Europe struggles to increase its defense budget according to NATO's requirements

Many NATO members in Europe face high budget deficits, making it difficult to meet the defense budget target of at least 2% of GDP.

NATO’s European members need to increase their contributions by more than $60 billion per year to meet the alliance’s defense budget needs.

The US has repeatedly called on NATO members to increase defense spending, especially under former president Donald Trump, who often complained that the US had to bear a greater financial burden than other member countries. Trump said on February 10 that he had declared that the US would not protect NATO members who did not contribute enough budget to the alliance.

After the outbreak of the Ukraine conflict, the push for NATO members to increase their defense budgets to cope with the threat from Russia has increased budget pressure in Europe at a time when many countries must implement financial “austerity” policy. Economists believe that this will cause the gap between European countries to widen further.

Research by Germany’s Ifo Institute shows that countries with the lowest defense budget-to-GDP ratio compared to the 2% GDP target agreed upon by NATO are also the countries with the highest levels of debt and budget deficits in the world. Europe.

Germany is the country with the largest shortfall, spending $15 billion less than required. Spain, Italy and Belgium follow with shortfalls of nearly $12 billion, $11.7 billion and nearly $5 billion, respectively.

Three countries, Spain, Italy, and Belgium, are among the group of six European Union (EU) countries with debt levels above 100% of GDP last year. Italy is also one of the countries with the highest budget deficit in the bloc, with 7.2%, and this isn’t easy to improve this year.

“Countries with high debt levels and interest costs seem to have no choice but to cut spending in other areas. This is not easy. Germany has sought to reduce diesel subsidies for the sector of agriculture, but faced a backlash from farmers,” said Marcel Schlepper, an economist at Ifo.

Matthew Miller, spokesman for the US State Department, acknowledged that the EU has made efforts to push NATO members to reach the target of 2% of GDP for defense budgets. Washington has long wanted Europe to increase defense spending and become more self-sufficient in security. Former President Trump’s threats have made many coalition members worried about the future if he is re-elected in November.

NATO’s total defense budget last year was 1.2 trillion euros, with the US contributing more than double the 361 billion euros that EU members Britain and Norway combined.

New EU fiscal rules for next year are expected to push countries to make deeper spending cuts to comply with a 3% annual budget deficit cap and a 60% debt-to-GDP threshold. More than 10 countries in the bloc could exceed the annual deficit ceiling, which could leave them facing sanctions from the European Commission.

However, in negotiations late last year, Poland, Italy and the Baltic states successfully lobbied to avoid the risk of fines under the new rules. Accordingly, the European Commission will consider defense spending as a mitigating factor when assessing whether to punish countries that exceed the annual deficit ceiling.

Poland plans to spend more than 4% of GDP on the defense budget in 2024 and become the country with the largest spending level in NATO. This means Warsaw can be considered for reduced sanctions when violating the EU ceiling.

NATO Secretary General Jens Stoltenberg said last week that two-thirds of the alliance’s members expected to meet the 2% of GDP target for defense budgets this year, up from three in 2014, when Russia annexed the peninsula. Crimea.

Eurozone countries are on track to increase their defense budgets from nearly $163 billion in 2021 to more than $347 billion in 2026, according to Pantheon Macroeconomics. This week, Norway became the latest NATO member to announce it will meet its target of spending 2% of GDP on defense by 2024, a year earlier than planned.

Lorenzo Codogno, a former Italian Finance Ministry official and now an economic adviser, said this target would be “difficult” for Italy, whose debt level was over 140% of GDP last year if there were no regulatory exemptions—regulations or support from the EU.

“The threat from Russia is not considered great enough to justify the decision to cut social benefits and investment in weapons,” he said.

NATO surveys show low public support for the idea of ​​increasing defense budgets in countries with low contributions. Only 28% of Italians think their country needs to increase military investment, while 62% want to maintain or cut the current level of 1.47%.

Despite being home to NATO’s headquarters, Belgium spent only 1.2% of GDP on its defense budget last year, one of the lowest contributors in the alliance, according to data released last week. Spain Russia is slightly higher at 1.24%.

Except for 7 European countries committed to completing the 2% target this year, including Sweden, a country that has just been admitted, Ifo pointed out that Europe has a defense budget deficit of 38 billion USD compared to the plan.

“We are moving in the right direction, but too slowly and too late,” Polish Foreign Minister Radosław Sikorski said last weekend, pointing out that Russia’s defense budget is expected to reach 7% of GDP this year. “Russia is moving into a wartime economy. European economies must at least move into crisis mode.”