Latest news with #Keynesianism
Mint
07-07-2025
- Business
- Mint
Italys Bridge to Nowhere Shows Defense-Boom Risks
(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. More From Bloomberg Opinion: 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. More stories like this are available on
Observer
30-06-2025
- Business
- Observer
Defence hike: Europe is making a big mistake
Leaving Brussels by train, the Audi factory is one of the first things you see. Made up of gray, rectangular buildings, the site was long one of Belgium's biggest car producers. Slick and productive, it was a fitting symbol for the capital of Europe. Early this year, however, it succumbed to the industrial crisis overtaking the continent and was unceremoniously shut down. Spots of graffiti are already visible on its once pristine walls. In recent months, the story of the Audi factory has become the story of Europe. Both are down on their luck, in danger of being swept away by the century's new geoeconomic tide. In Brussels, the response to the predicament has been equally in tune with the times — as part of a wider military revamp, ministers claim, the former car factory should be turned into a weapons producer. Such a relaunch, proponents say, would aid Europe's strategic autonomy and create 3,000 new jobs. Across Europe, policymakers are converging on the same strategy, hoping to kill two birds with one stone. On the one hand, increased military spending would make Europe safe from Russia and independent from America, at last securing its superpower status. On the other hand, it would revive Europe's ailing industrial sector, under pressure from Chinese competitors and rising energy costs. Pumping money into the military, so the argument goes, is the way to fight the twin crises of geopolitical vulnerability and economic malaise. These hopes are likely to prove delusive. Europe's militarisation push, suffering problems of both scale and efficiency, is unlikely to work on its own terms. But it carries a bigger danger than failure. By focusing on defence at the expense of all else, it risks taking the European Union not forward but backward. Rather than a major advance, breakneck rearmament could well amount to a historic mistake. Europe's new approach is usually given an older name: military Keynesianism. Originally, the concept referred to the tendency of mid-century governments to counteract economic downturns through increases in military spending — a combination supposedly first pioneered by the Nazis in the 1930s, then globalised by the Americans in the 1940s. More recently, the term has been applied to President Vladimir Putin's war economy in Russia. Yet it is far from clear whether Europe's current efforts warrant such a description. For one, the continent is simply undergoing a return to military spending levels before 1989. At its peak in the 1960s, for instance, German military expenditure reached just under 5 per cent of gross domestic product; Chancellor Friedrich Merz's target, announced last week, is 3.5 per cent. Such a restoration hardly qualifies as a great leap forward — certainly not matching the concept of the 'Zeitenwende", or 'turning point", that has been used to describe the change in approach. The public benefits of the strategy — the Keynesianism part — remain equally unclear. Though Germany has slightly eased its debt rules, European policymakers remain reluctant to run up budget deficits. More money for the military will strain already tight budgets, taking away from social programmes, infrastructural development and public utilities. Instead of military Keynesianism, a better comparison for Europe's defence bonanza is the Reaganism of the 1980s, in which increased military spending and social retrenchment went hand in hand. There are more problems with the remilitarisation push. For one, many former industrial sectors will acquire a vested interest in war-making abroad — hardly as reliable a source of profit as consumers buying cars. And more money for the military doesn't necessarily mean better results, either. As the economist Adam Tooze notes, Europeans collectively lavish ample sums on their 'zombie armies' and receive strikingly little in return, both in terms of manpower and material. No European company, for example, ranks in the top 10 defence companies by turnover. Then there is the quintessentially European problem with coordination. With tanks and hardware already expensive, the costs of continental rearmament will be multiplied by the union's decentralised decision-making, in which nations separately vie for contracts. Glimpses of such inefficiency are visible in the stalling efforts at shell production for the war in Ukraine. On top of this muddle, the first payouts of Europe's splurge are likely to go to American producers while European factories get up and running. In a telling irony, the initial beneficiaries of the potlatch will be not European but American. These logistical constraints should be weighed alongside the cultural limits to remilitarisation in Europe. In response to calls for renewed mobilisation, for example, one German podcaster spoke for many: 'I'd rather be alive than dead.' Even so, European policymakers are determined to sell rearmament as a condition for the continent's entry into the 21st century. Last week's Nato summit, at which almost all members pledged to raise military spending in the next decade to 5 per cent of GDP produced a pageant of such views. The number of wars around the world, with a fresh one recently threatened in Iran, supposedly underlines the need for Europe to be a fighting continent once more. This strategy, officials claim, combines military independence with commercial revival. Neither of these outcomes is likely. On its current course, Europe is headed for neither military Keynesianism with a social dividend nor a defence strategy suitable for an aspiring superpower. Rather, it risks getting the worst of both worlds: a meager economic recovery without long-term prospects for growth, and sumptuous payouts to a defence sector that would not allow Europe to match its peers. A quick journey to Brussels, where the Audi factory still stands empty, should suffice to convince visitors of this truth.
Business Times
16-05-2025
- Business
- Business Times
Europe can't rearm its way to security
[LONDON] As Russia's war on Ukraine rages on Europe's eastern frontier, the continent's leaders are finally willing to admit they have the power to revive their ailing economies. After decades of austerity, they are ready to spend again – but not to end poverty, accelerate decarbonisation, or reverse the collapse of essential public services. Instead, Europe's fiscal firepower is being directed towards tanks, missiles and fighter jets. Reorganising the economy around state-supported defence spending is known as military Keynesianism, though John Maynard Keynes – who rose to prominence by condemning the punitive post-World War I peace treaty that was imposed on Weimar Germany, which ultimately helped set the stage for Hitler's rise and another war – would probably not have endorsed the term. The reasoning behind the resurgence of military Keynesianism is not entirely without merit, as the pursuit of austerity policies has left many European economies punching below their weight. European productivity, which has grown at half the pace of the United States over the past decade, declined by 1 per cent in 2023. Real wages fell by 4.3 per cent in 2022 and 0.7 per cent in 2023, following a decade of stagnation. Meanwhile, investment is nowhere near where it needs to be to tackle the twin crises of inequality and climate breakdown. Europe's self-defeating commitment to austerity is epitomised by the German doctrine of 'schwarze Null' ('black zero'). Even when Germany's economic miracle was in full swing, politicians refused to invest in long-term growth. As a result, Germany – like most of the continent – has suffered from chronic underinvestment in physical and social infrastructure, constraining productivity. Against this backdrop, rearmament may look like an easy fix. Unlike social expenditure, defence spending faces little political resistance. It enables politicians to appear tough – a valuable asset in an age of strongman politics – and keeps the arms industry, a powerful lobby with deep ties to political elites, flush with public money. But military Keynesianism is a dead end – both economically and politically. For starters, it's a weak engine of long-term growth. Modern weapons production relies on advanced manufacturing processes that use relatively little labour, so the industry has low multipliers compared to investments in health, education or green energy. It creates fewer jobs per euro spent and contributes little to the broader economy's productive capacity. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Military Keynesianism also deepens Europe's dependence on fossil fuels, given that modern militaries are among the planet's largest institutional fossil-fuel consumers. Expanding defence capabilities means locking in demand for carbon-intensive technologies at a time when Europe should be phasing them out. Worse still, prioritising defence over decarbonisation sustains the very system of petropolitics that gives regimes such as Russian President Vladimir Putin's the resources to wage war in the first place. As the Guardian reported earlier this year, the European Union has spent more on Russian fossil-fuel imports over the past three years than it has on financial aid to Ukraine. If the EU is serious about defeating Russia – not just on the battlefield, but geopolitically – then the bloc must confront the real source of the Kremlin's power: oil and gas exports. Russia, after all, is a petrostate, and its war machine is financed by the revenues that flow from Europe's addiction to fossil fuels. Oil and gas revenues have accounted for 30 to 50 per cent of Russia's federal budget over the past decade and still represent roughly 60 per cent of its export revenues. These industries provide the vital dollars that enable Russia to import military technologies and other critical inputs. Without that income, the Russian economy would quickly collapse under the weight of hyperinflation. The most effective long-term strategy for countering Russian aggression, then, is not to ramp up military spending but to accelerate the green transition. What Europe needs is a real Green New Deal: a democratic, continent-wide mobilisation to decarbonise the economy, ensure energy security, and create millions of well-paying green jobs. To be sure, this would require massive investment in renewable energy, public transit, retrofitting, and industrial electrification. It would also mean reshaping supply chains, restoring public ownership of key infrastructure, and breaking the stranglehold of fossil-fuel capital on European politics. But a Green New Deal would do more to strengthen the EU's geopolitical standing than any number of new tanks and artillery shells. A Europe that produces its own clean energy, builds resilient green industries, and reduces its dependence on volatile global commodity markets is a Europe that cannot be held hostage by petro-tyrants. Europe's political elite faces a stark choice: continue propping up a broken growth model by funnelling public money into the military-industrial complex, or invest in a livable future rooted in solidarity, sustainability and democratic control. In the long run, building an inclusive green economy is the only way to counter the rage and alienation fuelling the rise of far-right forces – the greatest and most immediate threat to Europe's democracies. PROJECT SYNDICATE The writer, a former research fellow at the Institute for Public Policy Research, is the author of several books, including Vulture Capitalism: How to Survive in an Age of Corporate Greed (Bloomsbury Publishing, 2024) and The Corona Crash: How the Pandemic Will Change Capitalism (Verso, 2020)
Business Times
09-05-2025
- Business
- Business Times
Welcome to the new age of geoeconomics
LAST weekend in Washington, near the White House, dozens of economists from universities and institutions such as the International Monetary Fund (IMF) gathered to discuss the state of 'geoeconomics'. Geo-what? some readers might ask. No wonder: until recently, this word was little used, since it seemed at odds with modern norms. That is because the phrase describes how governments can use economic and financial policies to play power games. But in the 20th century free-market intellectual framework – which is the one in which most Western professionals built their careers – it was generally assumed that rational economic self-interest ruled the roost, not grubby politics. Politics seemed to be derivative of economics, not the other way around. No longer. The trade war unleashed by US President Donald Trump has shocked many investors, since it seems so irrational by the standards of neoliberal economics. But 'rational' or not, it reflects a shift to a world where economics has taken second place to political games, not just in America, but many other places too. So universities such as John Hopkins, Dartmouth, Kiel and Stanford are looking to expand their 'geoeconomics' programmes (with the latter using machine learning for that end), along with entities such as the IMF, the Milken Institute and the Atlantic Institute. And Dane Alivarius, a former US Treasury official, is also now urging companies to create a new role of 'CGO' – or chief geopolitics officer – 'to navigate the increasingly blurred lines between commerce and statecraft' where 'referees (meaning governments) have changed the rules'. It remains unclear if companies will actually adopt that idea. But in the meantime, investors and business leaders would do well to note five key points about this geoeconomics debate. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up First, this phenomenon is not simply about one man (Trump), but rather marks a much bigger turning point in the intellectual zeitgeist – of a sort we have seen a few times before. One such shift occurred just over a century ago, when the globalist, imperialist vision of capitalism that reigned before the first world war was displaced by nationalist, protectionist policies. Another came after the second world war, when Keynesian economics took hold. Then, in the 1980s, free-market neoliberal ideas displaced Keynesianism. The fact that the intellectual pendulum is now swinging again, towards more nationalist protectionism (with a dose of military Keynesianism), thus fits a historical pattern – although few predicted that the swing would take quite this form. Second, one important facet of this zeitgeist shift is that governments are no longer 'just' focused on their country's absolute wellbeing, but on their relative positions too. This distinction might sound subtle. But it matters deeply, as a paper co-authored by Aaditya Mattoo, a World Bank economist, along with Michele Ruta and Robert Staige, spells out. That is because an 'absolute welfare' mentality supports trade co-operation, but unravels 'if rivalry eclipses any consideration of own- country wellbeing', the authors say. Trump's angry rhetoric about America being 'ripped off' by competitors, in other words, reflects a bigger mental shift. Third, an (obvious) factor behind this rivalry is that China is now challenging America's incumbent dominance. This pattern has often been seen before, as Ray Dalio, the hedge fund luminary, notes in a provocative forthcoming book. Investors should also note that Dalio suggests such conflict is rarely resolved quickly or smoothly, least of all when there is a debt cycle involved. Fourth, as the US and China resort to geoeconomic strategies, other countries are following suit in response. Just look at how the European Central Bank is racing to develop a digital euro, Saudi Arabia is developing its own tech stack, or Japan is using its Treasury holdings as a 'card' in trade talks. That means that tech, trade, finance and military policies are mingling in a manner not seen during the neoliberal age. Fifth and finally, industrial policy is back. This started in America under President Joe Biden. But Trump is doubling down, with tariffs. To understand this, look at a striking new book called Industrial Policy for the United States by Marc Fasteau and Ian Fletcher, two economists beloved by the Maga crowd. They champion tariffs but also stress the need for other industrial policies too, citing South Korea, Japan, China and Germany as examples to emulate. It is unclear if Trump will follow their advice. But what is evident is that there is rising acceptance in the US that the government should shape commerce in the national interest. This will invariably prod regions such as Europe to follow suit. All of which will horrify many observers, particularly those raised in that neoliberal era. But don't expect the intellectual pendulum to swing back soon – even if the US cuts a few trade deals, as Dan Ivascyn of Pimco notes, Trump's love of tariffs runs deep. For better or worse, we all need to learn to navigate geoeconomics. We cannot just wish it away. FINANCIAL TIMES
The Independent
22-03-2025
- Business
- The Independent
If Rachel Reeves were serious about growth, she would look to the EU
R achel Reeves, the chancellor, tried to imitate James Callaghan in an interview this weekend. She told the BBC: 'We can't tax and spend our way to higher living standards and better public services. That's not available in the world we live in today.' The echo is unmistakable of Prime Minister Callaghan telling the Labour conference in 1976: 'We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists.' What Mr Callaghan rejected was called Keynesianism then and would probably be called Trussism now. Ms Reeves is rejecting something that sounds more respectable but is not: the idea that we can have higher-quality public services and higher living standards out of thin air. Half a century apart, they both reject, in the name of realism, the policies urged on them by their party. Ms Reeves argues that, with taxes at a 70-year high, the option of higher taxes still is 'not available'. This is not strictly true. The Independent argues that Britain is still not as heavily taxed as most of our northern European neighbours, and that it may be necessary to consider a rise in income tax as the fairest and best way of meeting the further pressures of essential public spending, including on defence. But the chancellor is right that the tax burden is close to what the electorate will bear, and that some difficult decisions on spending do have to be taken. She is right, too, that she and her ministerial colleagues have to take a swashbuckling approach to needless regulation and waste. We do not advocate Elon Musk's methods, and we are sceptical about the savings that his Doge (Department of Government Efficiency) will actually produce, but a sense of crusading urgency in a British style would be welcome. A British Doge is one way of encouraging growth, which is what the government describes as its first mission. Ms Reeves deserves some credit as the first chancellor for some time to sound serious about cutting unnecessary regulation and relaxing planning law. If she delivers, she will deserve a great deal more. But this cannot be the only means of raising the rate of economic growth, currently not statistically significantly different from zero. She and Sir Keir Starmer are staring another growth opportunity in the face, but dare not mention it. Leaving the European Union has made us poorer, and some of that damage could be reversed by improving the terms of trade between Britain and our former fellow members. It is time that Sir Keir and Ms Reeves stopped being so scared of their pro- EU shadows and started to negotiate a better trade deal with the urgency that it deserves. Yes, that will mean aligning with EU standards. We should not be afraid of that: it would be a common-sense way of reducing the border checks that make trade more expensive. This would make us better off without full EU membership or free movement of people. When Ms Reeves addresses parliament on Wednesday, she should echo another former prime minister and speak, as Margaret Thatcher did when she was pushing within Europe for a single market, of how 'the success of the US in job creation shows what can be achieved when internal barriers to business and trade come down'. It is usual for prime ministers and chancellors to say, with Mr Callaghan's air of hangdog realism, that there are no shortcuts to growth. But in our case today there is a shortcut, and we should take it now: to reverse as much of the damage of Brexit as possible.
