If there is one thing American and European leaders agree on at a fractured time in trans-Atlantic relations, it’s that Europe has spent much too little, for far too long, on its own defense.
War in Iran has underscored that point, reducing even Europe’s strongest militaries to bystander status as the United States and Israel rain missiles on Tehran. Privately, European officials say they have little leverage to pressure President Trump to end the war quickly, largely because they do not have the offensive or defensive firepower to alter the course of the fighting.
The war has also complicated European leaders’ efforts to change that dynamic. It has further strained an already difficult trade-off between what governments spend on people and what they spend on the machines of war.
That trade-off is classically known as the “guns versus butter” problem, and it has emerged as the defining political and fiscal challenge for European governments in the years to come.
Most European countries have realized that they need to spend a lot more on guns to reduce their military dependence on the United States. That probably means spending less on “butter” — nonliteral shorthand for social benefits like welfare payments and pensions — because many European governments have exhausted their ability to borrow cheaply and spend more.
Shifting that balance could be fiscally and politically painful. Rapid rearmament is expensive. As Europe’s populations age, governments need to spend more on social care, not less. And opposition parties have courted voters by promising to keep spending big on butter, raising the political risks for leaders who don’t.
War in the Mideast threatens to pile costs onto already strapped governments, who are under intense pressure from voters to buffer the pain of soaring oil prices, through tax cuts or spending initiatives, and whose economies are saddled with low growth and high debt.
Many European countries are now “caught a little bit between a rock and a hard place,” Pal Jonson, Sweden’s defense minister, said in an interview.
“This journey should have started much earlier,” said Mr. Jonson, whose country — which has nearly tripled its military spending as a share of its economy since 2017 — started earlier than most.
Why Europe stocked up on butter, until it couldn’t
The current predicament was seeded at the start of the Cold War. The United States spent heavily on European defense, stationing troops and weapons across the continent to deter the Soviet Union.
Washington’s European allies, including a war-chastened Germany, spent much less — by design. Instead, they invested in cradle-to-grave welfare services for their citizens, like health care and state pensions. That deal held through the fall of the Berlin Wall and into the 21st century.
President Barack Obama and President Joseph R. Biden Jr. prodded European leaders to begin to buy more guns. But it was Mr. Trump who drove the message home. He flirted with pulling the United States out of NATO and scolded European allies for spending too little on their militaries.
When Mr. Trump returned to the White House, European officials rushed to lift their military spending.
Why it’s hard to stop buying butter
Fiscally speaking, the timing of the Trump-induced military spending spree was not ideal.
Europe’s vaunted pension systems were designed for much younger societies in which large workforces could support current retirees and then be supported in turn by younger generations as they aged.
Today, Europe is aging faster, and the system can’t keep up.
Longer life expectancies have extended the amount of time that retirees collect pension payments. Falling birthrates mean there are fewer younger workers. So pensions cost more, and Europe’s economies aren’t growing fast enough to increase tax revenues to pay for them.
To bridge that gap, and to support new military spending, governments must raise taxes; cut social benefits; welcome immigrant workers, who pay taxes and bolster economic growth; or borrow money. The first three options tend to be unpopular with voters. More borrowing is increasingly expensive, and sometimes not really an option. Only Germany, which kept its borrowing relatively low, is now able to embark on a large borrowing spree to reassemble a world-class military.
“Italy, Spain and France have limited fiscal space for pretty much any new big spending program,” said Christoph Trebesch, an economist at Kiel University in Germany.
Why it’s costly to buy guns
For most countries, the budget math is daunting. France is a good example.
French government researchers have estimated that the country will need to spend 3.5 percent of its economic output to meaningfully improve its defense.
Covering that cost would require a nearly 10 percent increase in the national VAT tax over the next five years, or an almost 10 percent increase in wealth taxes on the “ultra rich,” the researchers estimated.
Raising the money via spending cuts would be even more difficult. Welfare spending represents approximately one-third of France’s annual economic output. There is little public tolerance for reducing it, especially if that means overhauling pensions, which make up nearly half the costs.
Far-right parties across Europe, including the National Rally in France and the Alternative for Germany, have wooed working-class voters in part by opposing pension cuts. President Emmanuel Macron of France and Chancellor Friedrich Merz of Germany have both faced opposition to their efforts to alter social programs.
Other spending programs are already feeling the crunch, including the development and aid programs that European countries use to help impoverished states.
“Our public budget is shrinking,” Reem Alabali Radovan, the German minister for development, said in an interview. Policymakers will need to find creative ways to improve aid, she added, because “It’s going to shrink more.”
War in Iran brings new challenges, which could grow. The conflict has choked tanker traffic through the Strait of Hormuz and sent global oil prices skyrocketing. Lawmakers across Europe are already facing calls to provide relief at the gasoline pump.
If the oil shock persists and causes deep economic pain, as some forecasters predict, governments will come under pressure to spend more or to cut taxes to try to reignite growth.
That strategy only works if it is possible to raise borrowing without encountering a fiscal crisis, and many experts worry Europe could encounter one.
“How long can this go on before markets react?” said Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, a multilateral institution that focuses on Eastern Europe.
“Crises take longer to happen than you think,” she added. “But once they happen, they happen much faster.”
Jim Tankersley is the Berlin bureau chief for The Times, leading coverage of Germany, Austria and Switzerland.
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