and economic consequences of this policy.