Much of the EU is struggling to get defense spending up to 2 percent of GDP. 5 percent of GDP has zero chance. Let’s discuss the math.
2024 Defense Spending
- Poland: 4.12
- Estonia: 3.43
- US: 3.38
- UK: 2.33
- Germany 2.12
- France 2.06
- Portugal: 1.55
- Italy: 1.49
- Canada: 1.37
- Spain: 1.28
Trump Rattles NATO Allies
DW reports Trump Rattles NATO Allies with Defense Spending Demands
US President-elect Donald Trump’s demand that NATO allies spend 5% of their annual gross domestic product (GDP) on defense shook up European capitals a fortnight before he returns to the White House.
“I think NATO should have 5%,” Trump said at a press conference on Tuesday. “They can all afford it.”
That is a whopping increase from the 2% pledge that NATO allies agreed on but which has proven difficult for several European nations. It’s also even higher than the 4% he called during his last term as president.
Demand 5% but Accept 3.5%?
An optimistic reading of Trump’s demand is that it is a negotiating tactic and that NATO, being an alliance of equals, will arrive at an amicable agreement, according to Rafael Loss, a policy fellow at the European Council on Foreign Relations (ECFR) who focuses on security and defense in the Euro-Atlantic area.
“I think increasing the defense spending to 3.5% may be seen as more realistic by Europeans,” he told DW from Berlin. “But the pessimistic scenario is that he is serious about pulling America out of NATO and encouraging Putin to do what he wants.”
In December, NATO chief Mark Rutte reminded the European public of Russia’s defense investment of “7% to 8% of GDP” this year and said Europe needed to shift to “a wartime mindset” and“turbocharge” the continent’s defense production.
He appealed for countries to forgo part of their social welfare budgets and spend more on defense.
Italy
Despite the ideological kinship between Trump and [Italian Prime Minister] Meloni, Italy will also be expected to increase its expenditure, according to Leo Goretti, head of the Italian foreign policy program at the Istituto Affari Internazionali, an Italian think tank.
“At best Meloni may extract some concessions — such as a delayed timeline for Italy to increase its defense spending,” he told DW from Rome, adding that Trump’s demand placed Meloni in a difficult position on the domestic front.
“Italy does want to spend more on defense, but the problem is that there is very limited fiscal space,” Goretti said. “The cost of welfare, especially health care and pension systems, doesn’t offer much leeway.“
Germany: Let defense needs, not GDP, determine spending
Germany, which faces snap elections next month, partly owing to economic and budget policy, spent 2.12% on defense. Any increase is certain to be a controversial proposition.
During his first term, Trump specifically called on Germany to increase defense expenditures. German Chancellor Olaf Scholz said the alliance had a “regulated procedure” to determine the military capabilities it needs, adding, “It is important that we stand together and act in unity on these questions.”
Scholz’s main challenger in upcoming German elections, opposition leader Friedrich Merz, called spending targets as a percent of GDP outdated.
“The 2%, 3% or 5% are basically irrelevant: What is crucial is that we do what is necessary to defend ourselves,” Merz told German public broadcaster Bayern 2 on Wednesday.
Higher defense expenditure to buy European or American?
If Trump pushed them to go as high as 5%, they might decide to spend most of the cash on building the European defense industry rather than buying American. However, analysts said, a deal could be struck: Spend less than 5% of GDP but spend a bigger share on US manufacturers.
“We Are Not at a Bazaar”
Translated from German, Tagesschau reports “We Are Not at a Bazaar“
Five percent of GDP for defense? This Trump demand is clearly rejected across party lines. We are not at a bazaar, said MEP Strack-Zimmermann. Nevertheless, the discussion about the defense budget continues. Even before he officially takes office, Donald Trump is causing astonishment and head-shaking. His demand that NATO countries spend five percent of their gross domestic product on the defense sector in the future is met with cross-party resistance in Germany. The chairman of the Defense Committee, Marcus Faber (FDP), sees five percent as too high. In an interview with the Redaktionsnetzwerk Deutschland (RND), he also said: “The 32 NATO states will have to agree on a new common minimum beyond the two percent target.” However, he expects three percent to be more likely – and this must be decided by consensus, Faber stressed.
Need for Action
His predecessor in the Defense Committee, MEP [Member of European Parliament] Marie-Agnes Strack-Zimmermann, also believes Trump’s demand for a five percent target is excessive. “We shouldn’t let every statement from Trump confuse us. We’re not at a bazaar here,” the FDP politician told the RND.
Merz: Mission more important than percentage
CDU leader Friedrich Merz considers the defense budget’s share of gross domestic product to be primarily a calculation figure. The expansion of the Bundeswehr and the restoration of national and alliance defense are important, he said in an interview with Bayerischer Rundfunk . “And the two, three or five percent are basically irrelevant; what matters is that we do what is necessary to defend ourselves. “The aim is to actually reach the two percent lower limit in Germany. This is currently only possible through the 100 billion euro special fund. This was announced by Chancellor Olaf Scholz shortly after the Russian attack on Ukraine and is expected to be used up by 2027.
Wagenknecht relies on Paris instead of Washington
SPD foreign policy expert Ralf Stegner, however, clearly rejected Trump’s demand. “We don’t need more weapons in the world, but fewer,” he told the news portal Politico. Stegner’s party colleague and Bundestag parliamentary group vice-chair Dirk Wiese expressed himself in a similar way. He spoke of “complete madness” on ntv. BSW head Sahra Wagenknecht called for a change in foreign policy in relations with the USA. “It is no surprise that Trump is now demanding five percent of military spending,” she also told Politico. It is now time to end the “vassal loyalty to the USA”. Germany needs “independence instead of subservience” and “a significant improvement in German-French relations”.The Left Party is also resisting Trump’s move and wants to freeze defense spending at the current level. “In 2024, the defense budget was 52 billion – together with the European partner states, this is perfectly sufficient for national defense,” party leader Jan van Aken told the dpa news agency. It is a completely nonsensical yardstick to measure the budget based on gross domestic product.
During Trump’s first term in office, NATO countries’ defense spending was already a central point of contention. At the time, the Republican threatened to withdraw the United States from the military alliance if the partner countries did not fulfill their commitment to invest at least two percent of GDP in defense.
Three Percent Won’t Happen
At 3 percent, Portugal, Spain, Italy, and Canada would have to double or nearly double defense spending.
France and Germany would both need to increase spending by 50 percent.
However, Germany and France are both in a state of simultaneous fiscal crises and political crisis.
Neither France nor Germany has a working government. And France is under EU treaty rules to shrink its budget.
Canada does not have a working government either.
3 percent won’t happen because there is no political will in any of the the 5 largest EU countries.
German Polls
There is no faction in Germany that wants increased defense spending.
Union (CDU/CSU) party leader Friedrich Merz, called spending targets as a percent of GDP outdated. He will be the next chancellor.
The current chancellor, Olaf Scholz, from SPD, wants to reduce military spending.
The positions of AfD and BSW are likely the same. “It is now time to end the vassal loyalty to the USA,” said BSW head Sahra Wagenknecht.
It takes 5 percent to make German parliament. BSW, Linke, and FDP are on the bubble. I suspect BSW will pick up Linke voters and FDP won’t make it.
Regardless, no coalition makes any sense. And that’s in general, not just military spending.
US 2025 Fiscal Budget
The US defense budget for fiscal year 2025 is currently $884 billion.
If $884 billion is 3.38 percent of GDP and Trump wants 5.0 percent, we can do some math to calculate the shortfall.
X / 5 = $884 Billion / 3.38
X = $1,308 billion.
So, Trump is proposing a $424 billion annual increase in defense spending.
Five percent of GDP would add over $42 trillion in spending over 10 years!
The US Treasury bond market is already reeling. And nearly everything Trump proposes adds to the deficit.
Spotlight France and Germany
March 27, 2024: Expect a Financial Crisis in Europe With France at the Epicenter
The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. The crisis is coming to a head with France and Italy in the spotlight.
That prediction didn’t take long to materialize.
June 21, 2024: Debt Brakes and Treaty Requirements About to Smash the EU
The EU has launched an Excessive Debt Proceeding against France. It won’t stop there.
July 7, 2024: France is Now Ungovernable Following a Pyrrhic Victory for the Left-Green Alliance
July 18, 2024: Germany’s Defense Spending Will Start an Immediate Clash With Trump
Germany’s defense minister asked for an increase of $7.3 billion. He was given only $1.2 billion. German aid to Ukraine is cut in half
November 10, 2024: Now Germany Has a Green Electricity Outage With Huge Consequences
No sun. No wind. Hello Germany, care to rethink your Green New Deal?
December 17, 2024: So, What Country Wants to Be Like Germany Now?
The collapse of Germany shocks many. But I have been discussing why this was inevitable for over a decade.
Mandatory Debt Brakes
Mandatory debt brakes in the EU suggest it will be difficult for defense spending to hit even 2 percent of GDP, let alone 5 percent.
Meanwhile, back in the states …
Bonds Hammered
Yesterday, I asked Bonds Hammered: Is it Fed Policy, Trump Policy, or Both?
Since the Fed’s first rate cut on September 17, yields on the long end have soared. So have mortgage rates.
Trump wants to add additional items to the TCJA renewal and expand military spending too.
The bond market thinks as much of Trump’s plan as I do, and that’s why yields are rising.
See above link for details.
If Trump’s real goal is to collapse the EU, or take the US out of NATO, he may succeed. But he sure isn’t going to get 5 percent or even 3 percent of GDP on military spending from the EU.