EU Defense Spending: The Numbers

EU governments have pledged to increase defense spending to fulfil the NATO target of 2% of GDP. If and when that level is reached, it would amount to two-thirds of the current defense spending level of the United States at 3%.

Increasing the share of defense spending to 2% of GDP in all EU member states until 2028 would require a total of EUR 470 billion in additional spending.

In 2022, general government expenditures for defense in today’s 27-member EU stood at 204 billion.

Back in 1995, EU countries’ defense expenditures corresponded to 1.6% of GDP and declined to 1.3% of GDP in 2022.

The country with he highest general government total expenditure on defense in the EU is Greece. The country with the lowest is Ireland.

While the welfare budgets have generally received a big boost over time, defense expenditures have not kept pace with general GDP and total expenditure growth.

The largest single expenditure item in EU countries’ budgets are expenditures for social protection. In 2022, they accounted for 39% of total general government expenditures in the EU 27.

For the EU to reach the share of 3% of GDP that is spent by the United States on defense today it would need additional defense spending of EUR 1,110 bn over the next five years.

The EU has three options to fund increased defense spending: Cutting expenditures in other functions, debt financing or increasing taxes.

To keep the overall expenditure level stable would require expenditure cuts of -8.6% in Spain, -7.7% in Germany, -6.5% in Italy and -4.8% in France.

Relying on debt financing would result in a total additional interest burden of around EUR 12.1 billion in 2028. This is roughly equivalent to the amount spent on biodiversity and landscape protection in the EU 27 in 2022.

What about increasing taxes? Assuming there are no shifts in the tax income structures, the VAT rate would have to increase by 0.6% on average across the EU-27 in 2028 – ranging from 0.1% in France, 0.5% in Italy and 0.7% in Germany and Spain.