Britain’s Financial Times has reported that NATO members in Europe need to find an additional €56 billion annually to meet the target expenditure through defence spending.
According to a study by the German Ifo Institute, countries in the EU such as Italy, Spain, and Belgium are struggling to meet NATO’s defence spending target of 2% of GDP, while also grappling with high levels of public debt and budget deficits.
This exacerbates the budgetary pressure to increase defence spending, amid sluggish economic growth rates. Economists warn that this will further complicate the efforts of lagging countries to catch up.
Germany, which last year fell short by €14 billion in defence spending compared to the 2% GDP target, has made significant strides in narrowing this gap over the past decade, adjusted for inflation, and plans to fully overcome it by 2024.
Following Germany, Spain recorded a deficit of €11 billion, Italy €10.8 billion, and Belgium €4.6 billion. These countries were among the six EU nations whose debt exceeded 100% of GDP last year.
Italy also had one of the highest budget deficits in the bloc at 7.2%, with interest payments on loans exceeding 9% of government revenue this year.
“Countries with high debt levels and interest expenses have limited options for borrowing, so the only real way to do it is to cut spending in other areas. This is not easy, as we saw when Germany tried to cut subsidies for agricultural diesel fuel, and farmers protested,” said economist Marcel Schlepper from Ifo.
The issue of NATO funding imbalance is not new.
Last year, two-thirds of NATO’s total defence spending of €1.2 trillion came from the United States, more than twice the amount spent by EU members, the UK, and Norway combined, which totaled €361 billion.
New EU fiscal rules, set to be enforced from next year, are expected to further reduce budgets as countries strive to adhere to the 3% annual deficit limit and 60% debt-to-GDP threshold.
It is anticipated that over 10 bloc countries will breach the annual deficit limit, likely leading to sanctions from the European Commission.
However, during negotiations concluded last year, Poland, the Baltic countries, and Italy successfully campaigned for a more favourable treatment of defence spending under the new rules.
Therefore, the European Commission will consider military expenditures as a mitigating factor in assessing whether measures should be taken against countries exceeding the annual deficit limit.
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