Will Europe’s Golden Age End?

[February 22, 2025] For decades, Europe’s high-welfare societies—particularly in Western and Northern Europe—have been models of social equity and economic stability. However, the confluence of the Ukraine-Russia war, soaring energy costs, U.S. demands for increased defense spending, and technological competition from emerging regions like China has sparked urgent debates: Can Europe sustain its welfare model while ensuring military resilience and economic growth? Or is its “golden age” nearing an end?

Challenges Threatening Europe’s Status Quo

War in Ukraine and Energy Dependency:
Russia’s energy was once the lifeline of Europe’s manufacturing industry. Before the war between Russia and Ukraine, 40% of the EU’s natural gas and 30% of its oil came from Russia, and the prices were low. The conflict has exposed Europe’s reliance on Russian energy, triggering an energy crisis that has inflated household costs and strained public budgets. Governments face mounting pressure to subsidize energy while funding long-term green transitions.
Defense Spending Pressures:
NATO’s call for members to allocate 2% of GDP to defense risks diverting funds from welfare programs. According to statistics, if Europe undertakes defense independently, Germany alone will need to raise its military expenses from 50 billion euros to 90 billion euros per year, which is equivalent to an additional 1200 euros per German per year. Germany recently announced a €100 billion defense fund, raising questions about fiscal trade-offs. After the Americans abandoned (or said they sold) Europe recently and held talks with the Russian senior representatives in Riyadh, the pressure on the military expenditure of the entire EU will further increase sharply.
Technological Competition:
China’s dominance in AI, 5G, and electric vehicles, coupled with U.S. tech leadership, challenges Europe’s innovation edge. Without strategic investments, Europe risks economic stagnation. Although the share of electric vehicles from China in Europe has decreased due to the impact of tariffs, tariffs alone are not a permanent solution.
Inflation and Social Unrest:
Rising living costs and potential welfare cuts could erode public trust, as seen in protests over energy prices in France and Germany. But for many Europeans, any policy that weakens their personal welfare is fraught with negativity, after all, for decades, they believed that enjoying such welfare was a natural right. So any more radical reform will bring about social instability.

Balancing Military Independence and Economic Growth

To navigate these challenges, Europe must adopt a multi-pronged approach:

Collective Defense and Efficiency:
Pool resources via EU initiatives like the Permanent Structured Cooperation (PESCO) to reduce redundant spending. Joint procurement and shared R&D (e.g., next-gen fighter jets) could enhance capabilities cost-effectively.
Energy Sovereignty:
Accelerate renewables deployment and cross-border energy grids. The REPowerEU plan, aiming for 45% renewable energy by 2030, is a critical step toward reducing fossil fuel imports.
Innovation Ecosystems:
Boost R&D investments in green tech, AI, and quantum computing. Expand programs like Horizon Europe and foster public-private partnerships to commercialize breakthroughs.
Fiscal Reforms:
Modernize tax systems by closing loopholes for multinationals and introducing wealth taxes. This could fund defense and welfare without burdening middle-income earners.