PART II — Europe’s Destructive Drift Toward a War Economy

No study has ever shown that military spending outperforms civilian investment. European leaders promoting a war economy are deeply irresponsible.

Are Europe’s Leaders Ignorant — Or Are They Lying?

No study has ever shown that military spending outperforms civilian investment.

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Jan Oberg
PhD, TFF director

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Reminder of Part I

Part I demonstrated that military spending delivers lower economic returns than civilian investment, that modern central‑bank and IMF analyses confirm this, that military capital is negative capital, and that opportunity costs drain talent and innovation from civilian sectors.

Part II now turns to the structural political economy behind Europe’s militarisation — and the absence of any serious economic analysis of its consequences.

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5. The monopsony problem: weapons are produced for one buyer

Weapons are produced in a unique market structure: a monopsony, where there is only one buyer — the state. Arms manufacturers do not compete for consumers; they compete for government contracts. This means that normal market mechanisms such as price competition, consumer choice, and transparent cost comparison simply do not exist.

Over the entire history of modern weapons procurement, there has never been a major weapons system that did not become dramatically more expensive during development and production after governments had made their decision. Cost overruns are not accidents; they are structural consequences of monopsony.

When Lockheed Martin, Saab, BAE Systems, or Rheinmetall exceed their budgets, the additional costs are simply passed on to the state — which means they are passed on to taxpayers. In a monopsonistic market, the seller has every incentive to underestimate initial costs and overestimate performance, knowing that the buyer cannot walk away once the project has begun.

This is why the F‑35, the Eurofighter, the Patriot system, and virtually every naval vessel built in the last 40 years have ended up costing multiples of their original estimates. In economic terms, the arms market is designed to produce inflated prices, inefficient production, and systematic cost escalation — all paid for by the public.

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6. The silence of European research institutes

Despite the largest rearmament wave since 1945, not a single major European research institute has produced a study comparing military and civilian multipliers. This silence is not limited to Scandinavia; it is continental. In the Nordic countries, institutes such as FOI in Sweden, DIIS in Denmark, NUPI and FFI in Norway, PRIO in Oslo, CMS in Copenhagen, and SIPRI in Stockholm publish threat analyses, strategic doctrine, Russia assessments, NATO capability studies, and industrial‑policy briefs. But none of them has ever published a systematic comparison of the economic effects of military versus civilian spending.

The same pattern appears across Europe. Germany’s leading economic institutes — DIW Berlin, Ifo Munich, and the Kiel Institute — have produced extensive work on fiscal policy, industrial strategy, and public investment, yet none has examined the relative multipliers of defence and civilian spending. In France, institutions such as France Stratégie and CEPII analyse competitiveness, innovation, and public‑finance sustainability, but they have never evaluated the economic consequences of rearmament. Brussels‑based think tanks like Bruegel, which routinely assess EU‑level industrial and fiscal policy, have not addressed the economic trade‑offs of large‑scale defence expansion. The Netherlands’ CPB, one of Europe’s most respected policy‑analysis bodies, has never modelled the opportunity costs of shifting resources from civilian to military sectors. The same silence extends to Oxford Economics and Chatham House in the UK, to Istituto Affari Internazionali in Italy, to the Polish Institute of International Affairs, and to the major economics departments of European universities.

Even the European Union’s own institutions — the European Commission, the European Defence Agency, the European Investment Bank, and the European Court of Auditors — have not produced a single study comparing the economic returns of military and civilian investment.

They analyse defence procurement, industrial capacity, and budgetary compliance, but never the fundamental question: Is military spending economically inferior or superior to civilian spending?

Europe produces threat assessments, strategic doctrines, capability roadmaps, and geopolitical narratives. But it does not produce multiplier comparisons, employment‑effect studies, consumption‑effect analyses, distributional‑impact evaluations, opportunity‑cost modelling, or welfare‑economics assessments of defence spending.

The silence is not accidental. It illustrates that state (NATO/EU)-financed research institutes do not venture into anything that could be critical of the massive, uniform groupthink rearming of Europe.

Truly independent, people-financed and all-volunteer TFF can do that.

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7. Europe’s ignorant move towards a war economy

Meanwhile, Europe is moving rapidly - and self-destructively - toward a wartime economy. Defence spending is rising to 2 percent of GDP as a minimum, 3 percent by 2028, 3.5 percent by 2030, and NATO’s new long‑term target of 5 percent by 2035.

This is the largest reallocation of public resources in modern European history. And yet there is no public economic debate about what this costs, what we lose by doing it, what alternative investments could achieve, who benefits, who pays, or how it affects welfare, inequality, and long‑term growth.

The strategic debate is loud. The economic debate is silent.

This is how wartime economies emerge: not through public deliberation, but through the gradual normalisation of military priorities — unexamined, uncosted, and unquestioned. Future generations will pay the heavy price for this systematic irresponsibility, this security deception based on imagined - also not analysed - images of Russia.

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8. Conversion: what was once possible is now ignored

In the 1980s, conversion was one of the most serious topics in peace‑economics. The question was simple: could military industries be converted to civilian production if political will existed? The answer, documented in multiple studies, was yes. Conversion was technically feasible, economically rational, and socially beneficial.

One of the most important studies was commissioned by the United Nations and led by Sweden’s remarkable social-democratic disarmament minister, Inga Thorsson — a politician, diplomat, and intellectual of rare calibre. Her expert group demonstrated that military factories, engineering teams, and research units could be redirected toward civilian production with far greater economic and social returns than continued weapons manufacturing.

The obstacle was never technical capacity. It was political will.

These studies were ignored, dismissed, or ridiculed by those who opposed disarmament. Conversion threatened the interests of defence ministries, arms manufacturers, and military bureaucracies. So the research was buried, and the debate disappeared.

Today, Europe faces the opposite situation: a political will to convert from civilian production to military production — a shift toward a war economy. But now, strikingly, there are no studies examining whether this reverse conversion is feasible, what it requires, or what it will cost.

No European government, no defence ministry, no economics institute, and no EU body has produced an analysis of the structural, financial, technological, welfare or labour‑market implications of converting civilian industries into military ones, into a war economy.

There is no modelling of supply‑chain disruption, no assessment of long‑term productivity losses, no evaluation of welfare impacts, and no calculation of the opportunity costs of diverting engineers, factories, and research capacity from civilian sectors to weapons production.

In the 1980s, conversion was studied because disarmament was considered a rational possibility. In the 2020s, conversion is happening in the opposite direction — and it is not studied at all. And it is pure irrationality and emotionalism.

Europe is undertaking the largest economic reallocation since 1945 without analysing what it means. A shift of this magnitude would normally require industrial‑policy modelling, labour‑market forecasting, supply‑chain analysis, productivity studies, welfare‑economics evaluation, and long‑term fiscal projections. None exist. It would require public debate. None exists.

The political will to militarise is strong. The economic analysis of militarisation is absent.

This silence is not accidental. But it is dangerous.

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Conclusion: Compare their words with the facts

You have seen in Part 1 what 50 years of peace‑economics research concluded, what the ECB, IMF, and European banks say today, how military capital is negative capital, how opportunity costs drain human talent and innovation, how monopsony guarantees cost overruns, how European institutes avoid multiplier studies, how Europe is drifting toward a war economy, and how conversion — once proven feasible — is now ignored when Europe converts in the opposite direction.

Now compare all of that with what Europe’s leaders told you at the beginning of Part 1.

Then draw your own conclusions:

Are they inexcusably ignorant of basic economics?
Or do they understand it perfectly — and mislead their citizens, taxpayers, and voters?

Either answer is deeply troubling.
But one of them must be true.

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