Italys Bridge to Nowhere Shows Defense-Boom Risks

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a day ago

(Bloomberg Opinion) -- The defense boom in Europe is as close to a tech-style gold rush as the Old Continent can offer. Armaments stocks are outperforming Nvidia Corp., and defense-themed funds are amassing billions in anticipation of rising military spending in a more dangerous world. NATO allies have agreed to more than double defense spending goals to 5% of gross domestic product in the coming years.
But with so many countries already struggling to stump up the billions needed to keep up in artificial intelligence, reindustrialization and the energy transition, where's the cash going to come from? With the notable exception of Germany, many European countries are already near the limit of investor and voter patience with borrowing and taxation. And good luck shrinking the welfare state.
Italy, a serial defense under-spender with the second-highest debt ratio in the euro area, has one answer: Stretch the definition of 'defense' to breaking point. Officials are reportedly looking to reclassify a proposed €13.5 billion ($15.8 billion) bridge linking Sicily to the mainland as a defense investment.
You almost have to applaud the chutzpah. This is a bridge that has been a field of political dreams for decades, if not centuries, and attracted plenty of criticism for its cost, lack of utility and riskiness. To say that this is about rearmament is tantamount to defense-washing a pet political project — one beloved by populist Matteo Salvini, who, ironically, is one of the most vocal critics of the North Atlantic Treaty Organization. One MEP from the opposition Five Star Movement called the plan a 'mockery' of military spending.
Of course, this isn't to say that only things that go bang should count as defense. NATO's 5% targets include 1.5% for infrastructure and interoperability. We live in a world of deadly drones, AI and cyberattacks — which require tools other than bullets. And governments want to make sure wide swathes of society benefit from military-spending spillovers, which means casting nets wider than usual. 'Defense is the new Keynesianism,' says Richard Aboulafia, managing director of consultancy AeroDynamic Advisory.
Still, Italy's plan should set alarm bells ringing. Slapping the label 'defense' on national boondoggles would further exacerbate differences between European countries at a time when defense is already too fragmented. It would make Europe weaker, not stronger.
It would also prove Goodhart's Law: When a number becomes a target, it ceases to be a useful measure. NATO's previous 2% targets already included some eyebrow-raising outlays on railways and firefighters, according to Der Spiegel. If this is how the 5% era is set to go, credibility will wither.
Clearer definitions, better coordination and ultimately more leadership are needed to ensure the blurred lines between military and civil infrastructure don't vanish completely. The EUISS think tank recommends focusing on disruptive research and innovation via a European version of Darpa, the US Defense Department's advanced research projects agency, more measures to attract top scientific talent and putting more European funding to work.
And the Bertelsmann Stiftung think tank also says that Germany's unique position as top spender means it should also step up when it comes to the framework for defense-related infrastructure. Nobody wants yet more box-ticking that stops money getting out the door, but voters deserve better than a defense twist on greenwashing.
This isn't about preventing the real economy from getting some of the rewards of a defense boom, but ensuring those spillovers actually happen. Italy has other more positive examples of supporting a more defense-oriented Europe, such as Fincantieri SpA's plan to refocus some shipyards on just making warships. The defense boom is worth celebrating, but a bridge to nowhere isn't a good outcome.
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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.
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