NATO’s European members need to find an extra €56billion a year to meet the alliance’s defense spending target, but the shortfall has halved in the past decade, according to research by Germany’s Ifo Institute for the Financial Times, Ednews informs.
The research showed many of the EU countries with the biggest shortfalls in NATO’s target for defense spending to hit 2 percent of gross domestic product — including Italy, Spain and Belgium — also have among the highest levels of debt and budget deficits in Europe.
The push for the 32 members of the US-led alliance to boost defense spending in response to Russia’s full-scale invasion of Ukraine is stoking budgetary pressures in Europe at a time of low growth and when many countries are tightening their fiscal plans. Economists say this will make it harder for the laggards to bridge the gap.
The biggest shortfall by value was in Germany, which last year spent €14 billion less than needed to meet the benchmark, according to Ifo. But Berlin has halved this gap in the past decade, adjusted for inflation, and plans to close it completely this year.
The next largest European shortfalls were €11billion in Spain, €10.8billion in Italy and €4.6billion in Belgium. The trio were among six EU countries with debt above 100 percent of their GDP last year. Italy also had one of the bloc’s highest budget deficits at 7.2 percent and its interest costs are set to rise above 9 percent of government revenues this year.
“Countries with high debt levels and high-interest costs do not have much room to raise more debt, so the only real way to do it is to cut spending in other areas,” said Marcel Schlepper, an economist at Ifo. “This is not easy, as we saw when Germany tried to cut subsidies on agricultural diesel and the farmers came out in protest.”
US State Department spokesperson Matthew Miller this week acknowledged that there had been an “improvement” in EU efforts to get all NATO members to hit the 2 percent threshold. Washington has long wanted Europe to spend more on its own defense.
The issue has been a preoccupation of Donald Trump, both as president and as a candidate. In February he said Russia could do “whatever the hell they want” to NATO members that failed to meet spending targets, raising fears for the future of the alliance if he is re-elected in November.
Last year, two-thirds of the total €1.2 trillion of NATO defense spending was by the US, more than double the €361billion spent by EU members, the UK and Norway combined.
New EU fiscal rules applying from next year are set to usher in more budget cuts as countries seek to comply with a 3 percent limit on annual deficits and a 60 percent debt-to-GDP threshold. More than 10 countries in the bloc are expected to breach the annual deficit limit, which will probably result in sanctions by the European Commission.
But during negotiations that ended last year, Poland, Baltic countries and Italy successfully campaigned to treat defense spending more favorably under the new rules. The commission will therefore regard military expenditure as a mitigating factor when assessing whether to take action against countries breaching the annual deficit limit.
In cases such as Poland, which in 2024 is set to spend more than 4 percent of its output on defense — the highest level among NATO members — and thus breach EU fiscal limits, this is likely to lead to a more lenient assessment of its budget.
Jens Stoltenberg, the alliance’s secretary-general, told reporters on Thursday that two-thirds of members would meet the 2 percent target this year, up from just three in 2014 when the defense investment pledge was agreed after Russia annexed Crimea.
Eurozone countries are on track to double their defense spending from €150 billion in 2021 to €320 billion in 2026, according to Pantheon Macroeconomics, which estimated this would boost sluggish growth by 0.2 to 0.3 percent. This week, Norway became the latest European NATO member to say it would meet the alliance’s 2 percent target in 2024, a year ahead of schedule.
Lorenzo Codogno, a former Italian treasury official and now an economic consultant, said it would be “difficult” for Italy, which had debt above 140 percent of GDP last year, to reach the NATO target “if there is no special exemption within the rules or no EU money involved”.
“The Russian threat is not perceived as sufficiently dangerous to justify, say, welfare spending cuts to make room for weapons,” he said.
NATO polling found low public support for increasing defense spending in some countries with the largest shortfalls. Only 28 percent of Italians think their country should raise military spending, while 62 percent want it to spend the same or less.
Despite being home to NATO’s headquarters, Belgium’s defense spending was only 1.21 percent of GDP last year, one of the lowest in the alliance, according to new figures it released on Thursday. Spain was not much higher at 1.24 percent and Italy was at 1.47 percent.
Excluding the seven European countries that have said they aim to reach NATO’s 2 percent target this year, including new member Sweden, Ifo found the European shortfall would still be €35billion.
“We are moving in the right direction, yet too slowly and too late,” Poland’s foreign minister Radosław Sikorski said on Friday, pointing out Russian defense spending was set to reach 7 percent of GDP this year. “The Russian economy is already operating on a war footing. European economies need to switch to at least a crisis mode.”
