The Keynesianism that dare not speak its name
Posted on: 13 March 2026
Consider a thought experiment. Imagine proposing, in 2012, at the height of European austerity, a coordinated fiscal stimulus of 800 billion euros to revive aggregate demand, create jobs in manufacturing and restore purchasing power to stagnant economies across the continent. The response from the Commission, the Bundesbank and half of Europe's economic establishment would have been uniform: impossible, irresponsible, contrary to the Treaties. Spreads would have spiked. Emergency summits would have been called.
Those same 800 billion now exist. They are called ReArm Europe and nobody considers them remotely heterodox. The Stability Pact is circumvented through an escape clause. Common debt is issued without scandal. Cohesion funds, designed to reduce territorial inequality, are redirected towards the defence industry. The difference lies not in the figures, not in the financial architecture and not in the macroeconomic impact. It lies entirely in the political label attached to the spending.
This is the mechanism worth examining, because it is older and more revealing than the current conversation suggests.
Military deficit spending possesses one characteristic that no other form of fiscal stimulus has ever managed to replicate: it bypasses completely the ideological filter that blocks every other proposal for public expenditure at scale. It is not welfare, so it does not cultivate dependency. It is not redistribution, so it does not violate the sanctity of private property. It is not assistance to the undeserving, so it does not offend the meritocratic sensibility that dominates centre-right politics across Europe. It is national security, which by definition places itself beyond ordinary political debate in a space where the usual economic objections are suspended.
The pattern holds across the Atlantic and across time. Roosevelt had to fight every single New Deal measure against fierce resistance from economic elites and an initially hostile Supreme Court. Eisenhower, who in his farewell address warned explicitly of the dangers of the military-industrial complex, could not contain that same machine, because no senator wants to explain to constituents why they voted against national defence. Military spending is the version of Keynesianism that does not require admitting you are doing Keynesianism.
Britain knows this dynamic intimately. The Attlee government built the NHS and the welfare state against sustained opposition from vested interests who considered such spending structurally dangerous. Defence budgets through the Cold War decades, by contrast, were rarely subjected to the same ideological scrutiny, even when they crowded out investment in precisely the social infrastructure that was being simultaneously dismantled elsewhere. The Trident renewal debate is instructive: the sums involved dwarf many social programmes that were cut during austerity, yet the political conversation unfolds in an entirely different register.
The contemporary European paradox is clear enough when examined without the mediation of official narratives. To prevent Greece's social fabric from collapsing between 2010 and 2015, the European Union deemed it impossible to deviate from Treaty constraints. Austerity was imposed, the Troika monitored every cent of public spending, youth unemployment reached 60 per cent. Today, to finance tanks and missile systems, those same constraints are suspended with a press release. The question that is almost never asked publicly is straightforward: why are the rules elastic for weapons and rigid for people?
The answer is structural rather than conspiratorial. Rearmament offers something that welfare reform and social investment cannot: an external threat that justifies the spending without requiring a debate about values. When you propose raising minimum pensions or investing in the NHS, the political questions are unavoidable: who pays, who benefits, is this just? These questions open genuine distributional conflicts because they touch established interests. When you propose purchasing missile systems because Russia threatens the eastern flank, or because Iranian escalation is destabilising energy markets, those questions dissolve. Only the answer remains.
The economist John Kenneth Galbraith called this the permanent war economy: the discovery by mature capitalist democracies that military spending is the only form of large-scale public intervention capable of overcoming the ideological resistance of propertied classes. Not because generals have more political power than teachers or nurses, but because external threat is the only narrative frame that transforms public spending from redistributive to defensive.
The problem is that military Keynesianism functions only partially as a substitute for structural reform, and generates side effects that fall systematically on those who would never have seen those resources in any case. The ISPI analysis is precise on this point: achieving ReArm Europe's spending targets would push France and Poland above 6 per cent deficit, while Italy and Spain would reach 4 per cent. That is not a sustainable position. When financial pressure becomes unmanageable, the adjustment will come through taxation or cuts to existing public spending. In either case, the bill arrives where it always does: services, transfers, pensions.
There is a distributional dimension that economic commentary consistently underestimates. The Kiel Institute projects potential GDP growth of between 0.9 and 1.5 per cent annually if defence spending reaches 3.5 per cent of European GDP. That is a real stimulus. But the distribution of that benefit is not neutral. Rheinmetall, Leonardo, Thales, Airbus Defence: these are the companies that absorb the largest share of procurement contracts. They are listed corporations with institutional shareholders. They create skilled employment, certainly, but in highly specialised sectors that do not absorb the surplus labour of deindustrialised regions where the demand for fiscal stimulus is most urgent.
The Italian case illustrates the contradiction with particular clarity, though the British position during the 2010s offers an instructive parallel. Austerity was applied with ideological conviction to social programmes while defence commitments were treated as structurally untouchable. The fiscal space that was deemed unavailable for Sure Start centres or local authority budgets was simultaneously available, without controversy, for aircraft carriers and nuclear deterrence. The distributional logic was identical to what is now unfolding across Europe: the costs are socialised, the benefits are concentrated, and the narrative of external threat prevents the question from being asked in those terms.
What ReArm Europe represents, then, is not primarily a security architecture. It is a political technology: the discovery that 800 billion in fiscal stimulus becomes politically viable the moment you attach a flag and a threat to it. The workers of southern Europe with deteriorating public services are not funding their security. They are funding the operating margins of an industrial sector that does not respond to depressed demand in their territories and will not be accountable to them when the fiscal adjustment eventually comes.
The question worth holding open is not whether European defence investment is justified or unjustified. It is why this is the only form of large-scale public spending that contemporary European democracies can deliberate without paralysing themselves in distributional conflict. The answer reveals something precise about where veto power actually resides in these political economies, and about which narratives retain the capacity to suspend the debate that would otherwise be necessary.
The external threat is an instrument of internal governance. It has always been. The European novelty of 2026 is that the instrument has become large enough to reshape the continent's industrial structure, distributing its costs to those who will never see the invoice directly, but will pay it regardless.