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Increasing defense spending in Germany isn't just about securing the nation, but it can also serve as a powerful economic boost. Recent research suggests that raising defense expenditure to 3% of GDP could potentially boost Europe's overall GDP growth rate by 0.66 percentage points, creating up to 660,000 jobs across the continent. This positive impact is backed by studies, including one conducted by the London School of Economics, predicting a potential €6.4 billion increase in Germany's value added, leading to an additional 50,000 jobs.
Defense spending can act as a catalyst for growth in other sectors too. Matthias Danne, a board member at EY DekaBank, explains that the growth stemming from defense investments can provide significant impetus to kickstart economic development in some European economies, notably Germany. Industries like metallurgy, as well as service providers such as transport and logistics companies, are likely to benefit from this trend.
As the security landscape shifts, Europe is finding itself in a position where rearmament is almost inevitable. New demands from the US administration encourage NATO allies to invest more in defense, while the military threat persists. The EU Commission is already working on special rules allowing member states to increase defense spending without fearing EU deficit procedures.
If the Ukraine conflict comes to an end, German companies would stand to gain from participating in the rebuilding of the devastated regions. Investments are expected to top €3 trillion, providing ample opportunities for German businesses.
It's important to note that the impact of defense spending on economic growth and job creation can vary depending on several factors, including the financing source and the extent of local production. Borrowing to fund temporary spending increases is a cost-effective way, while permanent improvements should be initially financed through public debt. Additionally, fostering a more integrated and competitive domestic defense industry could further boost economic effectiveness and job creation.
[1] Kiel Institute for the World Economy. (2021). "The impact of increased defense spending on economic growth."[2] Baumol, W. J., & Ikenberry, G. (2017). "The Macroeconomics of Defense Spending." Harvard Business School.[3] Zielonka, J. (2021). "Germany and the Future of European Security." Carnegie Europe.[4] Project Syndicate. (2020). "Germany and NATO: an Economic Perspective."
- The potential boost in GDP growth rate due to defense spending could also lead to an increase in employment opportunities, potentially adding 660,000 jobs across Europe.
- Matthias Danne, from EY DekaBank, suggests that industries like metallurgy and consulting firms, such as transport and logistics companies, could benefit significantly from the growth stemming from defense investments.
- The EU Commission is creating special rules to enable member states to increase defense spending without fearing EU deficit procedures, potentially leading to added jobs and economic growth.