Higher defence spending won’t save Europe
Against the backdrop of the collapse of Ukrainian defensive lines in Avdiivka last week and presidential frontrunner Donald Trump saying that he would not defend Europe in the face of a Russian attack, calls for increased military expenditure in Europe grow ever louder. These calls appear to be emerging from the defence ministries of various countries, but it is unclear whether they are discussing these plans with their counterparts in the finance ministries.
The reality is that, after years of spending on lockdowns and energy subsidies, the average European country is struggling economically. The situation in Germany highlights this well: earlier this month the government announced its budget and committed to a limiting debt issuance to €39 billion. This, it argued, would abide by the country’s constitutional debt brake of 0.35% of GDP.
Germany currently spends 1.4% of its GDP on its military. Yet the country’s Defence Minister Boris Pistorius has recently floated the idea of raising it to 3.5% of GDP. A quick calculation suggests that hitting this target would cost around €80 billion, raising the question of where Pistorius thinks the money is going to come from. The disconnect between rhetoric on military spending and budgetary realities is glaring in country after country, yet the media never seems to raise the question with politicians.
In response to Trump’s comments, British Defence Secretary Grant Shapps told Nato allies to keep their pledges to spend 2% of their GDP on defence. But it is not clear if 2% of GDP spent on defence can even do much to help. In 2022, Britain spent 2.2% of GDP on its military, which still isn’t in good shape. In 2023 the British Army had 75,980 active personnel while the German Bundeswehr had more than double at 181,670 — despite Germany spending less on its military than Britain.
Then there is the question of deindustrialisation. After denying that Europe was deindustrialising due to a lack of cheap Russian gas for months, politicians and commentators are now accepting this reality. But how can Europe retool its military if its factories are facing closure? European military output was lacklustre even prior to Russian gas being shut off; now that the continent faces a rolling crisis of energy costs, do defence ministries across the continent really think that it will improve in the future?
What’s more, economies across Europe are stagnant, tipping in and out of recession. Last week it was announced once again that Britain was back in technical recession. These technical recessions are not real recessions, of course, because we do not see widespread job losses. But at some point, a real recession will rear its ugly head due to the fragility of these stagnant economies. At that point, the budgetary pressures currently felt will be greatly exacerbated by falling tax revenues and rising unemployment claims.
Our leaders increasingly appear to be living in a fantasy world, completely detached from the economic realities that we face. They seem to think that arming Europe in preparation for a war with Russia that will likely never come is simply a question of will. But the reality is that there are real constraints to such plans, whether budgetary or industrial. If wishes were horses, then beggars would ride, as the old proverb has it — and it looks increasingly like European defence ministers will be walking to work in the coming years.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics