The collision of an aging population, escalating climate damages, and massive remilitarization is set to present an unprecedented, compounding threat to the future well-being of Europeans.
Dan Steinbock is the author of The Obliteration Doctrine and The Fall of Israel. He is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
On August 27, 2026, European Commission (EC) President Ursula von der Leyen gave a speech in Paris noting that roughly €10 trillion ($11.6 trillion) sits idle in household bank deposits across the EU. She lamented that a significant amount of European savings was flowing overseas instead of supporting domestic companies.
What was left unsaid was that those overseas investments have allowed Europe to participate in the kind of emerging-markets’ growth that no longer prevails in the Old Continent. Without such investments and offshore revenues, Europe would have faced even deeper stagnation after the 2008 crisis, during the early 2010s debt crisis and the 2020s pandemic depression.
Setting aside these inconvenient facts, von der Leyen’s controversial proposal seeks to unlock up to €470 billion ($546 billion) in additional investment by integrating the EU’s fragmented capital markets into a new, unified Savings and Investment Union (SIU).
The stated objective is to invest these savings into local European companies, to scale up domestic businesses and boost the bloc’s economic competitiveness. In this view, rearmament and defense would not be beneficiaries.
But then things get a bit murky.
Rearming Europe, destabilizing Europeans
In her August speech, EC President von der Leyen did not break down or earmark specific exact figures for defense or rearmament out of the €470 billion. Moreover, that massive sum is not completely separate from or in addition to the €800 billion ($929 billion) defense target. There is overlap.
On September 2, just days after Paris, von der Leyen outlined her “Rearm Europe” plan to mobilize €800 billion for “defense and readiness.” One of the primary pillars of this plan is mobilizing private capital through – surprise, surprise! – the Savings and Investment Union (SIU).
While the bulk of the €470 billion is seen to support the general economy (digitalization, energy, infrastructure), a massive portion is being guided toward strategic sectors and defense companies to meet the broader €800 billion target.
The massive pivot toward military and corporate competitiveness leaves staggering opportunity costs for public and private capital. Every euro directed toward upgrading military technologies and weapons production is a euro not spent on accelerating the green transition, leaving a public funding gap of over €100 billion per year for climate goals.
Critics argue that moving “idle” bank deposits into market-driven investments via securitization means shifting financial risk to ordinary citizens. If these corporate/military investments fail or underperform, the opportunity cost is the financial security of household savings.
It’s a slippery slope.
How big finance and big defense reap benefits
With the overarching “Rearm Europe” initiative targeting €800 billion by 2030, defense analysts project that the military-industrial sector could absorb between 30% to 45% of the newly unlocked SIU capital liquidity over the next four years. This absorption is heavily driven by the EU’s newly authorized pan-European “flagship” military programs—such as the European Air Shield, the Eastern Flank Watch, and joint drone initiatives.
According to the International Monetary Fund (IMF) and BBVA Research, short-term defense spending multipliers vary around 1.4 to 1.6. This means that every euro injected into the military sector can generate moderate short-term domestic growth, if the money stays in Europe.
But there are the caveats.
First, the multiplier estimate may prove excessively optimistic in light of historical precedents.
Second, EU defense procurement acts as a heavy industrial lever. Theoretically, a 1% increase in trend-GDP spending on defense drives a corresponding 2% surge in total imports across member borders, spreading economic activity, but it also fuels massive debt burdens. And this colossal leverage is likely to hit EU citizens with massive force at a historical moment when they can least afford it.
Third, defense multipliers are no Keynesian multipliers. The former benefit mainly the military-industrial complex; the latter support broad-based consumption, universal infrastructure and direct social safety net transfers.
The “Rearm Europe” framework’s primary beneficiaries are likely to be defense contractors and heavy industry, highly skilled modern warfare assets (drones, cybersecurity, munitions) and particularly the corporate shareholders. These perks will not spill over the diversified market economy, total labor and many SMEs which tend to create most jobs.
Interest conflicts and moral hazards
EC President von der Leyen’s aggressive push for EU militarization has frequently been scrutinized due to her political background, past institutional controversies, and ongoing friction regarding defense transparency.
Before her tenure as Commission President, von der Leyen served as Germany’s Defense Minister (2013–2019). Thanks to the “Advisor Affair” (Berateraffäre), her time there was marred by a major parliamentary inquiry into public procurement breaches, including the management of military contracts.
Eventually, she admitted to the administrative mistakes but denied personal liability or nepotism. The investigation hit a dead end when it was revealed that all text messages and data on her official ministry phones had been completely wiped before investigators could audit them.
Distressingly, von der Leyen’s management style has carried over into her European Commission leadership, mirroring controversies like “Pfizergate” where multibillion-euro contracts were negotiated through private messaging.
A legal complaint of a prominent German member of the European Parliament alleges that she withheld critical details, emails, and call logs concerning a “strategic dialogue” and closed-door dinners held with weapons manufacturing executives following the 2024 European elections.
There is abundant criticism across European political elites against von der Leyen’s strategic objectives and management style. So, what are the powerful political interests that effectively support both, despite controversies associated with each?
The proposed banking and financial reforms align the European Commission closely with institutional banking interests, creating new financial channels and incentives for major investment firms. Similarly, the defense plans create long-term, multi-billion-euro windfalls for major European military contractors (Rheinmetall, Leonardo, and Thales), cementing her alliance with the continent’s military-industrial complex.
The net effects feature half a dozen converging adverse headwinds.
The coming headwinds
Europe is entering a demographic bottleneck that fundamentally undermines the tax base required to support its traditional welfare states. By 2030, the EU’s old-age dependency ratio will climb rapidly, leaving fewer than three working-age adults for every retiree.
This dependency ratio shock will foster a major welfare squeeze. The demographic shift automatically drives up public expenditures on pensions and healthcare by an estimated 1.5% to 2.5% of GDP block-wide.
A shrinking domestic workforce slows organic GDP growth reinforcing productivity stagnation. Concurrently, public welfare allocations are eroding in real terms due to structural inflation and high sovereign debt.
Burdened by a corrosive wellbeing impact, Europeans face a double penalty: delayed retirement ages alongside reduced public healthcare access and lower real pension values. That will force individuals to rely even more on private savings or face systemic elderly poverty.
Since those plans dismantle welfare and security, which are critical to young Europeans who are already tackling historical unemployment and the existential entry-job reductions of AI, young middle-class Europeans find themselves ever closer to poverty traps in the Brave New Europe.
If private capital from the €470 billion SIU is drawn away from green tech, the future cost of climate adaptation skyrockets. Governments will eventually be forced to issue massive amounts of emergency debt to repair climate damages. Hence, the fiscal penalty loop.
In turn, delaying green infrastructure investments to prioritize immediate military production creates a highly destructive long-term fiscal trap known as the climate delay debt penalty. Every euro diverted from the green transition accelerates the frequency of extreme weather events (severe droughts, agricultural failures, and infrastructure-destroying floods).
None of this is too reassuring in the aftermath of the extreme climate events of summer 2026 in Europe.
The demise of Europe
Economists project that unmitigated climate change will slice up to 7% off the EU’s GDP by 2050.
When private household deposits are redirected into defense debt, and public budgets are forced to balance aging workforces against geopolitical threats, the European citizen becomes the ultimate shock absorber.
Surreally, as Europe is “rearmed,” human insecurity seems to become intolerable in the region.
The end result is a highly volatile landscape characterized by persistent austerity, degraded ecosystems, higher costs of living, and a shrinking social safety net—transforming Europe from a global beacon of social welfare into a highly constrained, defensive security state.
What the critics ask is, “Is that the European future we want?”
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