The world has never spent more on its armies than in 2025, and Europe is rearming as it has not since the Cold War. As always, the first payment is on credit. But behind the defense effort lies a more troubling mechanism: destruction and reconstruction form a single market, and the moral disagreements that accompany conflicts often mask very concrete commercial deals, over who gets to destroy, then rebuild.
1 The guns return
First, the scale.
The wave
The highest level since the Cold War
In 2025, world military spending reached $2,887 billion, rising for the eleventh year in a row, at 2.5% of world GDP, the highest since 2009. Europe is the engine, with $864 billion (+14% in a year), the steepest rise since the end of the Cold War. Germany jumped 24% and passed 2% of its GDP for the first time since 1990; Poland nears 4.7%. At the Hague summit in June 2025, NATO committed to a 5% of GDP target by 2035.
World spending
$2,887 bn
in 2025, +2.9% in a year (SIPRI).
Europe
+14%
in a year, to $864 bn (SIPRI).
A reversal
For thirty years, the West had cashed the "peace dividend" by shrinking its armies. The 2022 invasion of Ukraine overturned everything. Rearmament is no longer taboo: it is an openly embraced, and costly, public policy.
2 Debt slung over the shoulder
Now it must be paid for.
The financing
Arming on credit
Rearmament is paid for mostly by debt. In March 2025, Germany reformed its sacrosanct "debt brake" to exempt defense spending above 1% of GDP, effectively unlimited borrowing, and created a €500 billion infrastructure fund. The European Union adopted the SAFE instrument, €150 billion of joint loans, and opened an escape clause letting each state widen its deficit by up to 1.5% of GDP for defense. The "Readiness 2030" plan advertises up to €800 billion that can be mobilized.
SAFE (EU)
€150 bn
of joint loans for armament, adopted May 2025.
Readiness 2030 plan
≈ €800 bn
mobilizable by 2030, largely national debt.
The deferred bill
The IMF measures it: a rearmament wave widens the deficit by more than two and a half points of GDP and debt by seven points within three years, two-thirds deficit-financed. Markets felt it: on Germany's announcement, the Bund yield jumped 40 basis points in a single session. We arm today, we repay later.
3 Military Keynesianism
At least, they say, this spending keeps the economy turning. Does it?
The promise
War as stimulus
The idea has a name: "military Keynesianism." Spending on armies would create jobs, orders, growth, especially when the economy is sluggish. History offers the textbook case: in the United States, the Second World War effort cut unemployment from nearly 10% to under 2%. Hence the temptation to see rearmament as "the biggest fiscal stimulus since the pandemic." Economists gauge this promise with a tool, the "fiscal multiplier": does a euro of public spending generate more, or less, than a euro of wealth?
Defense multiplier
≈ 1
on average, but with "likely modest" effects (IMF).
Range of studies
0.4 to 1.8
depending on financing and the economic cycle.
A stimulus that deceives
But the effect is weaker than it looks. The IMF judges the spillovers "likely modest": the defense industry is highly concentrated, its orders barely irrigate the rest of the economy, and part of the equipment is imported. Above all, a cannon is not a road: it produces nothing more once it has been used.
4 The broken window
To grasp it, a detour through 1850.
The mechanism
What is seen and what is not seen
The economist Frédéric Bastiat said it all in a parable. A child breaks a pane of glass; the bystanders console themselves: at least it gives the glazier work. Bastiat replies: the six francs paid to the glazier will not go to the bookseller or the cobbler. You see the repaired window; you do not see the book or the shoes that will no longer be bought. "Society loses the value of objects needlessly destroyed." He was already aiming at those who calculated what industry would gain from the burning of Paris.
The distinction that changes everything
①
What is seen. The arms factory running, the jobs, the order books, the GDP line going up.
②
What is not seen. The schools, hospitals and civilian investments this money did not fund: the opportunity cost, "guns versus butter."
③
The lesson. Activity is not wealth. Breaking a window keeps industry busy, but makes us poorer. "Destruction is not profit."
Defense is not destruction
A caveat is needed at once: a weapon that deters and is never used protects an estate without destroying it. It is insurance, not waste. Bastiat's fallacy does not condemn defense, but the idea that destruction itself would enrich.
5 Russia's war economy
One country is now running the live demonstration.
The case study
Growth bought on credit
Since 2022, Russia's economy looks flourishing: +3.6% in 2023, over 4% in 2024, driven by arms factories, with military spending raised to nearly 6.7% of GDP. But it is a deceptive prosperity. The overheating pushed inflation toward 10%, labor is scarce, and growth fell back to around 1.3% in 2025. The central bank governor admits resources are "exhausted."
Russian growth
4.3 → 1.3%
from 2024 to 2025, after the overheating.
Military spending
≈ 6.7%
of GDP in 2024, the highest since the USSR.
The broken window at country scale
Russia illustrates Bastiat exactly: activity rises, real wealth wears away. Shells are produced and consumed at once, while civilian capital ages and living standards erode. An economy can grow while growing poorer.
6 Destroy, then rebuild
For destruction is always followed by a second market.
The market of ruins
Rebuilding, an industry in its own right
Every war opens a colossal construction site. Rebuilding Ukraine is now estimated at nearly $588 billion over ten years, almost three times its GDP; Gaza at about $70 billion, Syria at $216 billion. In all, close to $800 billion of ruins to rebuild. Around this windfall, fierce competition is already taking shape: Turkey, now the largest foreign investor in Ukraine, China, the Gulf and Western construction and energy groups are vying for the contracts, even before the fighting ends.
Rebuilding Ukraine
≈ $588 bn
over ten years (World Bank, 2026).
Ruins to rebuild
≈ $800 bn
Ukraine, Gaza and Syria combined.
A treasure under the rubble
Reconstruction is a market, with its tenders, its winners and its losers. And like any lucrative market, it attracts those who want to position themselves upstream, sometimes before the guns even fall silent.
7 The same actor, on both sides
And often, whoever destroys also gets to rebuild.
The precedent
With one hand they raze, with the other they rebuild
Iraq was the demonstration. As early as 2003, no-bid contracts, without tender, were awarded to Halliburton-KBR and Bechtel, American firms, to rebuild what the American army had just destroyed. Congressional inspectors tallied billions of dollars of waste. Twenty years later, the mechanism is refined: the minerals deal signed between the United States and Ukraine on 30 April 2025 counts future military aid as a contribution to a reconstruction fund, and grants American firms privileged access to Ukrainian resources.
Iraq, estimated waste
$6-8 bn
of ~$60 bn of reconstruction (US inspector general).
US-Ukraine minerals deal
30 Apr. 2025
military aid counted as a contribution to the fund.
The geopolitical price
Reconstruction is no longer just post-war charity: it becomes a bargaining chip. You help a country defend itself, and you secure its resources and its building sites. Destroying and rebuilding cease to be two separate moments; they become two sides of the same contract.
8 Postures and contracts
This is where the slogans meet the invoices.
The gap
The indignations on display, the quiet sales
Conflicts always come with firm moral condemnations. But the commercial flows follow another logic. Russia long armed both Armenia and Azerbaijan while co-chairing the mediation of their conflict. Western weapons kept feeding the war in Yemen despite UN warnings about civilian casualties. And France honored military contracts with Russia until 2020, despite the 2014 embargo, thanks to a grandfather clause. Arms sales are also a diplomacy, and a trade.
The temptation to destroy in order to rebuild
The risk must be named without distorting it. When reconstruction becomes so lucrative a market, those who live off it may be tempted no longer merely to rebuild what falls, but to sustain, even to wish for, what will fall. Bastiat already mocked those who calculated the profit of a burning Paris; Eisenhower, in 1961, warned against the "unwarranted influence" of a military-industrial complex with an interest in tension. It is a moral hazard, a perverse incentive. But let us be rigorous: to observe a temptation is not to prove that wars are started for this market. Economic incentives accompany and shape conflicts; they do not mechanically manufacture them.
9 What you don't see
What remains is what to take from it.
The shadow side
Between legitimate defense and disaster economics
Not everything is cynicism. Facing a real threat, rearmament is legitimate defense; reducing Europe's industrial dependence, importing most of its weapons, has strategic value of its own; and military research has produced major civilian technologies, from the Internet to GPS. But history calls for clear-sightedness: wars are paid for with debt, then often with the inflation that erases that debt at savers' expense, as after 1945.
The compass
①
For the investor. A sector lifted: arms (Rheinmetall has risen more than tenfold since 2022) and reconstruction. But behind it, a wall of public debt that will weigh on rates and budgets.
②
For the citizen. The question is not only "should we defend ourselves," but "who pays, who profits, and at what moral price." Tomorrow's reconstruction is largely funded by today's debt.
③
Clear-sightedness. Tell insurance, the deterrence that protects, from waste, the destruction that impoverishes. And watch who pockets the winnings.
What you don't see
War keeps activity turning and masks the impoverishment it causes. The guns are back, debt with them, and behind both, a market that thrives on ruins. The real question is not the one you see, the GDP going up, but the one you don't: the wealth destroyed, and the hand closing over the contracts.
Reference: abbreviations & acronyms used ($bn, €bn, GDP, NATO, SIPRI, IMF).