No study has ever shown that military spending outperforms

civilian investment. And researchers do not dare to say so…

Jan Oberg

July 6, 2026

European leaders now speak openly about transforming Europe’s economy into a war economy. This is not a metaphor. It is the stated ambition of governments, EU commissioners, and NATO officials. Denmark’s DIIS writes explicitly that Europe must “prepare for a wartime economy,” and similar language appears in speeches from Paris, Berlin, Warsaw, Helsinki, and Brussels. The political narrative is clear: rearmament is not only necessary for security, it is also good for jobs, innovation, and growth.

But when we examine this through the lens of economics rather than geopolitics, this narrative collapses immediately.

For more than fifty years, peace‑economics researchers such as Seymour Melman, Emile Benoit, Mary Kaldor, and Lloyd J. Dumas demonstrated that military spending delivers lower economic returns than civilian investment. Their work showed that weapons production is structurally low‑employment, low‑consumption, and low‑multiplier. A euro spent on health care, education, infrastructure, culture, or green transition produces more jobs, more income, and more domestic demand than a euro spent on weapons. This was not controversial among economists; it was simply inconvenient for politicians.

Half a century later, the empirical picture is even clearer. The most rigorous modern analyses of defence spending come not from defence ministries or security think tanks, but from central banks and commercial banks. The European Central Bank warns that defence spending has “modest short‑term output effects” and that high import content reduces domestic impact. The IMF finds that military expenditure stimulates activity only under narrow conditions that civilian sectors meet far more easily. Nordic banks — Nordea, SEB, Danske Bank — all note the same pattern: defence spending is capital‑intensive, import‑heavy, and dominated by large corporate actors, with limited spillovers to the broader economy.

In other words: the economic verdict is unchanged. Civilian investment outperforms military spending every time.

Yet Europe is now undertaking the largest rearmament since 1945. Defence budgets are rising to 2 percent of GDP as a minimum, 3 percent by 2028, 3.5 percent by 2030, and NATO’s new long‑term target of 5 percent by 2035. This is the biggest reallocation of public resources in modern European history. And still, there is no serious economic debate about what this means — no discussion of opportunity costs, no modelling of long‑term productivity losses, no assessment of welfare impacts, no analysis of who benefits and who pays.

The silence is striking. Across Europe, not a single major research institute has produced a study comparing the economic multipliers of military and civilian spending. Not FOI in Sweden, DIIS in Denmark, NUPI or FFI in Norway. Not PRIO in Oslo, despite its long tradition of peace research. Not SIPRI in Stockholm, despite its global reputation for defence‑industry analysis. Not DIW Berlin, Ifo Munich, or the Kiel Institute. Not France Stratégie or CEPII. Not Bruegel in Brussels, CPB in the Netherlands, Chatham House in the UK, or IAI in Italy. Even the European Commission, the European Defence Agency, the European Investment Bank, and the European Court of Auditors have never examined whether military spending is economically inferior to civilian investment.

Europe produces threat assessments, capability roadmaps, and geopolitical narratives — but not the basic economic analysis required to justify the largest shift in public spending in decades. The absence is not accidental. It is structural.

Meanwhile, the market structure of weapons production makes the economic picture even worse. Arms manufacturing operates as a monopoly, with the state as the sole buyer. This eliminates normal market mechanisms such as price competition and consumer choice. Cost overruns become routine, because manufacturers know governments cannot walk away once a project has begun. The F‑35, the Eurofighter, the Patriot system, and nearly every naval vessel built in recent decades have ended up costing multiples of their original estimates. In economic terms, the arms market is designed to produce inflated prices and inefficient production — all paid for by taxpayers.

Even more troubling is the forgotten history of conversion. In the 1980s, serious studies — including a major UN project led by Sweden’s Inga Thorsson — demonstrated that military industries could be converted to civilian production with far greater economic and social returns. Conversion was technically feasible and economically rational. Today, Europe is doing the opposite: converting civilian production into military production. Yet no government, no EU body, and no economics institute has studied what this reverse conversion requires or what it will cost.

Europe is drifting toward a war economy without analysing the economic consequences. The political will to militarise is strong. The economic analysis of militarisation is absent.

So we return to the question that frames this entire debate: Are Europe’s leaders ignorant — or are they lying? Do they genuinely not understand the economics of military spending, or do they understand it perfectly and choose to mislead their citizens, taxpayers, and voters?

Either answer is deeply troubling. But one of them must be true.

A full two‑part report examining these issues in depth will be published shortly. It presents the evidence behind every claim made here — and the economic reality Europe’s leaders refuse to confront.

Read Part 1 here

Read Part 2 here

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