IFW chief: Germany's aid to Ukraine not a "clear commitment"

Mr. Schularick, you've long called for increased defense spending, and now there's the financial scope to do so. Are you satisfied?

No, because we've been dawdling for far too long. In retrospect, the first turning point wasn't even a slow-motion turning point. It took the Trump shock, Volodymyr Zelensky's visit to the White House, and US Vice President JD Vance's speech at the Munich Security Conference for something to finally happen. For a long time, the belief prevailed here that, when in doubt, the Americans would step in for us. That has now changed.

So it's the lack of pace that bothers you?

Despite all the rhetoric, our support for Ukraine is meager; we're currently talking about about 0.15 percent of our gross domestic product. That's more of a rounding error than a clear commitment to Ukraine. When Helmut Kohl wrote a check to the US and its allies during the first Gulf War, it fivefolded in one year. Nevertheless, the population feels we're giving all our money to Ukraine. This is certainly also due to a lot of missteps in political communication.

Moritz Schularick, Kiel Institute for the World Economy.

Source: Frank Molter/dpa

Namely?

We need to talk much more about the opportunities that arise from investing in defense technology. For a long time, we thought we'd reached the end of history, but now we're suddenly talking about war again. Many people's minds are returning to the times of the Cold War and tank armies. We talk about conscription, tanks, submarines, and airplanes as if the world had stood still 30 years ago. That may even be somewhat true of Germany, but we can see in the Middle East and Ukraine that many things are no longer as they once were. In the future, we will see entirely new forms of defense technology. And I see a huge opportunity for Europe to catch up in areas where it has fallen behind in the civilian sector.

Can you give an example?

Defense technology is becoming increasingly digital, autonomous, and AI-powered. We in Europe will only be able to live safely in the next decade if our AI, our missile technology, and our robotics are as good as everyone else's. And we will also have to build something like Starlink.

However, such a satellite network is associated with high costs.

Starlink, with all the thousands of satellites up there, cost a little over $10 billion. The additional S-Bahn tunnel currently being built in Munich will cost more. So it's not just a matter of financial resources. The European economy is almost as large as the US's. Why doesn't any country in the world think of attacking the US? Because it would be a suicide mission. The fact that we in Europe live in uncertainty and fear is our choice. If we wanted to, we could be so strongly positioned and militarily deterrent that we wouldn't even have to ask many of these questions. But we're not managing to get our population to accept this logic of deterrence through strength to the point where they're willing to forgo other things for it.

The USA may succeed in doing this, but there is nowhere near the welfare state that we have here

Do you think we have to choose between welfare butter and deterrent guns? I don't think they're necessarily incompatible. Defense spending also has an economic growth effect, which can stabilize the welfare state. In addition, technology developed for defense can also be used for civilian purposes. AI-supported robotics, for example, could help an aging society in many areas.

Suppose Germany now invests more in AI, robotics, and satellite communications. Can this transformation compensate for what is lost in key sectors like the automotive industry?

We're already seeing that the arms boom is driving transformation and technological advances. This will certainly continue to increase. While industrial structural change began long before the Ukraine war, it is now being further accelerated by the disruptions in the energy markets caused by Russia. I have no doubt that there are enough industries and sectors out there that lead to sustainable jobs. But for that to happen, our industrial culture needs an upgrade now.

What would that look like?

Switzerland has already shown the way in chemistry. One approach would be to stop producing basic chemicals in Germany and instead focus on specialty chemicals and the research-intensive pharmaceutical industry. Similar opportunities exist in mechanical engineering: The Chinese will likely soon overtake us in traditional mechanical engineering, but we could work on high-precision medical technology. We also currently have a lead in the field of biotechnology, which we should take advantage of.

Is this the responsibility of the private sector or should the state provide incentives?

We're already seeing light at the end of the tunnel. The economy is improving somewhat. But if we just pump money into it now and don't initiate any reforms, it will remain a flash in the pan. To achieve a sustainable recovery, we need to reduce bureaucracy and deregulate.

The debate about conscription is currently resurfacing. Wouldn't such conscription also be an obstacle to economic recovery because it would mean a shortage of workers in companies?

I don't think a shortage of personnel is the central problem. The debate about conscription also shows that many people imagine a soldier running behind a tank or sitting in a trench. We should be talking more about what defense will look like in the future. I don't know whether we'll still be talking about manned aircraft or submarines in ten years' time. The professional profile of a soldier will certainly look different. But I think young people are already the victims of a breach of the intergenerational contract. To tell them now that conscription is coming is harsh.

Where exactly was the intergenerational contract broken?

Currently, our social contract incorporates a deeply unfair redistribution of wealth from young to old. Every euro that young people contribute to pensions today is redistributed from young to old. We all know that.

Why is that?

There's always this image of the younger generation eating avocado toast and drinking oat milk all day. The bigger problem in Germany, however, is the low labor force participation rate among older people. There are repeated golden handshakes for early retirement, which is scandalous and must stop. Compared to Scandinavian countries, the labor force participation rate among those over 60 is a good 10 percentage points lower.

Germans don’t work long enough?

In Germany, it's primarily the elderly who work less than in other countries. We also have a high number of women who work part-time. This is also due to the lack of childcare infrastructure, which is why we need to take a closer look. However, the income splitting system for married couples also creates incentives for women to work less.