AS rearmament trumps European security, aging population and escalating climate damages are set to present an unprecedented, compounding threat to the future well-being of Europeans.
ON Aug. 27, 2026, European Commission (EC) President Ursula von der Leyen gave a speech noting that €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.
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 to boost the bloc’s economic competitiveness. In this view, rearmament and defense would not be beneficiaries.
Rearming Europe, destabilizing Europeans But then things get a bit murky.
On Sept. 2, just days after Paris, von der Leyen outlined her “Rearm Europe” plan to mobilize €800 billion ($929 billion) for “defense and readiness” by 2030. One of the primary pillars of this plan is mobilizing private capital through — surprise, surprise! — the Savings and Investment Union.
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.
That leaves a public funding gap of over €100 billion per year for climate goals.
Defense analysts project that the military-industrial sector could absorb between 30 percent and 45 percent 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.
How big finance and big defense reap benefits
According to some estimates, 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 percent increase in trend-GDP spending on defense drives a corresponding 2 percent 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 benefits mainly the military-industrial complex; the latter supports 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 corporate shareholders — stakeholders that are close to EC President von der Leyen.
Interest conflicts and moral hazards?
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 military contracts.
Eventually, she acknowledged the administrative mistakes but denied personal liability. 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 (EC) leadership, mirroring controversies like “Pfizergate,” where multibillion-euro contracts were negotiated through private messaging, as evidenced by legal complaints.
Despite great controversies, she has powerful supporters. The proposed banking and financial reforms align the EC 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 could aggravate 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 health care by an estimated 1.5 percent to 2.5 percent 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 well-being impact, Europeans face a double penalty: delayed retirement ages alongside reduced public health care access and lower real pension values. That will force individuals to rely even more on private savings.
Since those plans could dismantle welfare and security, which are critical to young Europeans who are already tackling entry-job and AI challenges, young middle-class Europeans may 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. Delaying green infrastructure investments to prioritize immediate military production creates a destructive long-term fiscal trap.
Every euro diverted from the green transition accelerates the frequency of extreme weather events, such as severe droughts, agricultural failures, and infrastructure-destroying floods.
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.
Dr. Dan Steinbock, an expert of the multipolar world, 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/
This is an abbreviated version of the original commentary published on Sept. 10.
