Military Keynesianism

In March, the stock price of Rheinmetall, Germany’s largest arms manufacturer, surged past Volkswagen, the country’s biggest auto producer. Volkswagen is closing German factories for the first time in its history, and Rheinmetall has said it is willing to take over one of Volkswagen’s plants and repurpose its production lines for tank manufacturing. The rise of Rheinmetall and decline of Volkswagen symbolizes Germany’s pivot toward military Keynesianism.

Germany has been steadily deindustrializing since 2022, not coincidentally the year that the war in Ukraine ended many of its economic ties to Moscow. Cut-off from cheap gas, Germany has had to import expensive LNG from the United States and the Gulf, sending production costs surging.

In reality, the energy price spike was just the trigger for many industrialists to move production abroad. Germany, Europe’s major export-led economy, has failed to invest in public infrastructure for decades, increasingly falling behind rival exporters, especially China, in key markets like auto manufacturing.

“It is very clear,” one French businessman told the Financial Times. “The Germans can’t sell their cars. So they will make tanks.”

This turn — seeking to boost aggregate demand through state-backed investment in the machinery of war — reflects the killing-off of two of postwar Germany’s sacred cows. First, the country’s relative pacifism was further eroded in response to the Ukraine war, with German tanks rolling to the other side of the North European Plain for the first time since the Third Reich. Merz is taking remilitarization further, with a plan to create “the most powerful conventional army in Europe,” itself a fundamental break with the country’s postwar identity.

Second, military Keynesianism is being financed by ditching the “debt brake,” Germany’s constitutional barrier introduced after the 2008 financial crisis, supposedly in order to prevent the sort of inflation crisis that destroyed Weimar Germany from ever happening again. The German budget, announced last week, will see €847 billion in new public debt over this parliamentary term, with military spending triple what it was before the Ukraine war. Fears over bombs and bankruptcy have collapsed in the face of Germany’s desperate attempt to secure industrial renewal through arms.

This military Keynesianism has been bolstered by the European Commission’s “Re-Arm Europe” plan. Commission president Ursula von der Leyen, herself a member of Merz’s Christian Democrats, has insisted that EU member states must hike military spending, establishing an exception to deficit limits to this end.

It’s now EU policy that hospitals and nurses are subject to fiscal restrictions but tanks and bombs are not. The expectation is that many EU countries, lacking a military-industrial base, will turn to Germany for their weapons spending, using public money from across the continent to boost the Eurozone’s ailing hegemon.

Military Keynesianism has severe limits as an economic doctrine. First, the multiplier effects of defense spending are weak because producing weapons does not spur wider economic activity in the same way as building socially useful infrastructure like electric battery charging points or solar panels would.

Second, once you’ve built stocks of ammunition and missiles, the only way to maintain production long-term is by being in a constant state of war — rather like the United States has been more or less since 1945. However, Germany surely cannot be a military superpower like the United States, and maintaining a permanent war footing is — thankfully — not on the cards.

Finally, and perhaps most importantly, Europe and Germany simply do not have the technological prowess to compete with the United States as a producer of cutting-edge military hardware and software. Much of the Re-Arm Europe spending will invariably find its way over the Atlantic. As a plan to reboot European capitalism, military Keynesianism is doomed to fail.

Embracing the “Dirty Work”

Following Israel’s surprise attack on Iran, Merz caused an uproar when he called it “dirty work that Israel is doing for all of us.” With this remark, the German chancellor revealed Israel’s value to Western imperialism, in practicing the brutality that Western governments support and fund but are often reluctant to engage in directly.

The malice expressed in the “dirty work” remark, made to a journalist on German public television, also reveals something else about European elites’ changing stance. Not only has Merz backed Israel to the hilt throughout its genocide in Gaza but he revels in posturing as a wartime leader, ready for conflict and increasingly unburdened by talk of international law and human rights.

Closer to home, the Ukrainians are also a proxy for Europe’s renewed taste for violence. NATO continues to dangle the carrot of membership to Ukraine, even though the Trump administration has made it absolutely clear that this won’t be happening. The West continues to fight to the last Ukrainian, while retaining complete autonomy to walk away from the conflict as and when it sees fit.

It was, in fact, Trump’s White House dressing-down of Volodymyr Zelensky at the end of February that triggered European governments’ wild calls for increased military budgets, claiming that they needed to carry the can of supporting Ukraine if the United States backed out. Yet this was always delusional, as Zelensky himself insisted that US support was crucial for Ukraine’s war effort to even continue.

Ultimately, Trump’s threats to walk away from Ukraine worked, for him at least: by the end of April, Zelensky signed on to a neocolonial agreement for the United States to seize the country’s minerals in perpetuity. That left the EU, which wanted to negotiate its own minerals deal with Ukraine, in the cold, even though Europe has spent just as much on fighting Russia as has the United States.

What has become increasingly evident is that it’s Europe that will be expected to pay the costs of Ukrainian reconstruction, while the United States reaps the economic spoils. Those costs will be enormous, especially considering that the war has destroyed Ukraine’s demographic base while burdening it with a completely unpayable debt.

Despite this, European leaders appear less interested than Trump and even Zelensky in bringing the war to an end, despite the fact that Ukraine is losing leverage all the time while the death toll keeps ramping up. The only logical explanation is an obsession in Brussels, Berlin, London, and Paris with defeating Russia, despite all the evidence that EU sanctions on Russia have backfired, with Europe coming off much worse from restrictions on trade ties.

European elites, especially von der Leyen, have bet their political credibility on this war, even though its ending is almost entirely out of their hands — hence why they have been sidelined from peace negotiations. There’s little doubt that the jubilant atmosphere at the NATO summit was partly because the failure of those talks has given the war effort another lease of life — a fact we should all lament given the daily human suffering it entails.

But for von der Leyen, military Keynesianism and the centralization of power in Brussels — so-called “Commission-ization” — is predicated on there being an existential threat to Europe. Despite the lack of evidence that Vladimir Putin plans to attack NATO members, continually hyping up this threat is politically indispensable to the militarization agenda in Europe.

Not Inevitable

Falling behind in all emerging technologies, Europe also has a rapidly aging population, suffers from flatlining productivity, and is a net importer of increasingly expensive energy. In short, it is not well-positioned to be an independent actor in an era of great-power politics. In this context, European leaders appear to have accepted their subordination to the United States, but they want their own place at Trump’s table. That’s how we should understand last week’s sycophantic display at The Hague: deference with a purpose.

The fact that this chest-thumping, imperialist vision places Europe in an increasingly hostile dynamic with the world’s majority, most importantly the planet’s rising superpower in China, should worry all Europeans. Choosing the side of a belligerent US that wants to make Europe pay the costs of empire while Washington reaps the rewards is boxing the continent into a corner.

Those who will pay the price for this geostrategy will not be the politicians who devised it but working-class Europeans, as welfare is gutted in order to fund our rulers’ war economy.

Spanish prime minister Sánchez put this bluntly as he pushed back against the spending hike: “If we had accepted 5 percent [of GDP going to military spending] by 2035 Spain would have to spend an extra €300 billion on defense. Where would it come from? From cuts in health and education.”

That is also where the money will be coming from in the other NATO countries in the Eurozone that have signed up to a toxic combination of high defense costs and tight restrictions on public spending on everything else.

But this isn’t just about falling living standards. The war agenda is also being used to undermine our democratic rights, as can be seen most of all in Germany where pro-Palestinian activism is close to being an illegal act. War fever is always combined with the repression of dissidents at home.

But it’s also important to realize that there is no popular consent for the militarization of Europe. There’s not one country where the public voted to spend 5 percent of GDP on defense. For this reason, too, Merz and von der Leyen can be defeated. The Left must place opposition to war and militarism, and breaking with the American Empire, at the heart of its political program. We may well find a public that is increasingly receptive to that message.