At NATO’s summit in The Hague this past June, the alliance’s 32 member states signed off on an ambitious new target: raising defense spending to 5% of GDP by 2035. The decision was unanimous. With that, Europe is stepping fully into a new era — one defined by sweeping rearmament and a renewed sense of strategic self-assertion. The twin pressures of Russia’s threat and cooling ties with President Trump’s administration have pushed the European Union to build up its own defense autonomy.
At first glance, this doctrine seems like a recipe for economic growth and job creation. But in the long run, it could easily spiral into rising debt, painful social cuts, and a fresh dose of austerity.
The political message coming from EU leaders was crystal clear: Europe can no longer bank forever on America’s security umbrella, especially as tensions with Washington continue to flare. According to Eurobarometer polling from fall 2024, a third of EU citizens now see defense and security as the top priority — for the first time edging out migration and the economy. The sense of alarm is strongest in Finland, Poland, and the Baltic states, where nearly half the population cites security as their biggest worry. In Spain and Greece, further from Russia’s doorstep, concern runs significantly lower.
Meanwhile, the United States is steadily retreating from its old role as Europe’s security guarantor, increasingly demanding that allies step up their own defense spending. The new American — and now European — consensus is that Europe has to “grow up” and take charge of its own security. A string of factors made this shift all but inevitable: a war raging near EU borders, America’s wavering commitment to collective defense, and broad European support for Ukraine have all combined to put Brussels on a fast track toward rearmament.
By summer 2024, the European Commission officially acknowledged that the continent would need around 500 billion euros in extra military investment over the next decade to refill depleted stockpiles and patch critical holes in its defenses.
In March 2025, European Commission President Ursula von der Leyen unveiled a sweeping initiative dubbed “Readiness 2030,” which the media quickly labeled “Europe’s Rearmament.” The plan aims to mobilize nearly 800 billion euros. Of that, 150 billion would come through new credit lines, while looser budget rules would free up another 650 billion euros for national military programs. NATO’s own assessments warn that Russia could pose a renewed invasion risk within three to five years — setting a hard deadline of 2030 for implementing these plans.
In a published briefing, the European Commission laid out those risks in black and white. Even if every NATO-aligned EU country finally hit the old 2%-of-GDP defense spending benchmark, that would yield only about 60 billion euros — a woefully inadequate sum. Hence the call to pour in an extra half-trillion euros over ten years. The ultimate goal of Readiness 2030: to draw in up to 800 billion euros by decade’s end.
But the burden of carrying out this push will fall squarely on national governments. Brussels intends mainly to grease the wheels with loans and joint projects — think missile defense systems, drone procurement, cybersecurity, or boosting troop mobility. The new 150-billion-euro credit program has been branded “Security Measures for Europe,” or SAFE.
To help national budgets absorb the shock, the European Commission plans to activate a special arrangement within the Stability Pact from 2025 to 2028, letting member states ramp up defense spending by 1.5% of GDP annually without triggering deficit penalties. That could unlock roughly 650 billion euros in fresh defense cash across the EU. Beyond that, the European Investment Bank will be encouraged to expand its defense lending, while Brussels itself will coordinate defense procurement to keep spending more streamlined and less fragmented.
Europe’s Defense Spending Spree: A High-Stakes Bet on Security
That 800-billion-euro figure President von der Leyen keeps citing is really the sum of two buckets: 150 billion in European Commission-backed loans plus as much as 650 billion in national spending freed up by relaxed budget rules.
Crucially, this new defense strategy isn’t about replacing NATO, but complementing it. The idea is that European armies should stand firmly on their own feet while continuing to train and coordinate with American forces. Brussels has been quick to stress that beefing up Europe’s defense muscle is ultimately an investment in strengthening the NATO alliance by 2030.
“Four hundred and fifty million EU citizens can’t go on relying on 340 million Americans to defend them,” warned Andrius Kubilius, the EU’s first-ever defense commissioner.
Analysts at the International Institute for Strategic Studies (IISS) agree, arguing that Europe’s new defense push won’t weaken NATO but rather give it sharper teeth by boosting the alliance’s overall capabilities.
Europe’s New Shopping List
The SAFE loan mechanism is set to funnel billions into shoring up Europe’s air and missile defenses, building modern artillery systems, restocking ammunition depots, buying up drones and anti-drone tech. Strategic tech will also top the priority list: cybersecurity, satellite communications, and modernized infrastructure. The European Commission has mapped out roughly 500 “choke points” in the continent’s transport network — everything from wider rail tunnels and reinforced bridges to upgraded ports and airports — to guarantee the rapid movement of troops and equipment.
Brussels is also doubling down on growing Europe’s own defense industry. All new equipment, the Commission insists, should be built in Europe, with at least 65% of its components sourced from within the EEA or Ukraine. The mission is simple: cut dependence on foreign suppliers while reviving Europe’s machine-building and high-tech sectors.
Beyond that, EU officials want to consolidate the fragmented defense industry, reasoning that fewer small players and more powerful partnerships will mean stronger results. To make that happen, they’re proposing bigger subsidies for weapons manufacturers, a radical cutback in red tape under a “Defense Omnibus Simplification” program, and tighter coordination of Europe-wide arms purchases. Experts are already forecasting a wave of pan-European defense alliances and mergers down the road.
There’s also a push to build sustainable stockpiles of ammunition and spare parts, adopt common technology standards, and keep Europe’s arms factories humming. Brussels makes no secret of the fact that part of this rearmament is about replacing shells sent to Ukraine and restoring what it calls “lost capabilities” after decades of underfunding. That’s why the 800-billion-euro plan stretches across the whole spectrum: new tanks, warplanes, missiles, infrastructure upgrades, and bigger industrial capacity. One built-in condition for drawing on these loans is that at least two EU countries must take part in any major project, like constructing a missile plant.
Defense by the Numbers: Who Stands to Gain?
In the end, defense spending is still government spending — and in the short term, it acts much like industrial subsidies, jolting growth. European analysts estimate the new orders could lift EU GDP by 0.1 to 0.2% in 2026 and 2027, provided most of the money stays within Europe. A Goldman Sachs study backs this up, calculating that every 100 euros spent on defense adds about 50 euros to GDP thanks to a multiplier effect — assuming import dependence keeps shrinking.
Researchers at the Kiel Institute for the World Economy go even further, projecting that if defense spending jumps from 2% to 3.5% of GDP, and focuses on high-tech procurement, Europe’s GDP could grow by 0.9 to 1.5% annually. Military investment, they stress, can spark broader innovation — from artificial intelligence and new materials to advanced cybersecurity.
That said, the old 3% target is history. Back in January 2025, President Trump demanded NATO allies hit 5% of GDP. At first, Europe scoffed — Germany, for one, pushed back hard — but by early June the mood had shifted. Germany’s Defense Minister Boris Pistorius announced Berlin would work toward 5%, and 14 countries across Northern, Eastern, and Central Europe publicly signed on.
Finally, at the NATO summit on June 25, a consensus emerged: 5% by 2035 would be the goal, even over Spain’s objections. Prime Minister Pedro Sánchez tried to block the tougher target, calling it “unreasonable” and “counterproductive,” but eventually agreed to a compromise.
That doesn’t mean Madrid is giving up its own game. Thanks to solid 3.2% GDP growth in 2024 and record tax revenues, Spain is already putting up an extra 10.5 billion euros this year to hit NATO’s 2% target. The money is slated to support Spanish shipyards, aerospace, and electronics industries, with the hope of creating as many as 100,000 new jobs. Sánchez insists these defense boosts won’t eat into pensions or health care — at least not with the current growth numbers holding up.
Europe’s Arms Industry Goes to War Mode
Defense executives across Europe aren’t mincing words: even if the war in Ukraine comes to an end, demand for weapons will stay sky-high. As EU foreign affairs chief Kaja Kallas put it, Russia has already shifted its defense industry onto a mobilization footing — so Europe needs its own long-term game plan.
The market didn’t waste any time. German arms giant Rheinmetall has already announced plans to double its ammunition production and build new factories to refill depleted stockpiles. CEO Armin Papperger confirmed their order books keep expanding. With Germany set to boost its defense spending to 2.5–3% of GDP, he expects another 60 to 70 billion euros annually flowing through the sector, and Rheinmetall is ready to put that money to work.
The same thinking goes for Mikael Johansson, CEO of Sweden’s Saab, who has called for standardized, large-scale procurement rather than letting each country reinvent the wheel. Johansson says European states are increasingly willing to share technologies and build joint production chains.
Italy’s Leonardo is on board with that strategy as well. Its CEO Roberto Cingolani argues that Trump’s push for a “strong Europe” dovetails perfectly with Leonardo’s ambitions for cross-border defense partnerships and consortia.
Security on Credit: The Hidden Pitfalls
Still, this unprecedented defense surge comes with heavy baggage. That 800 billion euros won’t fall from the sky. While European Commission projections bank on a boost to GDP, the same forecasts also admit public debt could jump. Ratings agency Fitch is already warning that without offsetting measures, the EU’s budget deficit could soar from its current 3% to 6% of GDP in just a few years.
Some countries are heading into this new defense cycle in a highly fragile position. Italy carries a debt-to-GDP ratio of around 150%, while Greece hovers near 200%. Both are currently spending about 2% of GDP on defense, and any sharp increase without spending cuts or tax reform could tank their credit ratings. Germany and France, with more solid public finances, are prepared to reach 3%, but for Italy and Greece, those numbers would be excruciating.
On top of that, economic and labor groups warn that military budgets could crowd out social programs. Especially controversial is the idea of tapping up to 400 billion euros from the EU’s cohesion funds — money traditionally earmarked for jobs and local infrastructure — to shore up defense in border regions.
The European Commission is trying to ease the backlash by framing defense investment as a job-creator and a driver of tech innovation. Still, unions and some politicians remain wary, arguing that siphoning off these funds could gut social spending and fuel the rise of far-right parties exploiting public anger. That political risk might be the single biggest threat to the long-term stability of Europe’s ambitious defense project.
Redirecting Europe’s Funds: Fuel for the Far Right?
The European Commission’s decision to temporarily lift EU budget caps on defense spending from 2025 to 2028 offers national governments only a brief reprieve. After that window closes, they’ll still have to balance their books. Economists warn that high public debt means high interest rates, which could force future tax hikes or even cuts to pensions.
Klaas Knot, a board member of the European Central Bank and head of the Dutch central bank, made it plain: higher military budgets are “necessary,” but will inevitably drive up borrowing and complicate monetary policy.
There are serious risks lurking in the medium term as well. The IMF recently flagged that population aging, climate pressures, and defense needs combined could push Europe’s budget burdens up by 6–8% of GDP by 2050. The European Central Bank expects that financing these ambitions will require a flood of new sovereign bonds — testing the limits of what markets can absorb, especially for already debt-heavy countries like Greece and Italy.
The politics aren’t getting any easier either. Slovakia’s Prime Minister Robert Fico has once again taken a hard line, arguing that “neutrality might actually be useful” for his country. Hungary remains as skeptical as ever: Viktor Orbán has flatly rejected higher military spending and stands ready to block EU decisions. Just two days before the June summit, Hungary and Slovakia vetoed yet another sanctions package against Russia — hardly the first time.
Experts agree the fate of the entire project will depend less on flashy numbers than on actual delivery. Guntram Wolff, an economist at the Bruegel think tank, believes Europe’s industrial base is ready to scale up. But red tape and poor coordination among member states could lead to bottlenecks, delays, and waste.
If Europe’s spending stays focused on local production and goes hand in hand with innovation, the gains could be impressive. But if imports spike, deficits deepen, and social programs get slashed, the benefits will be far more modest — and the political backlash much fiercer.
Trade Wars: A Threat to Europe’s Defense Ambitions
Europe’s grand plans also face another serious headwind: global trade wars. After President Trump imposed tariffs of 25% on steel and aluminum and 20% on a slew of other European goods, European exporters tallied the potential damage — some 26 billion euros’ worth of trade now at risk. Brussels hit back with its own tariffs on $28 billion in U.S. products.
That blow to the metals industry will almost certainly raise the price tag for Europe’s armored vehicles, shipbuilding, and aerospace. As Andrea Nahles, head of Germany’s federal labor agency, bluntly put it, “the unpredictable trade policies of the U.S. have become a burden on Germany’s labor market” and could wipe out 90,000 jobs in a single year.
The trade disputes are adding more pressure to an already fragile economy. Even before the latest round of tariffs, the European Central Bank projected GDP growth for 2025 at a meager 0.9%. Defense industry analyst Derek Bisaccio points out that European governments are already wrestling with sluggish growth and widening budget gaps, making further defense build-ups a tough sell.
If the global trade war drags on, just about everything will get more expensive — from energy and rare metals to the electronics needed for modern weapons systems. Europe’s defense sector could lose its edge to cheaper Asian imports. Shipping disruptions, tariff barriers, and rising inflation could drive up borrowing costs and squeeze public budgets, putting the entire military build-up at risk.
In short, if Europe can’t stabilize its external trade, its ambitious rearmament plans could end up as little more than hollow promises. EU leaders are betting on joint procurement to keep costs down, but the slightest geopolitical tremor could blow up those calculations. If that happens, this multi-hundred-billion-euro defense project could become a hostage to global instability.
Bread and Tanks: Where Europe’s Forecasts Are Headed
Europe’s “Rearmament” program might just be the opening salvo. NATO officials are already warning that the old benchmark of spending 2% of GDP on defense is out of step with today’s realities. Alliance Secretary General Mark Rutte has suggested that strengthening Europe’s military muscle will likely mean going beyond 3% of GDP. In Washington, there’s little ambiguity either: U.S. Defense Secretary Pete Hegseth, along with German Defense Minister Boris Pistorius and others, has made it clear the current NATO standard is obsolete, hinting that a 5% target could soon become the new normal.
Still, it would be a mistake to dismiss the current plan out of hand. The “Readiness 2030” initiative isn’t just about throwing more money at defense; it’s about spending smarter through joint procurement, technology upgrades, and better project coordination. That approach, according to Rutte, is what will help keep budget growth under control while getting the most bang for Europe’s defense buck. The EU’s own documents spell it out: “Buy European, pool projects” — so every euro goes as far as possible.
At the end of the day, European leaders argue that security and stability are values worth paying for. Defense investments are seen as a necessary — if painful — step. For ordinary Europeans, the question remains the same: will the short-term benefits — more jobs, technological innovation — outweigh the long-term risks of heavier budget burdens? Politicians will have to walk a tightrope between using advanced military programs to fuel growth and protecting social priorities, making sure those billions don’t undermine other pillars of society.