For years, Europe’s economies have been stuck in a rut, weighed down by sluggish growth, bloated welfare systems, and an aversion to bold reform. But just when it seemed no one could shake things up, two unlikely figures—Vladimir Putin and Donald Trump—have managed to do what European leaders could not. By accident, the Russian president and the former U.S. leader are setting the stage for the most significant economic shake-up in Europe since the Cold War.
TL;DR
- Increased defense spending is leading to welfare reform in Europe.
- This could boost economic growth and productivity in the long run.
- However, there are challenges and potential political resistance.
- It’s important to ensure that these reforms are implemented effectively.
- The future of Europe depends on its ability to adapt to this new reality.
Europe’s Rearmament: The Unexpected Economic Spark
The cause of this unexpected shift? A long-overdue military buildup across the Continent. Putin’s 2022 invasion of Ukraine made it clear that Europe could no longer rely on post-Cold War peace, while Trump’s persistent threats to withdraw U.S. security guarantees forced European leaders to reconsider their defense strategies. The result: a flood of defense spending not seen in decades.
To put things into perspective, the European Union is set to inject up to €800 billion into military expansion. The UK, despite its own budget constraints, is throwing in tens of billions of pounds. Germany, the EU’s economic powerhouse, has placed no upper limit on its defense investments. This sudden shift is poised to redefine economic priorities, but not in the way many economists expect.
More Than Just a Keynesian Boost
At first glance, the economic impact of this military spending might seem straightforward: more government expenditure leads to a higher GDP. After all, public spending is a key component of GDP calculations. However, the real transformation will not come from the sheer amount of money spent but from the trade-offs governments will be forced to make.
European nations, already burdened by debt, cannot simply print money indefinitely. Instead, they’ll have to make difficult choices—cutting back on welfare spending to redirect funds toward defense. This shift could unleash a wave of supply-side benefits, boosting overall economic growth and productivity in the long run.
Britain: Leading the Way in Welfare Reform
One of the first signs of this shift is emerging in the UK. With its budget stretched thin, Prime Minister Keir Starmer’s Labour government is tackling one of the country’s most expensive and controversial spending areas: welfare benefits for the long-term ill and disabled.
Since 2020, an additional 1.2 million people in England and Wales have enrolled in these programs, adding to the 2.8 million already receiving benefits before the pandemic. Today, 10% of the UK’s working-age population is on disability-related benefits, costing the government a staggering £65 billion per year. Compare that to Britain’s defense spending, which stood at £54 billion in the last fiscal year, and the imbalance becomes clear.
No one fully understands why Britain’s disability-benefits program has expanded so rapidly, outpacing similar systems in other developed nations. However, there is growing political consensus that the current setup discourages people from returning to the workforce, making it both economically damaging and financially unsustainable.
The Labour government is now exploring reforms aimed at pushing people back into employment through stricter eligibility criteria, occupational therapy, and incentives to re-enter the job market. A House of Lords report suggests that if 400,000 people were to return to work, the government could save £10 billion per year—a financial windfall that could significantly ease budgetary pressures.
Without the urgency of military spending, Starmer’s government might have ignored this issue. But with defense now a top priority, reforming the welfare system has become an economic necessity rather than a political choice.
Germany: A New Economic Awakening?
The UK isn’t the only nation facing these tough decisions. In Germany, incoming Chancellor Friedrich Merz is under intense pressure to balance the budget while ramping up defense spending. While Germany might find ways to exempt defense costs from its strict balanced-budget rules, there is still political demand to rein in other expenditures.
That’s why Merz’s Christian Democrats and their coalition partners in the center-left Social Democrats are gearing up for welfare reform. Their agreement includes a plan to encourage benefit recipients to re-enter the workforce while reducing payments for those who refuse to seek employment. If successful, these policies could revive Germany’s economy much like the labor reforms of former Chancellor Gerhard Schröder, which helped Germany shed its “sick man of Europe” reputation two decades ago.
Reversing the Guns-to-Butter Trend
After the Cold War, Europe shifted its priorities from military investment to expanding welfare programs. The logic seemed sound at the time: fewer guns meant more butter, allowing for generous social spending. However, the reality turned out to be more complex. Expanding welfare programs did not necessarily translate into prosperity—on the contrary, it often stifled economic growth by reducing incentives to work and innovate.
Now, the tables are turning. As Europe redirects its focus back to defense, it may finally confront the economic stagnation that has plagued it for years. Cutting welfare excesses and pushing people back into the workforce could trigger a much-needed economic revival.
What This Means for Europe’s Future
Europe’s new economic path is still unfolding, but one thing is clear: the era of unchecked welfare expansion is coming to an end. Defense spending has become the catalyst for much-needed fiscal discipline and structural reform. If leaders stay the course, the Continent could emerge stronger, more self-reliant, and economically revitalized.
However, challenges remain. Political resistance to welfare cuts will be fierce, and implementing these reforms effectively will require strong leadership. Moreover, while defense spending may provide short-term stimulus, Europe must ensure that these investments also enhance long-term productivity, not just boost GDP figures artificially.
My Take: A Necessary (and Inevitable) Shift
From a broader perspective, this shift was inevitable. Europe’s welfare-first approach was always unsustainable in the long run. Governments can’t keep expanding benefits indefinitely without consequences. The rearmament drive is simply exposing the economic cracks that were already there.
Critics argue that prioritizing military spending over welfare is a step backward, but in reality, it’s a correction. A strong economy isn’t built on endless handouts—it’s built on productivity, innovation, and self-sufficiency. Encouraging people to work, reducing dependency on government assistance, and investing in strategic sectors are the real keys to long-term prosperity.
Inadvertently, Putin and Trump have forced Europe into a long-overdue reckoning. Whether by design or accident, they have set the wheels of reform in motion. Now, it’s up to Europe’s leaders to seize this moment and ensure that the Continent’s future is one of economic strength, rather than stagnation.
