Europe stands at a critical juncture. The post-1945 international order is unraveling, and as incoming German Chancellor Friedrich Merz warns, it’s now “five minutes to midnight.”
With growing global instability and waning U.S. support, both Merz and French President Emmanuel Macron have called for “strategic autonomy” — a vision that demands significant financial investment. But in an era of sluggish growth and mounting social costs, how can Europe afford to rearm and innovate?
A Stalled Continent
Europe’s economic engine is sputtering. Average annual growth barely exceeds 1 percent per person — a far cry from the 1960s, when economies could double in size within 16 years. Today, that process takes more than 50 years.
Meanwhile, the continent is aging. Healthcare and pension costs are climbing, education systems are underperforming, and immigration remains a source of both economic strain and political tension. Despite its potential, immigration has not succeeded in driving significant growth.
Perhaps most worrying, Europe is losing ground in the global innovation race. While China, the United States, and others ramp up their investments in research and development, the EU continues to lag behind.
If Europe is to become more autonomous and resilient, it must urgently invest in defense and innovation. But that comes at a steep price.
The Real Costs
To build the kind of defense capacity leaders now demand, Europe would need to double or even triple its current defense spending — which sits at 1.8 percent of GDP. That means finding an additional €325 billion annually.
In the field of innovation, the EU pledged in 2000 to increase spending on research and development, but it has consistently fallen short. Meeting that target today would require €170 billion more each year — though the returns could be enormous. Economists estimate that stronger innovation policies could generate up to €800 billion in annual economic growth over the coming decades.
So where should the money come from?
Proposals vary — from cutting welfare spending and raising taxes to borrowing more or simply growing the economy. Yet none of these options are easy. Welfare alone accounts for roughly 30 percent of EU GDP — around €3 trillion annually — while pensions cost another €1.5 trillion. Cutting deeply into these budgets or raising taxes further would be politically risky and socially destabilizing.
Borrowing is tempting but fraught with risk, given already-high public debt levels. Economic growth, though ideal, will remain elusive unless the EU removes regulatory hurdles and significantly boosts investment in innovation.
The Climate Policy Question
There is one area, however, where rethinking current policy could free up massive resources: climate spending.
At present, the EU devotes about a third of its entire budget to climate-related initiatives. In 2023 alone, Europe spent €367 billion on solar panels, wind turbines, electric vehicles, and related infrastructure. That figure alone is enough to cover the bloc’s additional defense needs.
Moreover, Europe’s high energy prices — a direct consequence of its aggressive climate agenda — are weighing heavily on growth. By 2050, energy-related costs are projected to reach 10.5 percent of GDP, or around €3.3 trillion annually.
Climate activists argue that Europe must continue to lead in the global fight against climate change. But critics point to diminishing returns. The EU has already cut emissions significantly, and further reductions are likely to have negligible global impact. According to UN climate models, even reducing EU emissions to zero today would alter global temperatures by only 0.017 degrees Celsius by mid-century.
Rethinking the Strategy
This doesn’t mean abandoning climate goals. Rather, experts argue for a smarter, more efficient approach. Instead of pouring money into costly infrastructure and subsidies, Europe could redirect a fraction of that spending — around €27 billion annually — toward green R&D. By lowering the future cost of low-carbon technologies, Europe could trigger a global shift away from fossil fuels.
Such a strategy would be far more impactful — and more affordable — than the current path. It would also free up over €300 billion to support defense, innovation, and economic growth.
A Moment of Decision
Europe is at a crossroads. It can continue with its costly net-zero strategy, hoping others will follow its lead — or it can prioritize strategic autonomy and economic resilience while still contributing meaningfully to global climate solutions.
The choice isn’t between climate action and survival. It’s about pursuing smarter, more balanced policies that strengthen Europe’s position in an increasingly volatile world.
As the clock ticks, the continent must decide how best to use its limited resources — not just to survive, but to lead.
