Back to the 1930s war economy

American author Mark Twain quipped that history does not repeat itself, but it often rhymes. With European economies promising to up their defense expenditure to 5 per cent of GDP, are we repeating the 1930s, when the Western powers used defense spending to pull themselves out of the Great Depression?

- ANDREW SHENG

The inter-war years were dominated by Western (including Japan) powers, with the rest of the world under colonial yoke. The First World War between the European powers did not settle old scores, with Germany bitter about war reparations, which caused hyperinflation that devastated the German society.

After the Roaring 1920s, which ended with the Great Crash of 1929, the 1930s were years of global slowdown. By 1934, President Franklin Roosevelt was elected on the promise of his New Deal to revive the American economy. In Japan and Germany, right-wing factions rose on the back of militarism. In 1934, Hitler came to power with Nazi nationalism to revive and revenge German humiliation in the First World War and loss of territory.

German military spending went from 1-2 per cent of GDP in 1933 to 13 per cent by 1936 and nearly 100 per cent of GDP by 1945. Japan went from 3-4 per cent to 9-10 per cent by 1937-1938, when the Sino-Japanese War broke out. The United States were slow to react, with an average spending of 1-2 per cent of GDP between 1930-1938, but rapidly ramped up to as much as 40 per cent by 1945.

The United States has always taken care of European security after World War Two, mostly through the creation of the North Atlantic Treaty Organization, but the Trump Administration has decided that Europe should bear the burden of its own security, particularly to raise defense expenditure to 5 per cent of GDP. Europe must also take care of the Ukraine mess, whilst America concentrates on its rising rival, China.

After the humiliating 2025 Munich Security Conference, in which the Trump Administration basically told the Europeans that they were on their own, new German Chancellor Merz announced a doubling of military expenditure. This was a signal that Europe is now beginning to re-arm.