The massive build-up of military spending in the European Union could pose a serious risk to the bloc's financial stability if member states do not get the reduction of budget deficits and public debt under control. This was reported by Euractiv, citing Danish Minister of Economy Stephanie Lose, according to UNN.
Europe needs to rapidly build up its defense capabilities to deter the growing threat from Russia. But at the same time, these are costs that can become an additional risk for the EU economy.
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According to her, the economies of many countries are already suffering from the impact of American tariffs and competition from China. In such circumstances, a large-scale increase in defense spending can increase financial pressure, especially if it is not accompanied by responsible fiscal policy.
The Danish minister's statement came after NATO member states agreed last month to increase defense spending to 3.5% of GDP by 2035, almost double the previous target of 2%.
In addition, the Alliance also agreed to allocate an additional 1.5% of GDP to security infrastructure. Spain, however, secured an exclusion that allows it to spend only 2.1% in total.
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Denmark, along with fifteen other EU countries, has already activated the so-called "national protective clause" within the framework of the European Commission's "ReArm Europe" initiative worth 800 billion euros, proposed by President Ursula von der Leyen. This mechanism allows countries to temporarily exceed the 3% of GDP deficit norm in order to direct additional funds to defense.
In contrast, France, Italy, and Spain, the second, third, and fourth largest economies in the European Union, refrained from activating this clause, citing already high levels of budget deficits. France and Italy are among the nine EU countries currently subject to an "excessive deficit procedure" for violating EU fiscal discipline.
Minister Lose, who will chair the meeting of EU finance ministers for the first time this Monday as head of the Council, refrained from criticizing France, Italy, and Spain, noting that their decisions may be due to both a desire for financial responsibility and a possible lack of resources to strengthen defense.
On the one hand, it is good if these countries adhere to sound principles of fiscal policy. If this means that they are looking for ways to achieve NATO's goal without increasing the debt burden, that is positive. But if it signals a complete lack of room for growth in defense spending, then that, of course, is a cause for concern.