How Can Europe Close Its Defense Spending Gap?
Europe is stepping up its efforts to boost its defense spending. Considerable progress has been made — but hurdles remain.
March 10, 2025
Defense spending in the EU is expected to rise by €140 billion annually — from 2.2% to 3% of GDP.
Doubling current military capacities in two years would require spending 4% of GDP, translating to €320 billion annually.
Half of the increase would be spent on equipment — up from the current 25%.
EU debt funding is the most likely short-term source of funding, especially with €300 billion in unused Next Generation EU funds available until 2026.
However, EU debt has already reached a level of €840 billion by the end of 2024.
Indeed, the EU as an issuer has already surpassed all states except France in net debt issuance.
This funding path for defense will translate into debt-servicing costs rising to 20% of the EU Commission’s budget by 2026 — up from virtually zero pre-Covid.
This raises concerns about long-term fiscal sustainability and potentially further rising yields if military spending is not eventually funded via tax hikes or spending cuts in other parts of national budgets.
23 out of 32 NATO member countries are also EU member states. Only four EU member states are not members of NATO — Austria, Cyprus, Ireland and Malta.
NATO member countries in 2014 agreed to commit 2% of their national GDP to defense spending in order to ensure the alliance's continued military readiness.
Sources: Allianz, NATO, Reuters, Statista, EuroNews, Carnegie Endowment for International Peace. European Defence Agency
Takeaways
Europe is stepping up its efforts to boost its defense spending. Considerable progress has been made — but hurdles remain.
Defense spending in the EU is expected to rise by €140 billion annually — from 2.2% to 3% of GDP.
23 out of 32 NATO member countries are also EU member states. Only four EU member states are not members of the alliance — Austria, Cyprus, Ireland and Malta.
