An increase in public debt, a reduction of social spending and the calling into question of public services are not the only way to obtain the funds for the rearmament of Europe. What are the other potential solutions?
The European Commission has announced its intention to invest 800 billion euro in defence. This sum, an estimate, entails an increase of around 650 billion in Member State spending (1.5% of GDP per Member State), and 150 billion in loans. The plan’s bombastic title is ReArm Europe.
Where will these funds come from? Many citizens fear that this money will come at the expense of social services.
“In wartime, higher taxes are the norm”, writes George Hay for Reuters. “Researchers at the Kiel Institute for the World Economy analysed 113 examples of countries building up their militaries since 1870. They found that additional borrowing and taxation tended to do the heavy fiscal lifting. Overall government spending generally held up, aside from limited reallocations away from welfare”.
However, Hay continues, “European governments were already moving to shore up their defences before Trump’s televised spat with Zelenskiy. British Prime Minister Keir Starmer last week committed to raising UK military spending to 2.5% of GDP by 2027, with an ambition of hitting 3% by the end of the decade. And the parties likely to form Germany’s next coalition government are considering setting up special funds for defence and infrastructure”.
In Prospect Magazine, Tom Clark looks at the British model. In an article titled “Rearmament doesn’t have to be on the backs of the poor”, he comments that “there’s no doubt the security situation in Europe is serious. Maybe – as the prime minister and chancellor seem to fear – we truly are in for a new age of sacrifice. But if so, rather than swallow the logic of Conservative pundits, the government should summon up the same spirit of truly shared sacrifice that Keynes proposed – and at a moment when the sacrifices needed were incomparably greater than today”.
During the second world war, in How To Pay For The War (1940), Keynes proposed relying on compulsory savings as well as a progressive income tax with a top marginal rate of 97.5%.
So, what would be the most “equitable” solutions for paying for Europe’s eventual rearmament?
Guillaume Duval in Le Nouvel Observateur, proposes three: “Above all, we could – and should – go back into debt at EU level, as we decided to do in 2020 to deal with the Covid-19 pandemic. [...] We should also finally decide to mobilise the frozen Russian assets and not just the interest they generate”.
Duval continues: “in these exceptional circumstances, we have to twist the arm of intra-European tax havens. [...] The scandal of such tax havens existing within the Union has gone on far too long. In particular, we urgently need to put an end to the virtual non-taxation of the European activities of GAFAM and other multinationals [...]. Finally, we need to have (much) more taxation of our wealthiest fellow citizens, who have benefited greatly from the policies pursued in Europe over the last few decades. To finance its war effort, Roosevelt’s United States (and not Stalin’s Russia) raised the marginal rate of personal income tax (meaning the rate at which the last euros of the wealthiest are taxed) to 94% in the 1940s.”
In Tageszeitung, Anja Krüger echoes Duval, warning that “In the coming years, spending on military and weapons in Germany and other European countries will soar to previously unimaginable heights. [...] European defence companies are growing enormously and are already making huge profits that will continue to rise. [...] But the profits must not just flow into the pockets of investors, the state must siphon them off. There is an instrument for this: the excess profits tax. The state defines an average profit, for example on the basis of the past ten financial years. Taxes are payable on income above this amount. [...] That would also be right for defence companies. They benefit from a chronic political crisis. It is unfair that the profits only benefit the owners or investors - especially as the rich are not taxed appropriately in this country anyway. The best solution would be an excess profits tax at European level. Germany could lead the way with this idea”.
Leaving the debate in the hands of the right, however moderate, risks once again splitting public opinion in two (as is already happening).
Artur Troost in Krytyka Polityczna explains: “European leaders are ignoring the fact that social spending cuts may prove counter-productive in the long run, even when it comes to defence, given that citizens abandoned by the state will be more likely to become radicalised and elect, among others, far-right enemies of European cooperation or Putin sympathisers. At the end of the day, defence investment is supposed to serve the security of citizens – but this security also entails decent healthcare, a roof over their heads, energy and transport infrastructure... Rearmament misses the point if it results in the capitulation of the state on other levels. Europe has the means to protect itself against potential aggression, and to do this it doesn’t need a mountain of money pinched from other institutions, but rather deeper integration and a common defence policy, including at the production stage.”
Valigia Blu has published a translation of a long Facebook post by Ukrainian historian Hanna Perekhoda: “The most dangerous and regressive approach would be to slash social spending to fund military expansion. This is the route neoliberals are already proposing: reducing budgets for healthcare, education, pensions, and welfare to divert funds toward defense. However, it is evident that weakening social safety would deepen inequality, fuel social unrest, and ultimately destabilize democracies. At a time when far-right populism is on the rise, imposing austerity would rapidly strengthen anti-democratic forces. Given Russia’s and the U.S.’s overt support for these forces, such a move is exactly what Trump and Putin are hoping for”.