How to finance European rearmament?

When President Trump quipped to the British PM Keir Starmer whether he can take on Russia alone there was no immediate reaction from the latter except for a grin. But Europe got agitated. The uptrend of US exit from Europe is a writing on the wall. Should Europe rearm, is the talk of the town.

Geopolitics apart, there is an urgent need for asserting military position. Like rabbits scurrying into holes, European countries are trying to get into some sort of defensive umbrella either within NATO in an expanded form or to go for a different treaty association for Western Europe exclusively. Whichever way they go there is no escaping from the fact that Europe needs re-arming. The trouble is since the end of WWII Europeans were too cosy under US protection resulting in total neglect of their military side so much so that the idea of rearmament alone is revolting.

They fantasize that it is very easy to re-arm quickly.  Overhang of the geoeconomics in case of rearmament is too much of the weight. Moreover they have to choose an appropriate mixture of the following financing alternatives

1. Go pell-mell into re-armament by allocating own finance. As many European nations have deficit budgets, diversion of funds from social, educational and other sectors focused on welfare economics is a possibility but wrought with public resentment.

2. There is an easy way of getting money. Just switch on the currency printing machine. But the problem here is too much money chasing too few goods would re-enact German deflation scenario of 1930s and bring more chaos than foregoing on rearming.

3. Borrow money from elsewhere. Merchant Bankers, Investment bankers and their ilk are ever ready to give these countries largesse in terms of debt at exorbitant rates. Yet repayment of the debt would cripple the present geoeconomics status.

4. Issuing bonds is yet another method. Whereas Germany can do it somewhat comfortably as her public debt is 63% of GDP in 2024 Italy would find scratching the barrel more difficult as her public debt is around 135%.

5. Ask for grants and assistance from international financial institutions. The hitch is they are not at all interested in military matters. Or the next one looks scintillating. Keep the statuesque ante with US Lend-Lease method whereby US continues to provide  military and economic aid to European nations but this time repayable partially or in full. Once again there is a need for compromising on national sovereignty.

6. Liquidate part of gold reserves. This gambit is worth taking when it comes to rearmament. Let’s go through the top five countries in Europe and their quantum of gold in underground vaults:

Germany: 3,352. 00 tonnes

France: 2,436.34 tonnes

Italy: 2,451.86 tonnes

Switzerland: 1,040.01 tonnes

Poland: 450.00 tonnes

The unescapable fact remains that any one or more alternatives chosen would impact the geoeconomics strength of an individual country and the collective Western Europe!

Here is my strategy advice:

Genuflect to Trump in obedience and allocate 5% of the national budget for security as he has insisted throughout. For the wealthy & small country like Estonia it is indeed possible but biggies like Germany, France and Italy would have second thoughts! 

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist