European leaders have long been aware that the region is living beyond the means of its aging, stagnant economy. The key question, according to Reuters, is whether the upheavals caused by Donald Trump's second term as president will force Europe to do something about it.
Less than a month after Trump was sworn in, the US announced it would no longer pay for peacekeeping in Europe. Trump, Defense Secretary Pete Hegseth said, “will not allow anyone to turn Uncle Sam into Uncle Naive.”
However, if Europe now has to bear the costs of its own defense - at the very moment when Russia is waging war against Ukraine on its eastern flank - it threatens to devastate budgets that are already barely managing to finance social protection systems - which many envy.
"We will have to face difficult days, make complicated decisions and even make sacrifices that we have not expected so far, in order to ensure security," French Foreign Minister Jean-Noel Barrot said last Saturday at the Munich Security Conference.
However, some fear political resistance if governments simply cut social spending to invest in the military and armaments.
"Then we will have a division in society, and the only ones who will benefit from that will be the far-right parties," said German Defense Minister Boris Pistorius in Munich.
One option for Europe could be the hope that Trump's departure in four years will allow for the renewal of the transatlantic relationship.
However, the atmosphere at the Munich meeting suggested that European leaders are finally accepting that America's turn - announced in a more conciliatory tone by Barack Obama more than a decade ago - means they must now take on greater responsibility.
“Our most important task as political leaders is to protect our people,” said Danish Prime Minister Mette Frederiksen. “Two percent is not nearly enough,” she said of the barely met target that requires NATO members to allocate a certain percentage of their GDP to defense. Twenty-three of NATO’s 32 members met that target last year after recent increases in spending.
So where could Europe find the money?
The post-war social contract in Europe was based on the idea that Europeans would pay high taxes in exchange for stable social security systems, healthcare and pensions. Added to this were labor agreements that allowed for shorter work weeks and longer vacations.
Many voters already feel their governments have broken that agreement - and have abandoned the main political parties in favor of radical options that are growing thanks to this dissatisfaction, Reuters estimates.
It is difficult to estimate how much it will cost to secure peace and rebuild Ukraine, given that it is not known what a peace agreement might look like.
However, it is easier to calculate how much national budgets would be burdened if EU countries more than doubled their defense spending, reaching levels that were common during the Cold War.
Credit agency S&P Global estimates that spending 5% of GDP on defense would cost European countries a total of $875 billion annually, which is “far beyond what individual countries can finance without compensating for these expenditures by cutting other costs or jeopardizing their creditworthiness.”
However, others believe that Europe, which managed to secure additional funds and put together a €2 trillion stimulus package after the Covid pandemic, can find the money if it really wants to.
“Many EU countries could afford to have more public debt,” said Zsolt Darvas, a senior fellow at the European economic organization Bruegel. “It’s a question of political will.”
It is precisely this political will that will now be put to the test, the British agency estimates.
European Commission President Ursula von der Leyen said in Munich that she would support “exemption clauses” that would allow national defense spending and loosen EU deficit-limiting rules. But she would need the support of national governments to do so.
Although the EU cannot use its own €1,2 trillion budget to buy weapons, some have suggested that EU member states and non-EU NATO allies, such as Britain and Norway, could form an “armaments bank,” in which members would invest funds and raise capital on the markets.
Former Finnish Prime Minister Sanna Marin pointed out that such moves would require leaders to convince citizens of the urgency of increasing defense spending - especially in states that are further away from the Russian threat compared to her country or eastern EU members.
Regardless of demands for greater military spending, Europe still needs to reform its weakened economies to finance the growing social protection needs of an aging population, as well as the initial investments needed to achieve goals such as the green transition.
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