Germany

Europe’s largest economy and largest population has lurched to the right. Friedrich Merz is on the conservative wing of the right of centre Christian Democratic Union (CDU). The Social Democratic Party (SPD) has been relegated to the number three slot for the first in post-war German history. But, more importantly, the far-right Alternativ fur Deutschland (AFD) is now firmly entrenched in the number two position.

Electoral success such as that enjoyed by the AfD in last weekend’s federal elections would normally ensure a place in a coalition government. Not in Germany, the mainstream parties have agreed to a firewall between themselves and the AfD that prohibits political cooperation between themselves and the AfD.

It was this firewall that was recently attacked as “undemocratic” by US Vice President JD Vance at the Munich Security Conference.

But then America does not have the burden of a Nazi past which many Germans fear the AfD threatens to resurrect. It favours remigration which many interpret as a mass deportation of immigrants. It is Euro-sceptic; anti-LGBTQ; pro-Russian; opposes sending military aid to Ukraine and is ambivalent about Germany’s Nazi past. Germany’s Committee for the Protection of the Constitution has designated the AfD as an “extremist right-wing” organisation which means it is being closely monitored by the police and security services.

But the AfD garnered 20.8 percent of the vote—double what it won in the previous federal election. The party—or at least its policies—cannot be disregarded, especially its position on immigration.

The traditional German mainstream parties—CDU/CSU, FDP, SPD and Greens—have tended to deal with the immigration issue by ignoring it. In the case of the CDU, Angela Merkel went further and declared that Germany had a moral responsibility to help refugees and in 2015 admitted more than a million and laid the foundations of a backlash.

The new soon-to-be Chancellor Merz is determined to win back AfD supporters by stealing some of their clothes and introducing tough anti-immigrant legislation.

The difficulty is that the AfD has positioned itself as the only party willing to talk about immigration and propose radical action to tackle the perceived problem. If Merz and the CDU position themselves in this space, they risk being perceived as a less authentic version of the AfD. Voters are convinced that the AfD cares passionately about limiting immigration. They may be less convinced that it is a genuine priority of the CDU.

United Kingdom

The famed British Welfare State is threatened by the American withdrawal from Europe and the resultant increase in defense spending.

In fact, social spending belts across Europe will need to tighten as money is poured into missiles, drones, tanks and howitzer shells to protect Western Europe from the Russian bear.

This week, British Prime Minister Sir Keir Starmer, announced that he was cutting overseas aid from 0.5 percent to 0.3 percent to pay for an increase in defense spending from 2.3 to 2.5 percent by 2027 and three percent by the end of the decade.

The cuts in aid will put $15 billion in the British exchequer which is enough to fund the increased spending up to 2.5 percent but not enough to go all the way to three percent. And, the fact is, that three percent is unlikely to be enough. American officials are talking about five percent across Europe if they want to keep Donald Trump happy and in NATO. And if the US abandons Europe as feared than defense costs will be much, much higher.

Britain, devotes 25 percent of GDP on welfare spending and another 10 percent of GDP on the NHS. Other European countries spend between 25 percent and 30 percent on social welfare. Funding structures for health services varies.

So, if Europe is going to properly defend itself – and defense is the first priority of every government—then it must find the extra money from somewhere other than cuts in overseas aid. Many would say increase taxes on major corporations. The problem is that this would deter investment in British and European governments and hit growth (and by association tax revenues) which is already stagnant in most European countries.

Tax rich individuals. In theory raising the tax threshold from 45 to 50 percent for those earning $190,000 or more would raise $22 billion a year which would be more than enough to pay to pay for increased defense spending. But that figure depends on every high income earner paying the full whack and not moving assets offshore, tax evasion, tax avoidance or just changing country of residence.

That leaves borrowing—which is already too high—or cuts in health and welfare spending. Or, the most likely alternative, higher taxes and cuts. Everybody—breathe in.

Defense industry

There is an advantage to increased defense spending—it is an engine of economic growth. It can also be a technological innovator and the source of major exports.

The precursor of the Internet was a Pentagon bankrolled project called the Advanced Research Projects Agency Network (aka ARPANET). The convenient maps on your mobile phone and your car’s satnav are the result of an American navigation system. The Boeing 707 is based entirely on military designs and the list goes on and on and…..

The Russian economy is being kept afloat by the need to rapidly increase defense manufacturing to feed the insatiable Ukraine war machine. In February 2022, 2.4 million people were employed in defense manufacturing. By March 2024 this figure had swollen to 3.8 million and average salaries had risen ten percent in real terms. Higher wages, of course, means more money for the Russian exchequer.

Russia is also the world’s second largest arms exporter with 11 percent of the global market. Although it is well behind the United States which manages to take 46 percent of world arms exports. Britain is well down the list—seventh with 3.7 percent of the market. It has slipped considerably since the height of the Cold War when the UK had nearly seven percent of the international arms exports industry and was fourth in world rankings.

Britain, however, is a leader in aerospace technology through BAE Systems. Through this company and others Britain directly employs 163,000 well-paid and highly-skilled worker. It also has a strong base in engineering and technology education which churns out about 42,000 qualified graduates every year.

* Tom Arms is foreign editor of Liberal Democrat Voice. He also contributes to “The New World” magazine and lectures on world affairs. He is the author of “America Made in Britain,” two editions of “The Encyclopaedia of the Cold War” and “The Falklands Crisis.”