Reference News website reported on May 21 that the Politico website of the United States published an article titled "Can Defense Become a Growth Engine for Europe?" on May 19. The author is Carlo Martuscelli. The full text is excerpted as follows:

Nowadays, Europe is about to invest heavily in the defense sector to reverse the situation of underinvestment over the past decades. People are pinning high hopes on the improvement of productivity levels on the European continent and utilizing similar military creativity to turn the situation around.

From the anti-missile defense system of the European continent to the constellation of satellites in near-Earth orbit, the projects Europe is pushing forward have begun to be as ambitious as those of the United States. People hope that all investments will ultimately promote technological innovation and extend to the civilian economy, thereby improving productivity and recovering investment costs.

NATO Secretary General Mark Rutte said in a speech at the beginning of the year: "This is about increasing spending and spending wisely." He admitted that Washington has long complained that Europe has not made enough efforts for its own security. Rutte said that although two-thirds of NATO member states have now reached the target of 2% of GDP for defense spending, it is still "far from enough."

Rutte got his wish. The European Commission has created conditions for 800 billion euros (1 euro is approximately 7.79 yuan RMB - our report note) in military spending. Meanwhile, Germany, the largest economy in Europe, also announced plans to spend 1 trillion euros to upgrade outdated national armed forces and repair infrastructure.

New defense enterprises are emerging

Where public funds flow, private enterprises will follow. To meet the defense needs of Europe, new defense enterprises are constantly emerging.

Loic Murro worked in a defense company for nine years until he founded his own defense company, "Command AI," in 2022 after Russia's invasion of Ukraine.

Murro said he developed an artificial intelligence-based platform that can analyze commands, create task sequences, and analyze terrain, aiming to significantly increase the speed of military response. He said that with Command AI, "one staff officer can do the work of four staff officers."

Currently, Command AI only focuses on the defense sector, but Murro said that the technologies developed can also be applied to civilian areas, such as helping delivery robot fleets navigate through terrain to reach their destinations or assisting in responding to coordinated cyberattacks against private enterprises.

However, entrusting new inventions that benefit European citizens or Europe's satellite and missile defense plans to innovative enterprises like Command AI is a gamble. Although there are many precedents in history, the outcome is uncertain.

Defense spending is expected to bring progress

Chris Miller, professor at Tufts University in the United States and author of the book "Chip War: The Struggle for the Most Important Technology," said: "Defense spending has always been an important driving force for American technological progress." He said: "The Department of Defense often funds basic research and prototyping, which is then taken over by private companies to transform into world-changing civilian technologies, such as (micro)chips, global positioning systems, or displays."

In a report released before the Munich Security Conference in February, researchers from the Kiel Institute estimated that for every 1% of GDP invested in military research, Europe's long-term productivity could potentially increase by 0.25%.

Ethan Ilzetzki, professor at the London School of Economics and Political Science and author of this report, said: "More and more evidence shows that some of the biggest breakthroughs, especially in the high-tech field of computing, are related to research and development during the space race."

The policy direction of the British Labour government is worth watching. It recently announced a cut of 4.8 billion pounds (1 pound is approximately 9.54 yuan RMB - our report note) in welfare spending while increasing defense spending by 2.2 billion pounds.

This is not entirely bad. Military spending will boost the economy in the short term. The revenue of defense contractors will increase, manufacturing jobs will grow, and workers' wages will re-enter the economic cycle. Daniel Krahl, chief economist of Oxford Economics, said that these plans are huge and有望 help "Europe drive growth through domestic demand to escape economic stagnation."

This is a problem because Europe's rearmament plan will mainly be funded by borrowing. And since governments are already heavily indebted, further increasing debt is likely to harm the economy in the long run.

Europe needs wiser investments

One way to solve the problem is to invest more wisely. To maximize value retention in Europe, the EU will need to autonomously develop products currently purchased from the United States, while avoiding further provoking the protectionist White House. Currently, more than half of procurement expenditures flow to U.S. companies.

French President Emmanuel Macron called on governments to replace American Patriot missiles and F-35 fighters with European weapons such as SAMP-T surface-to-air missiles and Rafale fighters. As part of the rearmament effort, the European Commission clearly supports the domestic defense industry.

At present, too much of Europe's defense spending flows to entrenched, sluggish national defense giants. By contrast, Ilzetzki's paper points out that the U.S. Department of Defense promotes competition through dual procurement, i.e., procuring weapon systems from multiple companies simultaneously to encourage competition. Typically, these tenders are more open, and the U.S. Department of Defense does not tend to adopt fixed specification technologies (which actually favor established defense companies), but rather seeks open solutions for specific military problems.

The report from the Kiel Institute points out that such tenders "benefit more small, newer, and more technology-focused companies." This helps U.S. companies maintain their technical advantage and is more likely to develop innovations that can be applied in civilian areas.

Dan Breznitz, an expert in national innovation policy at the University of Toronto, said that any collaborative effort to advance Europe's rearmament plan in the long term will require governments to take more measures to embrace new members of the defense industry - they are more flexible and at the forefront of technology. (Compiled/Ming Baiyun)

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