Introduction
Is Europe ready for its own defence? Donald Trump’s return to the White House has generated worldwide uncertainty, especially among European politicians apprehensive about America’s involvement in NATO. Trump’s assertions implying that U.S. defence assistance is contingent upon financial contributions have heightened concerns regarding European security, particularly in light of the persistent Russian aggression in Ukraine. The EU has initiated the “ReArm Europe” program, markedly increasing military expenditure. This transition increases concerns regarding increasing debt and reductions in social programs, making the equilibrium between security investments and financial stability a critical challenge.
EU’s apprehension and the ReArm Europe Initiative
Since Donald Trump has been re-elected as the President, leaders around the world have been perturbed regarding his foreign policies and US security support. The risks for European leaders have increased as President Donald Trump questions his willingness to defend NATO allies. While speaking at the Oval office, he said, “If they don’t pay, I’m not going to defend them. No, I’m not going to defend them.” According to President Trump, NATO countries should be paying more money to the alliance. This statement suggests that President Trump might not continue with traditional US security commitments. Moreover, US suspended its military aid to Ukraine like deliveries of ammunition, vehicles and other equipment. This created uncertainty for allies for their security support from US.
The European leaders recognized the importance of a unified, independent approach to security and the uncertainty over continued American support. As a result, a London summit was held on March 2nd 2025, which brought together European leaders and international partners, discussing mainly on achieving peace in Ukraine. A major discussion was on increasing defence spending by raising the EU’s defence budget and strengthen collective security from the emerging geopolitical threats.
Following the London Summit, on March 04th 2025, the European Commission President declared the “ReArm Europe” initiative in which EU planned to increase its military spending up to €800 billion over four years. The new defence package was announced looking at the current geopolitical scenario with uncertainty over Trump-like policies and heightened security concerns with Russia’s invasion in Ukraine. With this expansion of defence budget, Europe plans to become more responsible for its own security.
In 2014, several NATO countries agreed to spend 2% of their GDP on defence, however, which has only increased since Russia’s full scale invasion in Ukraine. Under the ReArm Europe plan, the central idea is to enable the EU member states to increase the military spending by an average of 1.5% of GDP over the next four years.
Germany has agreed to increase its defence and infrastructure spending which can highly impact the Europe’s defence landscape. Germany’s would-be next chancellor, Friedrich Merz emphasized on the importance of strengthening defence capability and stated that ‘ whatever it takes must also go for our defence now’. Germany’s plan is to create €500 billion fund for infrastructure and exempt from previous debt rules to spend on defence and security along with intelligence agencies and provide assistance to Ukraine.
Similarly, PM Kier Starmer, announced a blueprint aiming to boost UK’s defence spending. UK is planning to increase its defence budget to 2.5% of GDP by 2027. The idea is to reduce overseas development budget and spend more for military purposes, prioritizing national security.
France’s plan of action is to increase its defence spending from the current annual €50.5 billion to €90 billion as declared by Defence Minister Sébastien Lecornu. Two years ago, France had initiated a similar increase in the defence spending for the period 2024-2030. This time, France almost doubled its military budget. President Emmanuel Macron has big plans with military budget where he is planning to increase orders for Rafale fighter jets and invest €1.5bn in an air base as part of the country’s nuclear deterrence. His plan also includes making Luxeuil-les-Bains as the first base to host next-generation Rafale fighter jets. This shows France’s commitment towards building a strong air base for country’s nuclear deterrence.
Adverse effects of increased military spending
Strengthening military power with significant amount of GDP will affect the country with high-debt costs, cuts in social spending and political challenges. Public finances are the primary source which has the ability to support the decision of rapid increase in defence spending without impacting the mid-term debt dynamics. Nevertheless, this impact varies in every country’s scenario. Moreover, in short-term, the economy will benefit from higher military spending but in long term, the country might face debt crisis with rise in economic problems. Industries like technology and renewable energy provide long-term boost to the economy whereas military spending does not necessarily produce long-term benefits. A Goldman Sachs study predicts a small economic boost from the military spending. Europe will have to sell its weapons globally to generate enough profits and sustain its economy. Therefore, the budget spending needs a careful consideration.
A report suggests that, in order to match the level of US military, Europe will need to recruit around 300,000 additional troops and an annual defence budget increase of €250 billion. A study by RAND Corporation provides a breakdown of the amount that should be allocated for salaries and maintenance, equipment procurement, infrastructure and logistics. This will require the defence budget to go beyond 3.5% of GDP.
EU’s plan to ramp up its military capabilities includes borrowing €150 billion to provide loans to country for military spending. The Security Action For Europe (SAFE) initiative is a detailed plan for EU with an objective to reduce reliance on external security suppliers like United States. The EU has exempted its countries from standard fiscal regulations to provide flexibility in borrowing. This spending will be primarily utilised for missiles, drones, air defence systems, cyber security and military mobility. In addition, the equipments are to be sourced within EU. However, this borrowing can add up to the existing national debt. The loans taken by the member states for defence investments will only increase country’s debt later. Secondly, the money required for better defence capabilities will be gained by cutting social spending and public services. This creates a “Guns Versus Butter” situation where government has to trade-off between national defence and consumer goods. Each country’s money supply, tax revenues and other income resources are limited, therefore it is practical for the government to sacrifice spending in specific sectors to increase the spending for other purposes.
Germany, for instance, with its ambitious plan to boost its military spending, will now spend 2-2.5% of GDP for defence purposes. For this, Germany is going beyond its stringent borrowing limits and changing its financial rules. This spending will allow for better defence capabilities with new weapons, tanks and infrastructure with enhanced security. There will be a scope for boosting its economy with more jobs in defence industries, more production and economic activities. On the other hand, higher military spending also means more borrowing and more debt. Germany has kept its debt under control, but now there is a possibility that it could rise to 94% of GDP. Secondly, there will be cuts in other essential social spending like healthcare, education and social programs. Thirdly, an increase in the government borrowing now might lead to increase in taxes later to pay off the debt. Germany aims to balance its military spending with a stable economy and keeping its debt under control. To control the debt situation, the government might compromise on the social spending impacting sectors like healthcare and education.
Conclusion
Europe’s decision to increase military expenditure signifies a notable transition towards strategic autonomy, however it involves considerable economic concerns. Inflation in Europe continues to be unpredictable, particularly due to potential U.S. tariffs under Trump’s administration that may increase expenses for essential goods and materials. The European Central Bank (ECB) warned that heightened defence borrowing, coupled with escalating inflation, may exert pressure on national economies, complicating the maintenance of financial stability. The repayment of loans for military expansion may burden future budgets, resulting in increased taxes and reductions in social services. If not carefully managed, Europe’s security objectives could result in significant economic expenses.
Differing prioritization within European countries will pose significant difficulties for the initiative taken by EU. National interests take precedence over collective decisions leading to inefficiencies, duplication in weapons production and a lack of standardization. Different procurement strategies and disjointed arms export regulations exacerbate coordination challenges, impacting the successful implementation of defence initiatives. The initiative requires a robust leadership for its success; yet, it is uncertain who will take the leadership. In the absence of a central authority to coordinate strategies and facilitate implementation, the initiative is likely to stagnate.
Another critical challenge to the ReArm Initiative is the shortage of military manpower. With US’s less involvement in Europe, EU and NATO partners will have to recruit around 200,000 to 300,000 additional troops to safeguard Ukraine and counter Russian aggression. Integrating national armies into a unified European force presents significant political and social complexities. It is crucial to have an integrated command for these forces and the alignment of defence decisions with national politics, which still remains in question.
