Armed and penniless: Europe’s rising defense spending will strengthen security but may strain some economies

The European Commission’s current measures offer only temporary relief. From 2025 to 2028, defense spending will be excluded from the EU’s deficit rules, but after that, countries will be required to rebalance their budgets. Economists warn that high debt levels also mean high interest rates, which could force future governments to raise taxes or cut pensions.

While admitting the necessity of increasing military budgets, Klaas Knot, a European Central Bank board member and head of the Dutch central bank, stated that it will lead to higher borrowing and complicate both inflation forecasts and monetary policy planning.

There are also potential medium-term challenges. An IMF report on “long-term spending pressures” in Europe warns that providing for aging populations, climate-related needs, and defense requirements could collectively hike public spending by 6–8% of GDP by 2050.

The European Central Bank believes that fulfilling these plans will require issuing significantly more government bonds, a move that could test the market’s capacity to absorb such a large amount of debt. The greatest risks lie with countries that already have high debt levels, most notably Greece and Italy.

There are also political objections. Slovak Prime Minister Robert Fico traditionally opposes increased defense spending, despite his country’s official favorable stance. This time, he took an even more radical approach, suggesting that “neutrality would suit Slovakia very well.” Problems are also expected from Hungary, where Viktor Orbán has consistently fought against raising defense budgets and often places obstacles in the way of allies’ who seek to increase their military outlays. Just two days before the recent NATO summit, Hungary and Slovakia blocked a European sanctions package against Russia — not for the first time.

As always, the ultimate effect depends less on the plan itself and more on its implementation. The European defense sector is well prepared for new investments, says economist Guntram Wolff from the Belgian think tank Bruegel. Production capacities are sufficient, and they are capable of undergoing further growth. What concerns experts is bureaucratic barriers and a low level of market consolidation: combined, these two factors could lead to delays in deliveries.