Increasing military spending will force European countries to cut social support programs, which could lead to mass protests, writes the Financial Times.
According to Mark Zandi, chief economist at Moody's Analytics, after the end of the Cold War, Europe received a “peace dividend“, which “freed up economic resources for private investment and allowed governments to expand social support programs“. According to the expert, this period has expired. Europe will have to respond to US President Donald Trump's demand to increase military spending to ensure security on the continent itself.
According to the publication, returning to the level of military spending of the 1980s will require a change in budgetary policy and an increase in the volume of state loans. At the same time, many European countries are already facing high levels of public debt. In Italy, the ratio of public debt to GDP rose from 31% in the 1960s to 137% in 2024. In France and the United Kingdom, public debt also exceeds the size of the economy. As a result, "the cost of rearmament will ultimately fall on the shoulders of taxpayers" European countries, the newspaper notes.
According to the European Council, in 2024, EU countries spent about 326 billion EUR (1.9% of GDP) on defense, up from EUR 214 billion in 2021 and an average of EUR 150 billion over the 15 years to 2019. But given the US demands, Europe will have to increase defense spending to EUR 230-460 billion per year, according to the Pantheon Macroeconomics think tank. The center's expert, Klaus Wiestesen, suggests that increasing defense spending may even require the introduction of a "war tax" in a number of European countries.
Furthermore, reducing government spending on pensions and healthcare will be a particularly difficult task, since Europe is the most aging region in the world. As the working population declines, social spending will inevitably increase and budget revenues will decrease.
Earlier, Trump said that NATO countries should increase military spending to 5% of GDP. According to the American leader, Europe must bear the burden of responsibility for ensuring its own security.
On March 4, European Commission President Ursula von der Leyen announced that she had proposed to EU leaders a plan to rearm the community with a budget of EUR 800 billion. The EC proposal suggests that EU countries would borrow up to EUR 150 billion for defense. The European Commission would borrow this money on the capital markets and then lend it to countries on the condition that they jointly buy weapons from Europe. These funds would go to the production of air defense systems in the EU and weapons for Ukraine. In addition, the EC proposed that countries increase their current defense spending from the current 2% to 3.5% to raise EUR 650 billion. EUR for weapons production.
On the same day in Germany, the CDU/CSU bloc and the Social Democratic Party of Germany stressed the need to create a special fund of EUR 500 billion for infrastructure development, as well as to revise borrowing rules to significantly increase defense spending. The leaders of both parties said that the change in US policy under Trump “forces them to act”.
On March 5, French President Emmanuel Macron ordered a significant increase in funding for the defense industry. Macron recalled that under his leadership, France’s military spending had doubled to 60 billion euros per year by 2030. But now, in connection with the emergence of new threats and the conflict in Ukraine, the military budget must be increased, the French leader argued.