In the past month, urgent discussions have dominated European politics as EU leaders scramble to address the breakdown of transatlantic relations and provide Ukraine with the necessary security guarantees to ensure a just and lasting peace following Russia’s aggression. EU leaders have backed a European Commission proposal to allow governments to exclude defence spending from fiscal rules and to jointly borrow 150 billion euros for European defence.

In Germany, after winning the snap federal elections on 23 February, Christian-democratic leader Friedrich Merz performed a major political U-turn, pushing through parliament a bill to reform the country’s debt brake by excluding all defence spending above 1 per cent of GDP.

These developments come on top of a 30-per cent increase in defence spending since 2021, which brought the total defence spending in the EU to 1.9 per cent of the bloc’s GDP.

But true security for Europe won’t come from military strength alone. It will also require economic stability, climate resilience, energy independence, and social cohesion. Without adequate investment in these areas, no amount of military spending can ensure a safe future for all.

True security for Europe won’t come from military strength alone. It will also require economic stability, climate resilience, energy independence, and social cohesion.

Broader security concerns

Russia’s full-scale war against Ukraine has reshaped Europe’s security landscape. However, the debate around military spending risks overshadowing the underlying vulnerabilities that, if unaddressed, will expose Europe to existential crises in the future.

Climate breakdown is a powder keg waiting to destabilise economies and nations. Ana Toni, chief executive of this year’s United Nations Climate Change Conference (COP30) in Brazil, has warned that failing to act on climate breakdown will lead to more wars in the future. Germany’s Federal Intelligence Service (BND) echoed this concern, predicting that climate breakdown will trigger resource-driven conflicts, destabilise already vulnerable regions, and increase forced migration due to droughts and other climate-related disasters.

At the same time, Europe remains alarmingly dependent on foreign technology. Over 80 per cent of critical digital infrastructure and technology comes from outside the EU, leaving the continent vulnerable to supply chain disruptions, cyberattacks, and economic coercion from foreign states. According to a recent study, securing European digital autonomy would require 300 billion euros in public and private investment over the next decade.

Building a strong economy and a resilient society hinges on social trust. However, trust in governments across the EU and the Organisation for Economic Co-operation and Development (OECD) remains historically low. This erosion of trust is not just a domestic issue – it is a vulnerability that authoritarian regimes like Russia and billionaires like Elon Musk exploit to destabilise Europe. By sowing division and amplifying grievances, they undermine the cohesion of European societies and weaken our collective ability to respond to external threats.

If it comes at the cost of budget cuts that weaken public goods and widen inequality, increased defence spending will only exacerbate this problem. When governments prioritise military budgets over healthcare, education, and housing, disenfranchisement is likely to grow. This dynamic creates fertile ground for extremist parties, many of which have close ties to Russia, to exploit public frustrations and gain political traction. As future crises unfold, social cohesion will only become more critical.

More tanks, fewer wind turbines?

Some politicians have argued that increasing defence spending means cutting elsewhere. British Prime Minister Keir Starmer, for example, has reduced international aid budgets to fund military investments. But these choices are being made in the name of fiscal rules that are neither workable nor economically sound. In Europe, defence spending is being carved out from these rules, while vital investments in climate, infrastructure, and social needs remain restricted. The real question isn’t whether we can afford to fund defence – but why only defence is being freed from the rules that still constrain everything else.

The real question isn’t whether we can afford to fund defence – but why only defence is being freed from the rules that still constrain everything else.

The fiscal rules that EU countries agreed upon in 2024 prevent necessary long-term investments in infrastructure, climate resilience, and economic security. A recent Bruegel study analysing national fiscal plans under the new rules found that the overall increase in public investment across the EU is expected to be less than 0.2 per cent of GDP – far from sufficient to meet Europe’s multiple investment gaps. An analysis by the New Economics Foundation (NEF) shows that only three member states have sufficient fiscal space to meet green and social investment needs under these rules.

What’s more, fiscal rules have also failed on their own terms. The International Monetary Fund (IMF) highlighted that reducing government deficits has, on average, increased total debt rather than reducing debt-to-GDP ratios. Conversely, governments routinely underestimate the economic benefits of public investment. In the European Commission’s Debt Sustainability Analysis – which assesses the sustainability of government debt – a fixed multiplier of 0.75 is used for government spending. In other words, the Commission assumes that for every euro the government spends, the economy only grows by 0.75 euros. This is despite the fact that the paper referenced to back up this assumption shows that public investment typically has a much stronger impact – boosting the economy by 1 to 1.40 euros for every euro spent.

Green investment is especially powerful in driving economic prosperity. An IMF study found that each euro spent on green technology generates between 1.10 and 1.50 euros in economic activity. Other research has found even higher impacts, with multipliers reaching as high as 4.20 euros. These investments offer a triple benefit: they stimulate the economy, reduce carbon emissions,, and lower future costs from climate damage.

By contrast, a Rand study found that military spending likely delivers a lower multiplier than civilian infrastructure, meaning it generates less economic activity per euro spent. This is not to dismiss defence needs, but to say if Europe can afford to fund its security, it can – and must – afford investments that boost its economy and improve its resilience.

Giving exclusive priorities to defence spending doesn’t just divert funds from green industries – it also redirects critical productive capacity. Economists Tom Krebs and Isabella Weber warn that ramping up military budgets pulls resources – such as skilled labour, raw materials, and industrial capacity – away from renewable energy and electric vehicles, and reinforces fossil fuel dependence. Exempting defence spending from fiscal rules but leaving other investments shackled to them will likely leave Europe with more tanks but fewer wind turbines.

If Europe can afford to fund its security, it can – and must – afford investments that boost its economy and improve its resilience.

A new economic model for Europe

To break the cycle of perpetual crisis, Europe’s macroeconomic frameworks must be designed to address underlying risks proactively. This requires politicians to be honest about the need for more significant reforms to protect Europeans in the long term.

First, with Germany now committed to increased public spending, the EU must push for a broader revision of fiscal rules. If borrowing exclusions can be made for low-multiplier military spending, then there is surely a case for borrowing to invest in things that will have much greater economic impacts – ensuring that all member states can borrow for high-multiplier, productivity-enhancing investments.

Second, as Mario Draghi proposes, the EU should issue new joint debt to replace the Recovery and Resilience Fund, which ends in 2026. Agreeing this now would provide crucial investor confidence and ensure governments can develop longer-term plans.

Third, the ultra-wealthy must pay their fair share. Economist Gabriel Zucman and the EU Tax Observatory estimate that a 2-per cent minimum tax on centimillionaires would neutralise the regressivity of European tax systems and raise 67 billion, while a 3-per cent minimum tax would make European tax systems slightly progressive and raise 121 billion euros.

Finally, central banks and governments must align their policies to achieve Europe’s economic objectives. A recent NEF study shows that closer coordination between monetary and fiscal policy could lower the cost of essential public spending and curb inflation.

No amount of defence spending can fix a broken climate, a fragile economy, or fractured societies. If Europe wants lasting peace, it needs to fight climate breakdown, inequality, and polarisation with the same urgency it is currently investing in defence.