Moritz Schularick is calling on the federal government to spend more on defense – and to take on more debt to do so. “German budget policy is a security risk for Europe,” says the President of the Kiel Institute for the World Economy to the “Süddeutsche Zeitung”.

In order to close huge gaps in Germany’s defense capabilities, the Federal Republic will have to spend around three percent of its economic output on defense in the foreseeable future. “To achieve this, the government could, for example, suspend the debt brake or decide on a new special fund. On the other hand, anyone who refuses new loans for dogmatic reasons is putting party over country,” says Schularick, addressing Finance Minister Christian Lindner (FDP), who, unlike the SPD and the Greens, insists on strict austerity measures in the government.

Europe has neglected investments in its security, so that it cannot adequately support Ukraine against Russia without American help. Schularick: “In view of the unstable USA, Europe should be able to defend itself on its own in the foreseeable future.” More spending on security would fuel growth, as would tax credits for businesses to spur investment.  

According to the economist, German manufacturers are threatened with a China shock. Europe already imports 40 times as many electric cars from China as the USA, which is now imposing punitive tariffs. He assumes that imports will continue to increase. The government in Beijing subsidizes its industry with hundreds of billions of euros a year, which distorts competition: “We may notice in five or ten years that entire future industries are in Chinese hands.” The EU Commission should examine China’s subsidies and react accordingly. “If necessary, with punitive tariffs.”