Europe looks set to become a “war economy” for a long time: What consequences?

After the COVID crisis and in response to the war in Ukraine, Europe will inevitably have to : Move strategic production onshore (medicines, medical equipment, renewable energy equipment, semiconductors); Gain energy independence ( and therefore rapid ly develop renewable energies and nuclear power); Develop and modernise its defence forces. This will require considerable public and private investment. Accordingly: The share of Europeans’ savings that is currently lent to the rest of the world will be redirected back into financing investments in Europe. This is positive for Europe, but negative for the countries that currently receive these savings (the United States); Fiscal deficits will be allowed to remain high and monetary policy highly expansionary to facilitate the financing of the necessary investment; After the initial loss of growth due to the rise in energy and other commodity prices and energy and commodity supply difficulties, European growth will be strong, driven by fiscal deficits, private investment and low interest rates; After falling initially due to the war in Ukraine, equity markets will pick up vigorously on the back of fiscal stimulus, higher growth and negative real interest rates.