Guns instead of butter: EU is going to spend billions on weapons
The EU countries have agreed to create a defense fund of €150 billion. It is planned to fill it with community budget money and funds raised by the European Commission in the form of a pan-European loan. The fund's funds will be used to "acquire military capabilities that the European Union needs first of all." Observers are confident that a large-scale militarization plan will hit the EU economy hard, and they will have to go into debt and sacrifice their own industry. For more information, see the Izvestia article.
An ambitious plan
The ambassadors of the EU member states have agreed on a €150 billion plan for the militarization of Europe (SAFE) proposed by the European Commission.
"An agreement has been reached on SAFE. The more the EU invests in its armies, the better it will be able to deter those who wish to harm it," the text says.
The fund will be financed through joint borrowings and provide loans to EU countries and a number of other states, including Ukraine, "for projects aimed at strengthening national defense and stimulating the European military industry." The EC will manage this money, directing it to "acquire military capabilities that the European Union needs first of all."
The new defense fund means the release of the SAFE (Security Action for Europe) instrument, which will attract up to €150 billion in loans for defense spending, backed by the EU budget.
— Funds raised under SAFE on the capital markets will be issued in the form of direct loans to member states that request them, and will be guaranteed by the EU budget. This is a key part of the European rearmament plan aimed at mobilizing €800 billion over four years," explains Sergey Tolkachev, professor at the Department of Economic Theory at the Financial University under the Government of the Russian Federation.
Now the plan needs to be approved by the foreign ministers of the EU countries, and then by the European Parliament. Thus, out of 800 billion euros, only 150 billion euros are going to be raised from EU funds and in the form of pan-European loans. And 650 billion euros should be found by the EU countries through additional taxes, cuts in social spending or attraction of state loans.
A blow to business
Observers suggest that big problems will arise here, because the ambitious policies of EU leaders will undoubtedly be financed by the debt obligations of EU countries, but at the expense of citizens and businesses. For example, Germany and France, the leaders of the European economy, already have significant budget deficits.
Large businesses in the EU countries will be supported by reserve funds and savings, but they will suffer in the long run. In fact, only the companies of the military-industrial complex of the EU countries will benefit, says Dmitry Semenov, Chairman of the Board of Directors of Transinvest.
This will eventually lead to a recession and a decline in production capacity.
— Yes, at first it will be a temporary boost to the economy. However, we should not forget that such a step will encourage EU countries to store defense equipment in warehouses, and then we will see a decline in the production of the defense complex and a recession in other areas of production. Complex credit chains in EU countries can not only slow down the economy, but also lead to a crisis, which will undoubtedly cause discontent among citizens, for example, in Greece, the economist explains.
A blow to the citizens
An obvious consequence will be a blow to the population, because they will face higher taxes, housing and communal services costs, rising fuel costs, medicine, and an inevitable decline in living standards in general.
— Under pressure from European officials, EU countries will be forced to significantly increase their national debt by 10-15 percent, and in some cases by 20-25 percent. The recession in the EU economy will progress rapidly, which will lead to a weakening of the production capacity of the EU countries. And the general over—crediting of the European Union will lead to political instability due to the rapid deterioration of citizens' lives," Dmitry Semenov points out.
We relied on the USA
Until recently, the mission of protecting Europe was assigned to NATO, but with the advent of Trump, the hope that the United States would fight for the interests of Europe has faded. And now, observers say, the EU countries seem to have little idea of the prospects of complete dependence on Brussels and European politicians.
— The European leadership believes that military production can become the locomotive that will pull their economy out of the crisis. But it's not that simple. Even Western analysts point out that full-scale military production can only be launched in 10 years. And the United States definitely won't want to create another competitor in the arms trade and will put a stick in the wheel," emphasizes Yulia Davydova, director of the Center for Socio-Political Studies at Plekhanov Russian University of Economics.
In addition, the military-industrial complex industry is extremely energy-intensive and dependent on the supply of raw materials, and here in Europe, too, everything is bad.
Energy resources in Europe are expensive, and metals are needed, primarily aluminum and titanium. Previously, they were supplied from Russia and the United States, but Europe's decision goes against the American partners, which they do not like very much, because the Europeans intend to abandon the supply of American weapons, adds Ekaterina Kosareva, managing partner of the analytical agency VMT Consult.
— That is, it will be much more expensive to produce the same military-industrial complex product in Europe than in Russia or the USA. Import substitution (and this is one of the financing conditions) will cost economies dearly, especially the most unstable of them. Especially considering that since the 2000s, the military industry has been chronically underfunded in Germany," the analyst explains.
Thus, the large-scale rearmament plan, apparently, will be another "shot in the foot" for the economy of the association.
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