Europe’s False Choice Between Defence and Welfare
Without greater security, the continent will struggle to attract investment, sustain growth and preserve its social model. A commentary by Lorenzo Bini Smaghi
Is it possible to increase defence spending without jeopardising the welfare systems that European countries have built over the past 80 years?
This is the challenge facing European governments, particularly in countries that need to repair their public finances amid modest economic growth and rapid population ageing. The task has become even harder following the commitment made within Nato to raise military spending to 5 per cent of gross domestic product.
It is certainly not easy to persuade citizens to give up acquired rights or pay higher taxes to finance defence against external threats that are not always clearly identified. It is therefore hardly surprising that doubts have been raised, not least about the 5 per cent target, which even the US does not currently meet.
Yet framing the debate over defence spending solely in terms of budget constraints overlooks several fundamental aspects of the problem Europe faces.
The first is that Europe cannot preserve, let alone strengthen, its welfare system unless its economy grows. Without growth, there will not be enough resources to finance public expenditure, including the spending required to maintain the existing social model.
The second is that, in Europe as in any other country or region, there can be no sustainable economic growth without internal and external security. Security is an essential condition for attracting both tangible and intangible investment.
This is demonstrated by the vast resources that governments and private companies spend each year protecting themselves against the growing number of cyber-attacks, particularly those originating in Russia and China.
This requirement is even more pressing in a multipolar geopolitical environment in which major powers defend their interests at almost any cost.
The third consideration is that, whether Europeans like it or not, the US is no longer willing to bear the cost of defending Europe, as it has done since the end of the second world war. Unless Europeans are prepared, over time, to assume direct responsibility for their own security, that security will gradually erode.
Europe will inevitably be perceived as a less secure region. This would set it apart from every other major country or region in the world, beginning with the US and China, but also including India and South America.
As noted above, a region that fails to provide for its own security becomes less attractive to both productive and financial investment. Without such investment, Europe will be unable to sustain its welfare system.
In other words, defence and welfare spending are not alternatives. They are complements. Unless Europe spends enough to guarantee its own defence, it will become less competitive and will eventually lose the ability to finance its social model.
But the issue does not end there.
A Europe that cannot guarantee its own security becomes vulnerable not only to potential adversaries, but also to its allies, starting with the US.
This became clear last year during negotiations over tariffs and the taxation of large digital companies.
The possibility that the US might not honour Article 5 of the Nato treaty, which commits each member to assist another member under attack, was raised, more or less explicitly, whenever Europe considered retaliating against tariffs imposed by the US administration.
The same threat was used to pressure European countries into abandoning the OECD agreement on the taxation of US multinationals.
Then there is the threat to occupy Greenland, which has never been definitively withdrawn.
In short, for as long as Europe remains unable to defend itself, it will remain fragile. This fragility will not be merely political. It will also be economic, because Europe will be exposed to discriminatory measures such as tariffs without being able to respond effectively.
It will also become socially fragile, because it will no longer be able to sustain its welfare model.
It is no coincidence that the European countries with the strongest social safety nets, particularly the Nordics, are also those that have increased defence spending the most in recent years.
The supposed trade-off between guns and butter does not really exist.
A previous version of this article was published in the Italian daily Il Foglio
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
