European defence spending soars, but climate and care are still ​“unaffordable”?

When NATO leaders meet on Tuesday, they will consider a proposal backed by NATO Secretary General Mark Rutte and the US to raise NATO defence spending targets from 2% to 5% of GDP. This includes 3.5% for ​“hard defence” such as tanks, bombs and other military hardware and 1.5% for broader security, including cyber threats and military mobility. 

If this proposal is adopted, our analysis suggests it would require EU NATO members to raise defence budgets by €613bn annually to meet the 5% overall NATO defence target, the equivalent to 3.4% of the EU’s entire GDP. To meet the 3.5% hard defence target alone, it would require an additional €360bn each year, the equivalent of 2% of EU GDP. And this would be on top of military spending having already increased by 59 per cent in Central and Western Europe between 2015 and 2024.

Meanwhile, the investment gap to meet EU green and social goals, including climate mitigation, healthcare and housing, is estimated at 2.1 – 2.9% of EU GDP or €375 – 526bn a year (in 2024 prices).

Even with the exception to fiscal rules to allow EU governments to spend an additional 1.5% of GDP to defence spending outside fiscal rules, the majority of member states would not be able to increase spending to meet this proposal to increase defence related spending. Comparing the additional defence spending to meet the NATO targets with existing fiscal space, as calculated in a recent report NEF published with the European Trade Union Confederation (ETUC), only Denmark, Sweden, Estonia and Lithuania could do so. Indeed, only 10 EU EU member states, Croatia. Czechia, Denmark, Estonia, Greece, Latvia, Lithuania, Luxembourg, Netherlands and Sweden could meet the 3.5% overall NATO target without cutting budgets elsewhere, increasing taxes or changing fiscal rules.

Europe’s macroeconomic model is no longer fit for purpose. Choosing weapons over addressing climate breakdown and social fragility is not an economic necessity, it is a political failure. This trade-off makes little economic or strategic sense. As Spain’s Prime Minister Pedro Sánchez warns, this increase is incompatible with Spain’s welfare state and its vision of the world. Green and social investments deliver stronger returns than defence spending and are essential to long-term security and resilience. What is needed is a whole-of-government approach, supported by reformed fiscal rules, new joint EU debt, new EU wealth taxes and the full backing of the European Central Bank, to unlock the investment needed for climate, care and long-term stability.

Table 1: Projected additional defence spending and estimates of green and social investment needs in the EU
Comparison of required increases in defence spending to meet the proposed Nato defence spending targets with high and low estimate green and social investment needs, shown as % GDP and in millions of euro in 2024 prices

Methodological note: Eurostat 2023 defence spending is compared with the increase required to meet NATO’s hard defence target 3.5% and overall defence target 5% GDP target (2024 prices). Green and social investment needs are based on low and high estimate GDP percentages from ETUC & NEF report (2024 prices). 

Bigger defence budgets, but not better security

Simply increasing defence spending may also not deliver improved security. The EU has spent over $3tn on defence in the past decade, significantly more than Russia and deploying more troops than the US, but experts warn that the EUs military is inefficient and fragmented.

Meanwhile, increasing military budgets at the same time as cutting green and social spending, risks fuelling a public backlash, widening inequality, and eroding trust in democratic institutions. Asking citizens to tighten their belts while defence budgets and arms investors profit surge undermines the very social resilience that security depends on.

As global temperatures exceed 1.5C , with a small, non-zero chance of even exceeding the 2C barrier by the end of the decade, climate change is a very real security threat. Germany’s Federal Intelligence Service (BND) has cautioned that worsening climate impacts will trigger resource-driven conflict, destabilise fragile regions, and drive large-scale displacement.

Prime Minister Sánchez recently underlined this tension, calling for NATO to broaden its definition of defence to include climate resilience. Military force alone cannot address the multiple crises that are putting our security and social cohesion under strain.

The economic case for green and social investments

We need to expose the false claim that there is no fiscal space for green and social investment. If governments can consider raising defence spending to 5% of GDP, they cannot in the same breath say there is no money to insulate homes, decarbonise transport, strengthen care or fix the housing crises.

In fact, investing in green and social priorities makes better economic sense than military spending. One global study shows that defence spending tends to depress long-run economic growth in most countries. The defence industry generates relatively fewer jobs compared with other sectors. Indeed, ramping up military spending risks crowding out investment in the green transition, not only financially but by tying up labour, industrial supply chains and technical capacity that are already stretched.

With fiscal space limited and public resources already stretched, how governments choose to spend matters. And when it comes to returns, defence spending delivers far less than green and social investment. A study by RAND shows civilian infrastructure investments have higher economic multipliers than defence spending. That is, every euro invested in housing, transport, education or renewables produces more in terms of jobs, GDP, and social return than an equivalent spent on military hardware. As the IMF and others have found, green investment is especially powerful in driving economic prosperity.

The contrast is even starker when defence procurement is imported. Between February 2022 and mid-2023, 75% of publicly announced new EU defence orders went to suppliers outside Europe. From 2019 to 2024, the US accounted for 64% of EU military imports. Buying US-made fighter jets or other hardware generates minimal economic return, as funds leave European economies. Crucially, not all EU member states have a national defence industry, meaning the benefits of higher military spending will be concentrated in a few countries, while others absorb the costs without a comparable return.

National security is non-negotiable. But European policy response cannot simply be about symbolic alignment with US doctrine or a race to spend more on bombs. Instead, it should be a clear-eyed assessment of what will make Europe safer, fairer and more resilient. That requires rethinking both how we spend and what we mean by security in the first place.

Image: iStock