War is, regrettably, part and parcel of the history of mankind. As Carl von Clausewitz famously said, “war is simply the continuation of political intercourse with the addition of other means”.
The world that resulted from the reunification of Germany and the disappearance of USSR (1989/91), in other words the world of peace dividends, is well and truly over.
Today, there is reason to ascertain whether there may be some future war dividends for Europe.
A war economy does not necessarily imply that a country is directly involved in armed conflict, but at least preparing for or preventing such conflict. The USA has never been attacked on its own soil (apart from the Pearl Harbor attack on 7 December 1941 and, to some extent, the 9/11 attacks), which is a major factor.
Even without direct aggression from the outside (which is currently the case for all European countries except for Ukraine), there are nonetheless negative consequences, i.e. trade restrictions (embargos and sanctions), generalised uncertainty, mounting inflation due to shortages, uncertainty for both households and companies. These features are partly present today.
Much more importantly, the major risk for the future would obviously be major fragmentation of the world if China, followed by a number of African and Middle Eastern countries, were to join Russia in a structured coalition to the detriment of their relationships with the West.
This being said, what opportunities could stem from this conflict? Could there be a “silver lining” to this war?
In terms of governance, there could be greater European unity (notably with a coordinated energy strategy), the end of Germany’s mercantilism/self-centeredness. In addition, the EU’s policy will be more cohesive and NATO’s position will be revived. This will help secure long-term projects for Europe. We could also mention hopes of decreased US/Western sanctions against China or the return of Iran to the international arena.
Refugee flows (from Ukraine) can also, under some conditions, boost Western European countries’ potential GDP growth in the medium term. Meanwhile, reduced energy and food dependence on Russia could be a driver for nuclear power, diversification of energy sources and renewable energy. This would considerably reduce the risk of a shock on energy commodity prices and especially the oil price, which has been a recurring feature over the past 50 years
Furthermore, there could be productivity gains stemming from the R&D effort and industrial innovation in military equipment and armament. These long-term gains tend to materialise in the periods following the conflicts, for instance in the 1920s and the 1950s/60s, via disinflation and rising potential growth. Added to this, economies could benefit from a more expansive economic policy (fiscal deficits, negative real interest rates, etc.) as it was the case in war periods in the past.
Finally, reallocation of financial resources towards European needs (by reducing the eurozone’s current account surplus foolishly imposed by Germany) is a good thing. It is obviously far too soon to predict what will happen. But let’s just say that while the pandemic opened the eyes of European political elites and highlighted the vulnerability of European industry and healthcare, the Ukraine war has shed light on Europe’s energy and military dependence.