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Can Europe put itself on the right footing for a war economy?

Firefighters put out a fire after two guided bombs hit a large construction supplies store in Kharkiv, Ukraine
Firefighters put out a fire after two guided bombs hit a large construction supplies store in Kharkiv, Ukraine Copyright Andrii Marienko/Copyright 2024 The AP. All rights reserved
Copyright Andrii Marienko/Copyright 2024 The AP. All rights reserved
By Aleksandar Djokic
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The concept of a "war economy" has resurfaced in European political and economic discourse. The term, historically associated with the mobilisation of a nation's resources towards a full-scale military conflict, now finds relevance in the context of geopolitical tensions.

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A war economy involves the reorientation of national economic structures to prioritise military needs over civilian consumption. This often entails increased government control over industries, reallocation of resources, and the prioritisation of defence production. While Europe is not currently engaged in a conventional war that necessitates such a transformation, the geopolitical landscape has been increasingly volatile, particularly with the ongoing conflict in Ukraine, rising tensions with Russia, and broader concerns about global security.

War economy can also be interpreted outside the context of waging direct war against a particular enemy. As Mart Kuldkepp, a professor at University College London, explains for Euronews: "To an extent, 'war economy' is also a tool of informational warfare, a set of economic changes and policies meant to deter and discourage the enemy by sending a message of strategic resolve in an ongoing war."

When is a war not a war?

Europe, together with the United States, finds itself in a situation rather different to one in which Russia has put itself. Europe or the US are not at war, but are aiding Ukraine fend off Russian aggression. Russia, on the other hand is clearly at war and is rooted in an authoritarian system of rule, enabling its transition to a war economy more readily.

Europe and the US are far behind in increasing their war manufacturing capacity when compared with Russia. Branislav Slantchev, a professor at the University of California San Diego, points this out for Euronews: "The US is now producing 72k 155mm shells per month, after opening two new facilities. These took two years to bring on line, and the increase from under 20k shells per month, and the planned expansion to 102k/month by end of 2025 sound impressive until one realises that the US had capacity to make 500k/month in the 1990s, and 250k/month in the 2000s. The situation with the European defence industry is even more dire."

The Red Sea route is increasingly blocked as Houthi rebels in Yemen attack cargo ships
The Red Sea route is increasingly blocked as Houthi rebels in Yemen attack cargo shipsAyman Aref/Copyright The AP. All rights reserved.

Even in theory, managing the logistics of a war economy and aligning various political interests of all the moving parts of the European Union would on its own present a daunting task. Alexander Clarkson, a lecturer at King's College London, summarises this fact for Euronews: "Because the EU involves 27 polities within a shared federal system, whose economic structures have converged into the Single Market, this kind of shift is now only possible to achieve even partially through central coordination by the EU Commission (basically under Breton's direct oversight), since all the different components of European defence industries are now distributed across the Union."

Negative features of a potential transition to war economy on the European continent are immediately understandable. As Slantchev writes: "The public is not going to like public services cut, higher prices, and higher taxes. Moving too fast toward reinvestment in defence risks draining public support before meaningful changes are made, especially if the threat to which the government is supposed to be responding does not seem imminent or realistic."

The economic benefits of preparing for war

Although, at first glance, a theoretical transition of Europe into a state of war economy sounds like it would cause great economic harm, there would also be upsides to the aforementioned process. Dimitar Bechev, a lecturer at the Oxford School of Global and Area Studies, adds for Euronews that: "Some defence technologies would have civilian application and might push up salaries in other manufacturing sectors as demand for labour grows. So long as it delivers growth, there won't be any major (public) backlash."

But, for any such transition to be possible, Europe would have to be under direct assault from the Russian Federation, this is a political process as well, after all. Clarkson states: "Public opinion towards a shift to war economy, that at most would in the EU be only partial rather than full, would depend on public threat perceptions. The more under threat various parts of the EU feel (primarily Scandinavia, CEE and Med frontline states), the more the public would assent to many of these measures."

A complete transition to the state of a war economy might not even be necessary even, if Europe and the US were determined to contain Russian expansion. As Maria Shagina, a research fellow the International Institute for Strategic Studies, states for Euronews: "The West has all levers to win an economic war against Russia – economic power, technological prowess and financial chokepoints. A change in strategy and the adoption of an all-in approach is required. However, the West doesn't see the war in Ukraine as existential, hence there is no sense of to adopt radical changes."

Russia exposing differing attitudes within Europe

One not so obvious by-product of an imagined European transition to a war economy, would lead to the straightening of Europe as a global security actor, something that has been discussed in influential European capitals for decades. Clarkson interestingly puts this as the: "Europeanisation and consolidation of the defence sector."

As the Russian threat progresses, and we are witnessing an uptick of sabotage attempts across the continent, differences in the approach to European security between those member states of the EU which find themselves nearer to Russia and those farther away, will manifest themselves more clearly. Slantchev puts this issue into perspective: "We are already seeing some of that in the competition between Czech and German (and French) defence sectors. The initiatives that the Czechs coordinate do not go through EU institutions, and the Czechs have been quite open about not wanting to run their aid to Ukraine through the EU because they wish to privilege their own defence sector."

Defence expenditure set to rise

Thus, the European defence sector is set to increase no matter what, a complete transition to a war economy is not necessary to facilitate this. Although, this will increase European defence capabilities, they will rise at a different pace. Those countries who were decisive enough to respond to Russian aggression more proactively will bring favour to their own defence sectors. Inside NATO, increasing European capabilities will also shift the balance of power. As Kuldkepp concludes: "It would also be a welcome rebalancing of responsibility, reducing Europe's security defence on the USA – something that comes with its own risks – and increasing Europe's leverage inside the alliance."

In the end, a transition to a war economy on the side of Europe seems unlikely, unless Russia expands the scope of its aggression to member states of NATO and the EU. Having said that, a mobilisation of defence resources is necessary for the continent, as the current level of threat isn't likely to be lowered for years to come.

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