S9 Ep3: Can Europe defend itself?

Episode Summary

Executive Summary: Moritz Schularick argues Europe must rapidly rebuild credible defense capacity as US security guarantees weaken. He says the challenge is not just spending more, but buying and building smarter: joint European procurement, scaled production, and investment in next-generation technologies like AI, drones, space, and secure communications that also boost civilian productivity. He frames rearmament as both a security necessity and an industrial opportunity.

Main Topics: Europe’s urgent rearmament imperative (Priority: 5/5): Schularick argues Europe must stop relying on the US backstop and urgently strengthen its own defense capabilities in response to heightened threats from Russia and reduced American reliability. Defense as an economic and industrial policy (Priority: 5/5): He stresses that defense spending should be designed to maximize deterrence while also strengthening Europe’s industrial base through domestic production, scale, and innovation spillovers. Next-generation defense technologies (Priority: 5/5): The discussion highlights areas such as autonomous systems, AI, robotics, space systems, satellite constellations, advanced software, and hypersonic technologies as the most strategically valuable investments. Joint European defense architecture (Priority: 4/5): Schularick proposes a Team Europe model for joint procurement, joint debt issuance, and shared defense infrastructure rather than fragmented national programs or a purely EU-centered framework. Procurement, bureaucracy, and state capacity (Priority: 4/5): A major obstacle is Europe’s slow, fragmented defense procurement system and weak bureaucratic capacity to fund risky, future-oriented projects quickly and at scale. Fiscal trade-offs and financing (Priority: 4/5): The interview weighs the costs of rearmament, noting Germany has more fiscal space than France or the UK, while joint debt could ease burdens and create a common safe asset. Strategic risk scenario: Ukraine, Russia, and NATO credibility (Priority: 5/5): Schularick warns that a weak European response to a dirty peace in Ukraine could embolden Russia to test NATO’s resolve in the Baltics, potentially undermining Article 5 and the alliance itself.

Key Arguments: Economic capacity is a major determinant of military power and war outcomes; Europe has enough GDP and industrial capacity to deter threats if it mobilizes them effectively. European defense spending must be redirected from artisanal, low-scale legacy procurement toward scalable production and next-generation technologies. Joint procurement and shared infrastructure would create economies of scale, reduce duplication, and improve deterrence more efficiently than isolated national programs. Investing in defense R&D can generate spillovers to the wider economy, with potential benefits in productivity and technological upgrading. Europe should build common assets such as military cloud infrastructure and a European satellite/communications system rather than 27 separate national equivalents. The US is no longer a dependable security partner; Europe should not assume a return to prior transatlantic normality. Front-loading defense investment is justified because stronger near-term capability reduces the probability of war. The main risk is a destabilizing peace in Ukraine that leaves Russia stronger and tempted to probe NATO’s weaknesses in Eastern Europe.

Data Points: European population defended by US backstop: 450 million Europeans (including the UK) - Used to illustrate Europe’s scale relative to its dependence on American protection. US population providing backstop: 320 million Americans - Compared with Europe in the discussion of burden-sharing and defense dependence. Russian population: 140 million Russians - Part of the comparison showing Europe’s relative economic and demographic strength. EU/Europe GDP relative to Russia: About 10 times larger - Schularick cites this to argue Europe has ample resources to rearm. European industrial production relative to Russia: 5 to 6 times higher - Used to support the claim that Europe can mobilize significant military capacity. Proposed defense spending target: 3.5% of GDP - Referenced as the level European countries have more or less committed to spend in coming years. Example annual defense spending for Europe: 700-800 billion per year - Based on a rough calculation from Europe’s GDP if spending reaches 3.5%. Europe GDP estimate used in calculation: Around 20 trillion - Used to estimate annual defense outlays at 3.5% of GDP. Annual joint investment proposal: 1% of GDP per year for 10 years - Suggested for common defense infrastructure financed jointly. Common European debt stock created: 10% of European GDP - Result of the proposed 10-year joint financing plan. Defense R&D spillover examples: Jet engine, rocket technologies, GPS, the internet, frozen orange juice - Historical examples given to show military innovation benefiting civilian sectors. Short-run fiscal multipliers for defense: 0.6 to 1.5 - Cited as estimates suggesting defense spending can have meaningful near-term economic effects. Ukraine war duration mentioned: Almost four years - Used to emphasize Europe’s slow progress on defense adaptation despite the war. Potential European satellite constellation size: About 4,000 to 5,000 satellites - Estimate for a European ‘Starlink’ equivalent.

Pivotal Quotes: "Europe must urgently strengthen its defense capabilities." — Moritz Schularick: Opening line from his published article and central thesis of the interview. "We have to rearm. We have to invest more in our own security and we have to do it fast." — Moritz Schularick: Summarizes his core policy prescription in response to reduced US reliability and rising threats. "It’s absurd the idea that every European country builds its own Starlink. We don’t need 27 Starlinks." — Moritz Schularick: Explains the case for joint European procurement of space and communications infrastructure.

Implications: Europe’s security strategy is shifting from reliance on the US to autonomous capacity-building. For industry, this could mean large public investment in defense tech, dual-use innovation, and cross-border procurement reform—if governments can overcome bureaucracy and fragmentation.