Arms Sales Overload European Public Finances, Hinder Economic Recovery
Author: sabah Posted February 2, 2012
Europe’s economy has been stagnant for the past three years. European production lags 2% behind production before the 2008 crisis. Spanish and British productions are down by 4%, Italy by 5%, Greece by 10% and Ireland by 15%. What explains this three year decline in production? Why is Europe now producing less goods and services?
European production is lower because of high public debt and budget deficits. High public debt and budget deficits compel the states to the funds that the market may offer them. Excessive borrowing by states raises interest rates. The private sector can then not find cheap money for investments. Growth is halted and unemployment climbs.
This is the reason why European leaders want introduce growth and long-term structural reforms. They plan to use public investments to boost employment.
Will this plan work? For it to work, rich members of the EU have to stop selling guns. Arms sales by rich members to periphery members play havoc with the public finances of the latter. France and Germany sell 10 billion dollars of arms to Greece every year, which in turn makes Turkey buy more arms too. Weapons procurement does not contribute anything to employment and growth. When you borrow to buy guns, your public finances hit a wall. Let us not forget Turkey’s 2001 crisis which was brought on by excessive arms procurement.
Rich EU members depend on peripheral countries to buy these arms. French President Sarkozy and Germany’s Merkel threatened former Greek Prime Minister [George] Papandreou by saying, “if you don’t buy our [military hardware], we will withhold EU financial assistance.” This is because these two rich ones keep their economies oiled by selling weapons to peripheral countries. As long as rich members do not stop selling guns, it will be difficult for periphery members to climb out of their crises.
Some might think reducing weapons sales is not enough to recover from an economic crisis. They say the peripheral countries suffer from low productivity and that they cannot sell their goods because they use the same currency as the richer [countries]. This is indeed partially true. But as long as these peripheral states keep borrowing to buy weapons it will be impossible for them to sustain their public finances. Gun procurement means government spending and the allotment of state debts. State borrowing must create social income. Gun buying doesn't. What we lived through in Turkey in past years is the best example.
What happened next in Turkey? Priority in state spending was given to educational and health expenditures. Military spending was reduced. In 2004, for the first time, educational expenditures exceeded military spending.
If Europe does what Turkey did and reduces its arms purchases, the economy will bounce back. It doesn’t seem possible for Europe to maintain [a coherent] financial policy if it is based on weapons sales. Those who keep buying weapons will go bankrupt in the end. Even the USA saw the light and realized it could not maintain its public finances by spending money on guns - it has since reduced its military spending. There is no other way.
Read More: http://www.al-monitor.com/pulse/business/2012/02/european-economy-cannot-recover.html