At MBDA’s missile launcher plant in Bolton, England, Britain’s minister for the armed forces, Luke Pollard, stood with his hand outstretched as a test engineer sprinkled tiny microelectronic specks onto his palm as if they were fairy dust.
Those are the “brains of the missiles,” a technician explained, the sophisticated components that will enable the weapon to find and lock on its target.
Mr. Pollard was in Bolton last week to promote a new 118-million-pound ($158.4 million) contract with MBDA, a European weapons manufacturer, to build six new surface-to-air missile launchers.
“Defense is the engine for growth,” said Mr. Pollard, who noted that there is a defense-related manufacturer in each of Britain’s 650 parliamentary constituencies.
It’s not just Britain. Governments across Europe, compelled by Russia’s continuing aggression in Ukraine, are hoping hundreds of billions of dollars in increased military spending will lift their lackluster economies. The post-Cold War peace dividend has shifted into reverse: There will be less money for schools and pensions, but more money for tanks and missiles.
Yet whether bigger defense budgets will create meaningful, long-term economic growth rather than primarily pump up the stocks of weapons manufacturers is not clear. The success of any defense dividend could turn on what the increased money is spent on and where it comes from — tax increases, borrowing or cuts in education.
That has not dampened hopes. Prime Minister Keir Starmer of Britain vowed to seize what he called the “defense dividend,” a “once in a generation” investment that can create new jobs and “huge growth in industrial capacities.”
In Germany, the weapons manufacturer Rheinmetall plans to hire 8,000 new workers over the next two years, fueling speculation that an expanding defense industry can help offset job losses in the country’s struggling automobile sector. In Italy, Prime Minister Giorgia Meloni this month joined the European Union’s program to fund a military buildup and met with weapons manufacturers to encourage them to invest in projects that will also have benefits in the civilian sector.
As Ursula von der Leyen, president of the European Commission, has put it: “Economic strength and Europe’s plan to rearm are two sides of the same coin.”
The promise of economic benefits is also a way to counter political opposition from left-wing and populist parties to increased spending on armaments.
But “there are multiple ways to do this wrong,” Ethan Ilzetzki, a professor at the London School of Economics, said of using enlarged defense budgets to juice the economy. He is the author of an analysis from the Kiel Institute for the World Economy on the economic gains of increased military spending in Europe.
Spending too much money to increase stockpiles of existing equipment or to buy American-made fighter jets and munitions offers very limited economic benefits, Mr. Ilzetzki said. “Buying the same old equipment from the same old producers provides limited incentives to innovate,” he added.
Economists in general estimate that every dollar of military spending will increase gross domestic product by 50 cents. The returns on spending on education or infrastructure tend to be much higher, yielding growth that is greater than the initial investment.
This spring, the European Commission estimated that increased defense spending would lead to a small boost — 0.3 to 0.6 percent — in the total economic output of the 27-member European Union by 2028.
Big economic benefits from military spending happen down the road, economists say, only if significant sums of money are spent on research and development that eventually spill into the civilian sector.
“There’s nothing good about having to buy a tank instead of building a school,” said Kenneth Rogoff, a professor of economics at Harvard.
What spurs growth are technological advancements and spinoffs that result from greater investments in areas like artificial intelligence, aerospace and semiconductors. What’s more, researchers have found that increased public spending on defense-related R&D prompts the private sector to invest more in its own R&D.
The internet, GPS, digital cameras, freeze-drying, microwaves, nylon and, let’s not forget, Silly Putty were all innovations that stemmed from defense-related research. That was the “secret sauce” of America’s technological success, Mr. Rogoff said.
There has been a push to rely more on homegrown, rather than American industries. Some of the European Union’s military spending programs are restricted to member states and selected partner governments.
Germany announced a National Security and Defense Industry Strategy in January to set political guidelines for the growing sector. And in Britain, the government will soon announce a new Defense Industrial Strategy. “If the government wants to spend more money on defense, you’ve got to spend that through the frame of backing British businesses,” said Mr. Pollard, the armed forces minister.
The appeal for more research and infrastructure investment echoes some of the recommendations in a seminal report on European competitiveness published last fall, which called for huge increases in public spending on technology, aerospace, defense and transportation.
The Kiel report from Mr. Ilzetzki on the economic impact also argues that increasing public debt, not taxation, is by far the best way to finance additional military spending: “G.D.P. growth will be smaller, possibly negative, if the increases are financed with tax increases rather than borrowing.”
That recommendation is much easier for a country like Germany, which had until recently strictly limited public borrowing. The constitutional limits were lifted in March so Berlin could commit to spending 5 percent of the country’s annual economic output on military and strategic infrastructure.
France and Italy, though, already have enormous public debts that exceed their annual economic output, and face rising borrowing costs. And Britain’s debt is close to matching its gross domestic product.
In the meantime, the promise of industrial jobs — what politicians inevitably label “good jobs” with higher pay — resonates among politicians’ constituents in Europe just as it does in the United States.
Rheinmetall has invited Germany’s finance and defense ministers, along with Mark Rutte, secretary general of the North Atlantic Treaty Organization, to celebrate the opening of a munitions plant on Wednesday. The factory will create some 500 jobs.
MBDA, which also has plants in Italy, France and Germany, hired 2,500 additional workers last year, and plans to hire another 2,600 by the end of this year.
In Bolton, the weapons manufacturer is rapidly expanding its footprint. The factory floor where spanking new, army green missile launchers sat on display still has that new car smell. The company said it expected to expand the work force at the plant by 700 over the next five years.
Mr. Pollard said the government had to make the case that increased military spending not only offered security in dangerous times but “helps creates jobs; it grows the economy.”
Melissa Eddy contributed reporting from Berlin.
Patricia Cohen writes about global economics for The Times and is based in London.
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