In a landscape dominated by alarmist warnings about European vulnerability, Joeri Schasfoort offers a counterintuitive economic thesis: the potential American withdrawal from European defense could paradoxically strengthen the continent's economy. Rather than accepting the premise that higher defense spending necessitates slashing the welfare state, Schasfoort argues that Europe is currently operating far below its capacity, and a military buildup could be the catalyst needed to unlock dormant industrial potential and fix deep-seated structural imbalances within the Eurozone.
The War Economy Trilemma
Schasfoort begins by dismantling the standard economic fear that increased defense spending inevitably leads to inflation or austerity. He introduces the concept of the "war economy trilemma," noting that economies at full capacity face a painful choice between high defense spending, high civilian spending, and low inflation. "This entire debate is nonsense," Schasfoort writes, challenging the immediate assumption that Europe must choose between tanks and healthcare. He points to Israel and Russia as examples where economies pushed beyond their limits, causing inflation, but argues these are outliers, not the rule for Europe today.
The author's framing is effective because it shifts the conversation from a zero-sum game of budget cuts to an analysis of resource utilization. By defining the current European situation as one of underutilization rather than overheating, he creates a logical space for defense spending to act as a stimulus rather than a drain. "A well-run economy should have low unemployment and high capacity utilization of factories," he notes, contrasting this ideal with the current reality of idle European resources.
Evidence of Underutilization
To support the claim that Europe is not yet at its limit, Schasfoort marshals three specific data points: persistently higher unemployment compared to the United States, declining factory capacity utilization since the pandemic, and inflation driven primarily by external supply shocks rather than domestic demand. He highlights that while the debate often centers on cutting social protection, the math simply doesn't add up for a continent with such slack. "Europe's economy is operating well below its potential," he asserts, grounding his bold claim in observable metrics rather than political rhetoric.
He further details the manpower and industrial capacity available to absorb this new spending. Citing estimates from the think tank Bruegel, he notes that Europe would need roughly 300,000 new soldiers, a number easily absorbed by the 13 million unemployed people currently in the EU. "There is a really wide margin of error here," Schasfoort observes, suggesting that the labor market can accommodate a shift to defense roles without triggering a labor shortage crisis. Similarly, he points to the potential for repurposing empty automotive factories, such as those in Germany, to produce armored vehicles, arguing that the industrial base is more flexible than critics admit.
"America's defensive retreat... does have a silver lining: it will make Europe's economy great again."
The Structural Blockade of the Eurozone
The most sophisticated part of Schasfoort's analysis addresses why Europe has failed to reach its potential on its own. He argues that the Eurozone's structure creates a deadlock where northern countries suppress wages and underinvest to maintain competitiveness, while southern countries remain trapped in debt and high unemployment. "Northern European workers have chosen to accept lower wages voluntarily and North European voters kept voting in parties that underinvested in infrastructure and education," he writes, attributing this stagnation to a fear of economic crisis in a currency union without a unified fiscal policy.
Schasfoort posits that an external threat shatters this paralysis. As northern economies like Germany ramp up defense spending, they will import more from the south, creating a virtuous cycle that lifts the entire continent. "Increased defense spending in the north will unlock a virtuous economic cycle in which increased spending in the north unlocks increased spending in the South," he explains. This reframing turns a geopolitical crisis into a potential mechanism for solving the Eurozone's chronic stagnation.
Critics might note that this optimistic view relies heavily on the assumption that defense spending will be efficiently centralized and that the political will to actually repurpose industrial capacity exists across all member states. Furthermore, the argument assumes that the "threat" will remain stable enough to justify long-term investment without triggering a panic that disrupts supply chains.
The Demographic Wildcard
Schasfoort is transparent about the fragility of his thesis, particularly regarding demographics. He acknowledges that his argument is time-sensitive, as Europe's aging population could rapidly shrink the labor force, pushing the economy to its potential much sooner than expected. "In the next 25 years Europe's working age population is projected by the UN to decrease by about 50 million," he warns, identifying this as the "weakest part" of his analysis. However, he suggests that a temporary surge in defense spending now could bridge the gap until demographic realities force a different set of choices.
He also touches on the potential for migration to alter these projections, citing Spain's unexpected population growth as a counter-example to grim fertility forecasts. "Migration can change it substantially," he notes, leaving the door open for policy interventions that could sustain the economic expansion he envisions. This willingness to highlight the limits of his own model adds significant credibility to the piece, distinguishing it from pure advocacy.
Bottom Line
Schasfoort's strongest contribution is reframing defense spending not as a burden on the welfare state, but as a necessary tool to fix the Eurozone's internal structural imbalances. His argument is most vulnerable to the speed of demographic decline and the political feasibility of cross-border industrial coordination. Readers should watch whether European governments can actually mobilize this "spare capacity" before the demographic tide turns, or if the window for this economic renaissance is already closing.