Perspectives on The Economy of War And Ecological Planning

The following remarks are an attempt to answer to the questions raised during the colloquium hosted by le Grand Continent, “Après l’invasion de l’Ukraine, l’Europe dans l’interrègne” which I had the honor of participating in by being a part of the panel devoted to the economy. The questions raised are the following: “For nearly three months, the war waged by Russia and Putin against Ukraine has changed everything. How can we understand this unprecedented crisis? Between inflation, debt, and planning, what will be its economic consequences? What place will France and Europe have in this new geopolitical contest? In 2022, what does it mean thinking the war?”

This new situation “changes everything”. It could be said that we have passed a point of no return, and that we are experiencing new global tectonics where concrete relationships between continents are at stake, but where we also risk sliding towards a clash of civilizations, certainly not due to a lack of values but due to the failure of realism in the mediation of these very values.

But perhaps it is a good thing that we have reached this point of no return because, to be frank, there is nothing glorious about the thirty years that now lie behind us. They were without doubt adventurous years, though we may have sometimes moved through them as mere adventurers.

Why? Because, following the bipolarity of the post-war era, we ventured into the unexplored territory of the globalized technological world while believing that we already knew how this adventure should unfold. It is this hubris that poisoned the adventure. And which, even as the westernization of the world was promoted as being a process as beneficial as it was necessary, prevented us from asking ourselves above all, as Westerners and Europeans, this simple question: which West and which Europe are we talking about? 

We thought we already knew everything. Today we are rediscovering this fundamental uncertainty that we thought we had freed ourselves from.

Paradoxically, this is even more true for Europe than for the United States because of the wayin which the process of European integration was handled. After having been lulled by the idea of an inevitable integration, we are now facing the risk of disintegration — which is not inevitable, as well — but which hints to us that, if we want to preserve “a certain idea of Europe”, we must fight. Against ourselves first and foremost. And since we face a point of no return, we must once again relearn how to forge ahead and how to do so differently than in past decades. What we must know how to think about and achieve are transitions.

In this new situation of war and uncertainty many transitions are at stake. I will focus here on the most pressing.All these are effective, material, and technological transitions, which at the same time require a transition in our way to approach transitions. Indeed, it is not so much a question of planning, but of learning how to govern them, both economically and politically.

I will identify three of these transitions, all of which are at the heart of le Grand Continent’s research — I am thinking above all of the articles by Olivier Blanchard and Jean-Pisani-Ferry ¹ , as well as Pierre Charbonnier ² — and which have, in my opinion, crucial reciprocal implications. These are the ecological transition, the geo-energetic transition, and the budgetary and financial transition.

They are concrete transitions, whose aim is to lead us not to an ideal world outside of the technical/technocratic/technological one, but within it, while at the same time relying on the thing that once made Europe “the pearl of the globe”: its ability to reflect on the challenge that modern technology represents. This change represents a challenge to the traditional conceptions of politics and freedom which, despite being noble, are perhaps no longer up to the task of governing the world that technology promises, and sometimes imposes, on us. Especially when we do not make the effort to think it.

We already know how to wage hyper-technological wars, we already know how to militarize the economy, to “weaponize” finance, and even ecology. But are we capable of working towards a peace that is not only dreamed of, but real? This is not just a matter of Europe participating in global competition as a protagonist instead of simply following the herd, but of doing so in such a way that it contributes to civilizing this very competition. This is what a true “European geopolitical awakening” would do, to borrow Luuk van Middelaar’s ³ term.

We are all — Europeans, Americans, Asians, Africans — embedded in a technicized/technologized civilization. It is through this perspective that our thinking should be guided.

The ecological transition

The task of decarbonization, which is at the core of the Green Deal, pushes Europe towards a radical redefinition of its energy mix, by giving a central, if not a predominant role, to renewable energies. The problem with these renewable energies, as we know, lies in their intermittent nature; they are generated periodically and not necessarily when needed. Here, technology collides with nature, since we cannot command the sun and the wind.

Moreover, the electrical power and the grid only stores this flow to the extent that it maintains voltage. Any surplus relative to usage must therefore be stored somewhere, waiting to be used at some other time. This is a “banking” or, better, a “buffer stock” model, which has been effectively used in traditional renewable energies, such as hydroelectricity, but which needs to be revisited in order to be adapted to wind and photovoltaic power. The solution here is clearly batteries.

This is why, where the electrical grid is concerned, the transition to renewable energies implies a dual infrastructure goal at the European level. First is its integration, which would involve ending the segmentation of the European electric market and the efficiency losses it entails, but which will also require massive investments in the grid (estimated at around €375 to €425 billion by 2030). Second, its stabilization, given the structurally intermittent nature of renewable energies, which implies a significant increase in storage capacity.

However, here lies the primary problem: a massive shift to renewable energies would mean such an increase in demand for storage equipment in Europe that it could easily cause a supply crisis.

Even if we begin with fairly conservative assumptions about the pace of the transition and consider only the demand for batteries for renewable energy production (i.e., not counting the need for batteries for electric cars), an exercise in approximation for Italy alone (which I carried out with one of my teams, assuming an increase in electricity needs of less than 30% over ten years) gives Italy a cumulative storage need equivalent to the world’s battery production in 2021. The same exercise applied to just the Eurozone would result in an increase in potential storage demand equivalent to about eight times current global production.

It is therefore obvious that the transition to renewable energies requires investments not only in production but also in the search for more efficient solutions in the storage sector. If this was true before the war, it has now become even more crucial.

The geo-energetic transition

The first transition may seem purely technological, but the war has revealed another facet which shows its direct impact on very hot geostrategic issues, as Pierre Charbonnier ⁴ has illustrated. He quotes the German Minister of Finance, Christian Lindner, definng “renewable energies — which are the silver lining of independence from Russian gas — as the foundation of future freedom”. It is up to us to see if and how true this is.

Before the war, we counted on natural gas to navigate the transition to decarbonization and renewable energies, without much reliance on nuclear energy. Technically speaking, natural gas would have allowed us to manage periods of peak demand.

Not only is natural gas no longer the solution, it has even become the problem. Olivier Blanchard and Jean Pisani-Ferry ⁵ correctly noted that while the petroleum market is global, the natural gas market is regional. In the present tectonics, this dependence not only becomes an obstacle to overcome, but also something which is almost insurmountable in the short-term, a phase we risk being stuck in for as long as we lack a long-term vision. To paraphrase both Keynes and Woody Allen, if the short-term lasts too long, it is in the short-term that “we are all dead”.

What is clear is that this new situation is pushing us towards even greater European integration. Without it, no real European positioning vis-à-vis major global actors is imaginable. Energy independence would seem to be a precondition for this greater integration.

The International Energy Agency’s ten-point plan was a first step, but the only long-term solution — which must begin to be planned now — is a change in the energy mix which will structurally reduce the share of natural gas, and therefore increase the share of renewable energies. The Commission’s document, prepared by the Directorate General for Energy and published on 18 May ⁶ , looks in this direction with the intention of providing a strategic solution at European level. 

This solution poses however another problem because, given the state of battery production technology, it risks pushing Europe towards a new geopolitical dependence, this time on China. Far from being the foundation of future freedom, the shift to renewable energies risks becoming a new form of dependence — even a dual dependence. The first is due to the Chinese quasi-monopoly, not so much of lithium, but of rare earth elements; the second is due to its quasi-monopoly of production, based on economies of scale and with a technological advantage that is difficult to breach or even to attain.

Given existing supply constraints, an acceleration towards renewable energies at the expense of natural gas would risk putting Europe in double jeopardy.

Overcoming this risk makes a common — or at least highly coordinated — industrial policy based on massive investment in research and production even more necessary. This brings me to the third transition.

The budgetary and financial transition

What I have just exposed necessarily involves public industrial policies, public investment, and, finally, coordination.

How, then, do we have to plan the transition? Perhaps it is not a question of planning in the traditional sense of the word ⁷ , which refers to a form of statecraft that is not without risk, both economic and political, but of finding appropriate forms of coordination.

The socialization of investment that Keynes advocated in the 1930s does not necessarily coincide with its nationalization. With this wording, Keynes rather names the political project of placing investment, both public and private, as well as its financing, in a time horizon that tends to structurally exceed the private logic, and thus the self-regulating markets.

Indeed, the socialization that Keynes was thinking of is also, and perhaps above all, a socialization of the relationship to time implied by investment and its financing. It is indeed this kind of socialization that we need today because what the “ecological transition” must bring about in a time of war, though with peace in mind, is the whole of society, and without increasing inequalities but rather reducing them. 

This is why, in Europe, the question of planning is becoming not only that of reviving the logic that underpins the NextGenerationEU or REPowerEU plans, but also the question of financing these plans, and more generally the financing of public debts, which the new tectonics will only increase. The debate in Europe is therefore open on how to finance the new budgetary expansions, which will be as much national as European.

Let me put it in a way that takes into account both our starting point and our end goal: it is a matter of shifting from a mindset of competition between states to gain access to financial markets, based on the assumption that the efficiency of these markets imposes “discipline” on fiscal policies, to a mindset of cooperation between states in their relationship with markets, one that takes into account the potential irrationality of markets, which can lead to multiple equilibria, dominated by self-fulfilling prophecies.

This is indeed the idea behind a European debt agency which was introduced in December 2021 by Mario Draghi and Emmanuel Macron in a letter published in the Financial Times ⁸ . In this letter they call for new European rules that are more favorable to investments and mention the proposal of an agency for managing Covid-related debt.

But in an extraordinary situation like the one we find ourselves in, the distinction between normal debt and extraordinary debt may begin to lose its meaning.

Since 2019 I have been working with my colleagues on the proposal for a European Debt Agency which would be 1) as non-mutual as it is cooperative, 2) capable of absorbing all the debt of the Eurozone, and 3) able to help the Union’s transition to a central fiscal capacity.

I outlined this proposal on the pages of le Grand Continent ⁹ . I will not go into all the details because what is important for me here is to highlight an aspect which is crucial to our discussion: the ability of such an agency to issue a eurobond that can work as a truly European and safe asset.

In the present tectonic that we will have to learn to navigate, a European safe asset is a political priority that can hardly be bypassed, both externally, as far as the Union’s global standing in the international monetary context is concerned; and internally, if we wish to move away from home biases and build a true European banking union capable of supporting private investment.

What is at stake is at once increased political unity and economic efficiency, both conditions which are indispensable if we wish to usher in a new and sustainable era of investment for the transition.

Referring to the ecological transition in a time of war, Pierre Charbonnier wrote that it is a matter of “creating a collective mobilization and a community of interests in European society”. He even suggested “behind the ecology of war, ecological patriotism” ¹⁰ . I believe rather that the homeland we are all called upon to learn to inhabit is, as contradictory as it may seem, a technological homeland.

We have mentioned several times the anachronism of a 20th century — or even a 19th century — style war in the midst of the 21st century. Of course, we must learn to “rethink war” ¹¹ . All the more so as there is a risk that this anachronism will extend to the notions of peace and order for which we are “fighting”.

If Europe has a say in escaping this dual anachronism, it is because it also a say about this contradiction I mentioned: the way in which we in Europe can think about the transition can help everyone to come to a more precise, more accurate and more truthful understanding of the technological world in which we live. That is to say, one in which we must learn to take the risks that are ours.

1. Olivier Blanchard and Jean Pisani-Ferry, “Une politique économique de guerre”, le Grand Continent, April 28, 2022.
2. Pierre Charbonnier, “La naissance de l’écologie de guerre,” Le Grand Conti, March 18, 2022.
3. Luuk van Middelaar, “Le réveil géopolitique de l’Europe,” Le Grand Continent, April 15, 2021.
4. Pierre Charbonnier, “La naissance de l’écologie de guerre,” Le Grand Continent, March 18, 2022.
5. Olivier Blanchard and Jean Pisani-Ferry, “Une politique économique de guerre”, le Grand Continent, April 28, 2022.
6. REPowerEU Plan. See “The RePowerEU Plan,” le Grand Continent, May 18, 2022.
7. Louis de Catheu and Ruggero Gambacurta-Scopello, “Un État pour la planification écologique”, le Grand Continent, May 5, 2022.
8. Mario Draghi and Emmanuel Macron, “The EU’s fiscal rules must be reformed”, The Financial Times, 23 December 2021.
9. Massimo Amato, “Pour une agence européenne de la dette”, le Grand Continent, 21 February 2022.
10. Pierre Charbonnier, “La naissance de l’écologie de guerre,” le Grand Continent, March 18, 2022.
11. Etienne Balibar, Anne-Claire Coudray, Élisabeth Roudinesco, Marc Semo, Georges-Henri Soutou, “Penser la guerre dans l’interrègne”, le Grand Continent, 26 May 2022.