Defense Spending of 2 Percent of GDP is Not Enough

Defense spending of more than the NATO target of 2 percent of gross domestic product (GDP) would be necessary for Europe to be able to defend itself without the protective umbrella of the US. This is the conclusion of an analysis by the ifo Institute. “European countries would have to significantly increase their efforts because budgets have been too low for years to build up an adequate defense capability,” says ifo researcher Florian Dorn.

“As Germany has consistently failed to meet NATO’s 2 percent target over the last three decades, there is now a gap of around 230 billion euros in necessary defense investments. So there is some catching up to do,” says Dorn, adding that Italy has a gap of around 120 billion euros, which would be necessary to achieve the 2 percent target calculated back over the last 30 years. In the case of Spain, the figure would be over 80 billion euros in today’s prices. Of all the European NATO countries, only Poland and the UK have annually spent more than 2 percent of their gross domestic product on defense since 1990.

In an international comparison, Europeans generally needed to spend more, which is another argument for defense spending beyond NATO’s 2 percent target: “Wages for soldiers and costs for military equipment are significantly lower in Russia or China, for example, than in Western European countries. Russia can therefore afford more for the same amount of money than Western countries with higher wage and price levels,” says Dorn.

According to Dorn, a credible plan is needed to sustainably increase defense capacities without jeopardizing budgetary stability and economic competitiveness. How high defense spending would have to be in the long term also depends on how well and effectively the available resources in Europe are used. However, until an increase in efficiency and joint structures in Europe bears fruit, the current geopolitical situation requires higher defense spending.

Questions can be directed to: Dr. Florian Dorn, 0049 / 89 / 9224-1292; Dorn@ifo.de