ReArm Europe, dual-use logistics and military Keynesianism: Why Europe must now take its defense into its own hands

The end of Pax Americana: Europe's 800 billion plan against the US trade war and why military Keynesianism in conjunction with dual-use logistics plays a key role here

The end of the American security guarantee is forcing Europe into a historic experiment: With 800 billion euros, military Keynesianism, and a new "dual-use logistics" system, the continent is to become defensible. But the plan reveals risky dependencies and a deep rift in European fiscal policy.

The era of taken-for-granted security under the US nuclear umbrella – the so-called Pax Americana – is irrevocably drawing to a close. What was long discussed as a theoretical scenario in think tanks has become a bitter reality due to the aggressive US trade war and the isolationist "America First" doctrine. Europe faces the brutal realization that security will no longer be an imported commodity, but a question of its own industrial survival.

The response from Brussels and Berlin is as massive as it is risky. Under the banner of "ReArm Europe," an investment volume of up to 800 billion euros is being mobilized by 2030. But this is not just about buying tanks and missiles. It is an attempt to establish the arms industry as a new engine of economic growth through a kind of "military Keynesianism." While civilian budgets groan under the weight of debt restrictions, fiscal taboos are being broken and off-budget funds are being created for defense.

At the same time, Europe is relying on innovative concepts such as "dual-use logistics." Civilian infrastructure—from automated warehouses to the rail network—is being restructured so that it can seamlessly serve military purposes in a crisis. But behind the impressive figures and modern concepts lurk massive structural dangers: an industry drowning in orders but unable to find skilled workers; an "autonomous" defense system that grinds to a halt without chips from the US and rare earth elements from China; and a society that must ask itself why unlimited credit is available for armaments while prosperity is crumbling.

This article analyzes the architecture of the new European security economy, exposes the dangerous dependencies in supply chains, and highlights why money alone cannot solve Europe's strategic deficits.

Related to this:

• ReArm Europe: How the EU is restructuring its defense with 800 billion euros (Plan/Readiness 2030)

The reorganization of European security and economy: Strategic rearmament as a response to the end of American hegemony

• ReArm Europe – the specific financing instrument
• Dual-use logistics – the innovative infrastructural component
• Military Keynesianism – the economic-theoretical foundation

The era of American hegemony is eroding. What was long a theoretical debate in academic circles is now manifesting itself in concrete economic policy responses from the European Union. With the "ReArm Europe" plan, Brussels is mobilizing unprecedented investments of approximately €800 billion by 2030 for the continent's defense. This is not a temporary economic stimulus measure, but a structural realignment of priorities driven by a recognized strategic reality: The US is withdrawing as the guarantor of European security, and Europe must learn to stand alone.

At the same time, the trade war between the US and the EU is escalating, with American tariffs of up to 25 percent on steel and aluminum, as well as new duties on other key products, which are severely impacting European exports. This geopolitical pressure and the associated economic uncertainty are forcing a strategic reassessment. Europe's response points to a concept that has long been banished from political discourse: military Keynesianism, coupled with innovative dual-use logistics concepts, to create maximum economic and security synergies.

The theoretical foundation: Military Keynesianism in the 21st century

Military Keynesianism differs fundamentally from the classical Keynesianism of economist John Maynard Keynes, whose paradigm, following the Great Depression of the 1930s, called on governments to stabilize aggregate demand during economic downturns through targeted public investment. Keynes emphasized that infrastructure projects, education, and social programs represent the most effective transmission mechanisms because they stimulate private consumption, trigger multiplier effects, and allow a broader segment of the population to share in increased prosperity.

Military Keynesianism reverses this approach. Instead of directing public funds toward civilian infrastructure, it massively channels public money into the defense sector. The theoretical justification is based on the premise that defense spending has the same demand-stabilizing effect as traditional investments, while encountering less political and administrative resistance. A democratically elected parliament is quicker to approve additional defense spending when external threats are present than it would increase social spending. Furthermore, the state possesses greater discretionary power in the defense sector because procurement is highly concentrated and subject to less public debate than social budgets.

However, a critical analysis reveals the weaknesses of this model. Military Keynesianism neglects those sectors that promote long-term growth and productivity. While military buildup creates jobs, it simultaneously ties up resources for research and development in future-oriented areas such as renewable energies, education, and digital transformation. A paradox arises: states invest massively in defense, while civil society prosperity erodes due to the diversion of public funds.

Nevertheless, a peculiar phenomenon is evident in Germany and other European countries. While armaments are financed through new debt, the debt brake for civilian spending remains in effect. This means that Europe is practicing an asymmetric military Keynesianism, in which armaments are financed by loans, while investments in welfare, climate, and education are subject to restrictive austerity measures. This asymmetry contradicts the original Keynesian idea, which aimed for countercyclical stabilization of the overall economy, not the diversion of existing resources to benefit one sector.

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• From “Readiness 2030” to SAFE: 19 of 27 EU member states want billions in loans for armaments projects – for security and defense

The architecture of European arms mobilization: financing and operational structure

Under the leadership of Ursula von der Leyen, the European Commission has constructed a three-pronged financing model that makes the mobilization of the 800 billion euros by 2030 possible in the first place:

First pillar: The SAFE loan package of 150 billion euros.

The new regulation "Security and Action for Europe" allows the European Commission to refinance up to €150 billion on the capital market and distribute it as enhanced loans to member states that wish to invest in defense capabilities. Member states can channel these funds into coordinated European defense projects, with the explicit aim of strengthening the European value chain and reducing dependence on non-European suppliers. A significant detail: components of non-European origin may not exceed 35 percent of the estimated cost of the final product.

Second pillar: National escape clauses of the Stability and Growth Pact.

Member states will now be allowed to increase their defense spending by up to 1.5 percent of their gross domestic product without triggering excessive deficit proceedings. A country like Germany could theoretically invest up to an additional 60 billion euros per year in defense, financed by debt, while its regular federal budget is subject to debt brake restrictions.

Third pillar: Increasing national defense budgets.

While SAFE mobilizes €150 billion, member states are expected to increase their regular defense budgets. Germany, for example, has already announced plans to raise spending to approximately 3.5 percent of GDP by 2028, representing an additional requirement of almost €194 billion compared to previous plans.

This architecture reveals political acumen. It does not disdain classic budget financing, which would face parliamentary resistance, but instead uses the emergency-driven rhetoric of a "turning point" in security policy to break through traditional fiscal boundaries. The Stability and Growth Pact, the strictest set of rules in the Eurozone, is pragmatically manipulated to create room for debt financing.

Economic drivers and labor market effects: The modern economic argument

The arms industry is proving to be a surprisingly dynamic driver of economic growth. German companies like Rheinmetall have order backlogs of unprecedented proportions: Rheinmetall alone reached an order volume of €63 billion in the first quarter of 2025, more than double the volume before the Russian invasion of Ukraine. Estimates suggest that the European order volume will grow to around €300 billion by 2030.

The labor market effects cannot be ignored. Studies by the Institute for Employment Research and the consulting firm EY indicate that an increase in defense spending of just half a percentage point of GDP creates or secures approximately 100,000 to 200,000 jobs. This stands in stark contrast to the situation in German industry, where around 100,000 jobs were lost during 2024.

This resurgence extends far beyond the traditional defense industry. Suppliers, machine manufacturers, software developers, logistics providers, and cybersecurity specialists are all benefiting from the systemic surge in orders. Even companies from outside the defense sector, from outdoor firms to textile manufacturers, are now supplying the German Armed Forces. This phenomenon is particularly pronounced in German industrial regions like Baden-Württemberg, North Rhine-Westphalia, and Bavaria, where defense companies have historically been concentrated.

But this short-term momentum masks structural weaknesses. The European arms industry has suffered from a lack of investment for decades. From the closure of production facilities to the shrinking workforce, the sector was economically marginal in peacetime. The sudden surge in demand now reveals a critical problem: the industry cannot deliver at the pace demanded by the political will to rearm.

The capacity trap: Why money alone is not enough

The European arms industry faces a paradox. While order books are reaching record levels, production facilities and skilled workers cannot keep pace. A particularly striking example is ammunition production. The war in Ukraine has revealed an explosive demand for artillery shells. Ukraine consumes approximately 75,000 artillery shells per month, while Europe's ramped-up production barely exceeds 10,000 to 15,000 shells per month.

Similar bottlenecks are emerging for other systems – armored vehicles, drones, air and missile defense. The reasons are manifold: supply chains are fragmented, specialized suppliers are lacking in Europe, and raw materials are scarce. One example: germanium, a rare metal essential for night vision devices and infrared systems, is processed almost exclusively in China. China has effectively halted exports, putting European defense companies in a precarious supply situation.

But the most pressing problem is the shortage of skilled workers. The defense industry needs specialized engineers, technicians, and skilled laborers. Decades of downsizing and a lack of training in this sector mean that Europe is struggling with an acute labor shortage, despite an abundance of orders. Targeted labor migration could alleviate this bottleneck, but it requires political measures and regulatory adjustments, which have so far been implemented only hesitantly.

Another structural flaw: European companies have historically preferred to insist on long-term contracts before investing in new production facilities. Decades of political disillusionment and budget cuts have led to defense companies becoming extremely risk-averse. A single contract without multi-year, binding commitments is often insufficient to justify investment. Here, the Keynesian model intersects with real-world business psychology: Sudden demand may create order books, but it doesn't automatically translate into production capacity.

The Security and Defence Hub offers expert advice and up-to-date information to effectively support companies and organizations in strengthening their role in European security and defence policy. Working closely with the SME Connect Defence Working Group, it particularly promotes small and medium-sized enterprises (SMEs) that wish to further develop their innovative capacity and competitiveness in the defence sector. As a central point of contact, the Hub thus creates a crucial bridge between SMEs and European defence strategy.

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• The SME Connect Defence Working Group – Strengthening SMEs in European Defence

Geopolitical background: The end of the Pax Americana and the new trade conflict

European rearmament cannot be understood in isolation from a larger geopolitical shift. The era in which the US, as the undisputed hegemonic center, structured the world order—the so-called Pax Americana since 1945—is eroding. This shift has several causes: domestic polarization in the US, the technological rise of China, Russia's revisionist policies, and the fragmentation of global supply chains.

The current Trump administration is deliberately intensifying this trend. The US is proclaiming an "America First" policy that weakens multilateral institutions, favors bilateral negotiations, and pursues economic protectionism. One immediate result is the escalation of tariffs on European goods. EU exports to the US are subject to duties of approximately 15 percent—ten times higher than the previous average tariffs of around 1.5 percent. Cars are taxed at 15 percent, whereas previously, under security pretexts, the rate was 25 percent. Semiconductors, pharmaceuticals, and other key sectors are similarly affected.

The EU's counter-reaction is also escalating. Retaliatory tariffs of up to 30 percent on US imports worth over 90 billion euros have been planned and some have already been implemented. Economic models from the German Institute for Economic Research indicate that a scenario with flat tariffs of 25 percent could reduce EU exports to the US by about half in the long term, with particularly severe declines in pharmaceuticals (-9.3 percent), transport equipment (-7.7 percent), motor vehicles (-4.1 percent), and electronics (-2.3 percent).

In this context, European rearmament is evolving into a dual strategy. On the one hand, it is a security policy response to military insecurity, particularly the Russian threat in the east and the question of whether NATO – under new American leadership – still provides the defense guarantee on which Europe has relied. On the other hand, it is an economic attempt to create new value chains that are less vulnerable to American tariffs, by enabling Europe's defense sector to develop capabilities that previously originated exclusively from the US.

The European Commission is attempting to sell strategic autonomy as economically rational. Investments in the European arms industry are not simply war preparation, but also industrial policy, technological development, and import substitution all rolled into one. The "ReArm Europe" initiative is a cleverly constructed narrative that intertwines security and economics.

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• Dual-use economy: Why the invisible power of dual-use technology will determine Europe's future

Dual-use logistics: The innovative foundation for resilient infrastructure

A particularly innovative aspect of European arms mobilization is the role that so-called dual-use logistics is intended to play. Traditionally, the "dual-use" concept was limited to individual products or technologies – chemicals, components, or software that have both civilian and military applications and are therefore subject to export controls.

However, in modern security architecture, dual-use is increasingly understood as a concept for entire infrastructure systems. The Multinational Structured Partnership in Logistics (SPiL), a German-Hungarian-Czech project, demonstrates this in practice. SPiL develops modular, standardized logistics systems for military purposes that can also be used for civilian purposes in peacetime. This creates synergies: Military requirements drive technological innovation—such as automated field depots and secure digital logistics networks with cybersecurity—which then also benefit the civilian economy.

The concept of "dual-use logistics" goes even deeper. It involves the deliberate design of infrastructures—railway networks, ports, digital platforms, warehousing systems—that normally fulfill civilian economic functions but can be quickly prioritized and mobilized for military purposes in times of crisis or defense. A port can handle container ships around the clock; in wartime, however, it could prioritize the transshipment of military supplies. A highly automated warehouse with artificial intelligence optimizes supply chains for industry in peacetime but can be rapidly redirected to military supply in an emergency.

The added value of this dual-use logistics is considerable. It fosters resilience—the ability to absorb failures and disruptions—through deliberately created redundancies and alternative transport routes. It enables economies of scale, as investments are shared between the civilian and military sectors. And it promotes innovation, since high military standards—such as cybersecurity, encryption, and robustness—benefit civilian systems. An automated warehouse optimized for the production of military weapons for the German Armed Forces benefits from security standards that simultaneously improve operational reliability and business continuity for civilian customers.

European companies are increasingly investing in these technologies. The development of a "Smart Logistics Backbone"—a digital nervous system comprised of highly networked, AI-driven logistics hubs—is recognized as crucial for European resilience. This includes secure cloud technologies, post-quantum cryptography, cyber defense, and modular, rapidly adaptable software architectures. Germany, with its historical strength in cryptography and cybersecurity, can act as a catalyst for European standards in this endeavor.

Strategic dependencies: Where does Europe's true weakness lie?

Despite these innovations, critical structural dependencies are revealed that 800 billion euros cannot automatically resolve. The European arms industry remains dependent on non-European supply chains.

Raw materials and rare earths

China controls the processing and export of critical materials. Germanium (essential for night vision devices) is processed by China under a virtual monopoly, and exports have been halted. The situation is similarly precarious for graphite, tungsten, and platinum—raw materials used in the production of explosives, propellants, and advanced electronic components. Europe lacks both the raw material sources and the processing capacity. Initial initiatives, such as the search for tungsten in Spain, are still in their early stages and cannot resolve short-term shortages.

Technological dependencies on the USA

Eastern European arms systems, though European in origin, often contain American components, particularly semiconductors and high-frequency components. These systems are subject to American ITAR (International Traffic in Arms Regulations), meaning the US effectively has a say in their export and use. A European weapons system is therefore only as autonomous as the US allows. This technological dependence is fundamental: without independent European semiconductor manufacturing—an area where Europe lags significantly behind—Europe will remain technologically bound to the US.

Industrial fragmentation

Unlike the US or, more recently, China, Europe lacks an integrated defense industry. Each member state has its preferred national suppliers, leading to fragmentation and inefficiency. Procurement costs are higher, economies of scale are lower, and system interoperability is problematic. A genuine European defense ecosystem does not exist; instead, national champions such as Rheinmetall (Germany), Thales (France), Leonardo (Italy), and BAE Systems (UK) operate largely in parallel.

Europe's own institutions – the German Institute for International and Security Affairs (SWP) and the European Defence Agency (EDA) – have recognized this and are calling for a deeper European cooperation structure with joint procurement, common development standards, and a genuine European defence industry base. Previous initiatives such as OCCAR (Organisation Conjointe de Coopération en matière d'Armement) have achieved only limited success.

The price of strategic autonomy: Budgetary burdens and social redistribution

Mobilizing €800 billion for defense by 2030 represents an unprecedented redistribution of public funds. For Germany, for example, increasing defense spending to 3.5 percent of GDP implies an additional requirement of approximately €194 billion compared to previous financial planning – roughly 20 percent of the federal budget.

This need for funds is primarily met through debt financing, something that long seemed impossible under Germany's debt brake. However, the rearmament is being treated as an "exceptional situation," similar to the financial crisis or the Covid-19 pandemic. The debt brake is being relaxed, and special funds are being made available for the Bundeswehr (German Armed Forces).

What is striking and politically significant is that this debt financing does not (yet) exist for other sectors. While armaments are newly financed through loans, the old austerity measures prevail in welfare, infrastructure, and climate protection. This signifies an asymmetrical prioritization of economic policy. Classical Keynesianism would argue that in times of crisis or low employment, the state should invest more overall. Europe's military Keynesianism, however, says: The state invests more—but only in armaments. Other public goods must be reduced or financed through privatization.

The social consequences of this asymmetry are not yet fully apparent. However, warning signs are emerging. Higher defense budgets within a rigid overall budget framework mean competition for scarce public resources. An intensified debate about kindergarten places versus tank production, about school quality versus artillery armament, could escalate.

This budgetary pressure indirectly contributes to the current dynamics of unemployment and underemployment prevalent in other industrial sectors. While the defense industry is booming, other sectors are shrinking or stagnating. The "butter versus guns" dichotomy, ridiculed by military Keynesianism, is becoming a reality.

An arms industry without a real solution to the problems

The European response to the end of Pax Americana and the escalation of trade conflicts through military Keynesianism and dual-use logistics is understandable, indeed necessary from a security policy perspective. A Europe that is aware of its military insecurity and can no longer rely on American protection must invest. The planned 800 billion euros are – from a purely deterrence perspective – perhaps not excessive.

However, economic analysis reveals contradictions. While the military-Keynesian model does create jobs and demand in the short term, it also activates long-term risks: capacity bottlenecks, supply chain vulnerabilities, raw material dependencies on China, and technological dependencies on the US. It concentrates public funds on one segment of the economy, while other areas—climate, education, infrastructure—remain underfunded.

The concept of dual-use logistics, in turn, is intelligent and addresses real efficiency potential. A state-of-the-art, automated, AI-driven infrastructure that serves both civilian and military purposes is economically rational and creates measurable synergies. However, even this model does not mask the fundamental structural deficits: Europe's industrial fragmentation, its technological dependence on the US, and its reliance on China for raw materials. A better logistics system does not change the fact that germanium has to come from China or that European defense cannot function without American semiconductors.

What Europe's strategy ultimately has to grapple with is the paradox between strategic necessity and economic reality. The need for rearmament is undeniable. The economic resources are available. But the structural transformations—genuine European industrial integration, technological sovereignty in critical sectors, securing raw materials—require more than money and loans. They demand political consensus, coordinated cross-border investments, and a radical reassessment of what security means in the post-American era.

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The global economy is currently undergoing a fundamental transformation, a watershed moment that is shaking the foundations of global logistics. The era of hyper-globalization, characterized by the relentless pursuit of maximum efficiency and the "just-in-time" principle, is giving way to a new reality. This new reality is marked by profound structural breaks, geopolitical power shifts, and increasing fragmentation of economic policy. The once taken-for-granted predictability of international markets and supply chains is dissolving and being replaced by a period of growing uncertainty.

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• Strategic resilience in a fragmented world through intelligent infrastructure and automation – The job profile of the dual-use logistics expert

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