tactic of using threats to get what he wants in business and politics is something political leaders around the world are gradually growing accustomed to. But the deal to end the Ukraine war the US president is apparently forging behind the scenes with Russian President has rattled government leaders, especially in Europe, who fear Washington could withdraw its military protection of the continent under Trump.
British Prime Minister has responded to these concerns by announcing an increase in the UK’s defense budget to 2.5% of gross domestic product (GDP) by 2027, up from the current 2.3%. He emphasized that this investment would have to be followed up with more defense spending in the coming years and would reflect the UK’s commitment to “securing a just and enduring peace in Ukraine and the need for Europe to step up for the good of collective European security.”
In Germany, political leaders are still struggling to find a response to the British prime minister’s call for a European “coalition of the willing” that should take the continent’s defense into its own hands. Following , the leader of the conservative , , came out as the winner and is currently in talks with the Social Democrats of outgoing Chancellor Olaf Scholz to form a new government. Central to the talks is
How serious is the Russian threat?
For decades, — the alliance’s largest and strongest economic power — to shoulder the main burden of the continent’s defense. Now, leaders in Europe are considering how to respond to the likely collapse of if Trump withdraws US support.
Rafael Loss, a defense and security expert at the European Council on Foreign Relations (ECFR), believes there’s no immediate risk of “Russian troops standing outside Berlin tomorrow,” but warned in an interview to DW that Russia’s aim was to “fracture NATO and the EU, to acquire military dominance over Europe.”
The Brussels-based think tank Bruegel even considers a Russian attack on an EU member state “conceivable.”
“Assessments by NATO, Germany, Poland, Denmark and the Baltic states put Russia as ready to attack within three to ten years,” the think tank said in a recent analysis.
In response to , Germany created a €100 billion ($103 billion) special debt fund to modernize the country’s long-neglected armed forces. Though not yet fully spent, the money is already allocated. However, a steady increase in Germany’s regular defense budget has not yet been achieved.
The challenge of replacing the US military
The Bruegel economists have calculated that US military aid to Ukraine in 2024 amounted to €20 billion out of a total €42 billion. “To replace the US, the EU would thus have to spend only another 0.12% of its GDP — a feasible amount,” they said in their analysis.
Bruegel has also outlined what Europe would need to avoid being defenseless if the US exits NATO. Apart from replacing US combat brigades, ships, and aircraft, it would require boosting European capabilities in intelligence, communications, and command infrastructure that are needed for deploying large, complex military units.
Germany’s military capabilities, for example, remain well below both required levels and allied commitments, Bruegel noted. Berlin’s pledge to supply NATO with two divisions — about 40,000 soldiers — is facing major setbacks, and a more appropriate contribution from Germany, given its size, would be closer to 100,000 troops.
While military hardware is largely a “numbers game,” according to Bruegel, replicating “soft capabilities,” like operational structures and military experience, will be far more difficult. Establishing these capabilities could cost Europe hundreds of billions of euros and take many years.
Jack Allen-Reynolds, deputy chief economist for the eurozone at Capital Economics, estimates that European defense spending would need to increase significantly. In the short term, he told DW, an additional €250 billion per year would be justified. That would bring EU defense budgets to about 3.5% of GDP.
How to finance Europe’s rearmament?
Allen-Reynolds has suggested several ways to finance this massive expenditure. One option is repurposing the European Investment Bank (EIB) or creating a new “rearmament bank” to provide substantial support to the defense sector with minimal impact on national budgets.
Alternatively, the EIB could issue loans to defense companies or create bonds specifically for military projects. This approach would not directly fund military personnel or equipment but would finance European arms manufacturers to boost military production.
The “most straightforward way” for Allen-Reynolds would be if the EU would launch a new program for joint borrowing, comparable to the €750 billion pandemic recovery fund, also known as NextGenerationEU.
“This would be a relatively cheap way for the EU to access the markets as it would benefit from an AAA credit rating and allow the more fiscally constrained governments to avoid borrowing on their own balance sheets,” he said.
However, such a plan — essentially meaning issuing so-called Eurobonds — has long been opposed by all major political parties in Germany, including that of future chancellor Friedrich Merz.
A boost to the eurozone economy?
Bruegel believes that from a “macroeconomic perspective,” a debt-funded increase in defense spending could even boost European economic activity “at a time when external demand may be undermined by the upcoming trade war.”
Concerns over Donald Trump’s threat to impose high tariffs on European cars have led investors to offload auto stocks. Instead, they’ve turned to buying shares in defense companies, seeing them as having strong growth potential.
Rafael Loss also thinks that expanding could have positive effects on the national economy and contribute to overcoming the country’s growth weakness. “If jobs in the automotive supply chain could be preserved by shifting production to defense-related goods, that would be certainly beneficial,” he said, cautioning at the same time against “overestimating” the broader economic impact.
This article was originally written in German.
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