Economic Consequences of Europe’s New Geopolitical Situation, with Moritz Schularick
Feb 21, 2025
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Moritz Schularick, President of the Kiel Institute for the World Economy and a leading expert on geopolitical and economic research, joins the discussion on Europe’s changing landscape. He addresses the economic fallout from Russia's imperialistic actions and the uncertainty of U.S. commitments. The conversation delves into the necessity of a unified European defense strategy and the implications of increased defense spending on technology and productivity. Schularick highlights the adaptation of military innovations for civilian use, emphasizing a future of strategic economic responses.
Europe must adapt its political strategies to confront emerging geopolitical rivals like Russia and China amid a shifting global order.
Investment in modern military capabilities can drive economic growth and technological advancements, highlighting the dual benefits of defense spending.
Deep dives
Geopolitical Erosion and its Impact on Europe
The erosion of the global order is significantly influenced by the rise of nations like China and India, which has shifted the balance of economic power away from Western nations. Historically, the West, particularly the United States, played a dominant role in maintaining a rule-based international system, but its current stance is increasingly isolationist and protective, leading to fears of a fragmented global environment. This has resulted in backlash against free trade, with segments of the U.S. population believing that open trade policies have not benefited them. For Europe, this situation necessitates a reevaluation of its political strategies, in which it must prepare for a new landscape and potentially more aggressive geopolitical rivals.
Challenges of European Decision-Making
European decision-making in trade and foreign policy is characterized by both centralization and fragmentation, complicating the response to fast-moving geopolitical changes. While the European Commission handles trade relations effectively, national governments retain significant control over areas like sanctions, which can prolong negotiations and impede timely responses. This slow response rate could leave Europe vulnerable, particularly as geopolitical dynamics evolve rapidly. A unified approach is essential for Europe to effectively compete with larger powers like the United States and China, requiring more coherent strategies at both EU and member state levels.
Defense Capabilities and Security Strategy
Europe's current defense strategy is inadequate to address threats from adversaries like Russia and the broader security challenges posed by the geopolitical landscape. To effectively defend its interests, Europe must invest in modern military capabilities, including satellite reconnaissance and transportation systems, while also contemplating a potential unified nuclear deterrent. Collaboration among European nations could amplify their capabilities, presenting a robust front against external threats. However, achieving this requires a decisive shift towards greater unity and investment in defense technologies, moving away from outdated procurement processes that hinder responsiveness.
Economic Benefits of Military Investment
Investing in defense spending can yield significant economic benefits, with research indicating that such expenditures can stimulate economic activity and spur technological advancements in broader industries. Defense projects historically lead to innovations that spill over into civilian sectors, enhancing productivity and growth. For example, current developments in autonomous technology for military purposes could have extensive applications in civilian autonomous vehicles. Therefore, Europe should prioritize domestic defense investment while also seeking to integrate successful Ukrainian defense technologies to bolster its capabilities in a timely manner.
Join us on as we delve into the economic consequences of Europe's evolving geopolitical landscape with our guest Moritz Schularick, President of the Kiel Institute for the World Economy. Together, we tackle the pressing issues arising from an imperialistic Russia, uncertain US commitments, and China's strategic maneuvers. Tune in to understand the shifts in global order and what these could mean for Europe's economic and political strategies.
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