{"id":3478,"date":"2025-08-04T19:33:11","date_gmt":"2025-08-04T19:33:11","guid":{"rendered":"https:\/\/geopolitic.info\/?p=3478"},"modified":"2025-08-04T19:33:11","modified_gmt":"2025-08-04T19:33:11","slug":"the-money-fight-that-will-shape-europes-future","status":"publish","type":"post","link":"https:\/\/geopolitic.info\/index.php\/2025\/08\/04\/the-money-fight-that-will-shape-europes-future\/","title":{"rendered":"The money fight that will shape Europe\u2019s future"},"content":{"rendered":"\n

04\/08\/2025
By Carl Bildt Stockholm
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\u201cMoney makes the world go around,\u201d sings the showgirl Sally Bowles in Cabaret, the iconic musical set against the backdrop of the Weimar Republic\u2019s decadence. Money will certainly shape Europe\u2019s future, as political leaders across the continent are forced to make painful decisions about how to allocate public funds in an increasingly unstable world.<\/p>\n\n\n\n

Three urgent priorities are set to strain Europe\u2019s public finances over the next few years. The first \u2013 and most obvious \u2013 is defence. The push to boost military spending is primarily a response to Russian President Vladimir Putin\u2019s aggression, compounded by US President Donald Trump\u2019s relentless criticism of America\u2019s Nato allies. Together, these pressures have made strengthening Europe\u2019s defence posture a strategic necessity.<\/p>\n\n\n\n

The second, and arguably more urgent, priority is to support Ukraine in its fight against Russia. If Ukraine\u2019s defences were to collapse, a revanchist Russia would likely go on a rampage. Ensuring that Ukraine can continue to defend itself will require European governments to go beyond their existing defence-spending commitments.<\/p>\n\n\n\n

And lastly, there is the lengthy process of producing the European Union\u2019s next multiyear budget, which will cover the period from 2028-2034. The European Commission has already presented its proposal, but the real challenge lies ahead, as member states and the European Parliament must go through internal negotiations before agreeing on the final numbers.<\/p>\n\n\n\n

The Commission\u2019s proposal includes increased funding for security, global commitments, and competitiveness, as well as additional support for Ukraine. Although these priorities have been widely supported, the reallocation of resources needed to fund them has been the subject of fierce debate. It is safe to say the Commission is headed for a bruising political showdown before a consensus is reached.<\/p>\n\n\n\n

Despite the intensity of these budgetary battles, the Commission\u2019s proposed budget amounts to just 1.26% of the combined GNI of the EU\u2019s 27 member states. While that is up from 1.13% today, the net increase is relatively modest once debt-servicing costs from the bloc\u2019s post-Covis-19 borrowing spree are factored in.<\/p>\n\n\n\n

When it comes to defence, however, the numbers are far more significant. Across Europe, defence budgets have grown by roughly one-third in recent years, with most of Nato\u2019s European members spending around 2% of their GDP or nearing that benchmark.<\/p>\n\n\n\n

But even that is no longer enough. At the June Nato summit in The Hague, members pledged to spend 3.5% of GDP on defence by 2035, with an additional 1.5% earmarked for loosely defined defence- and security-related investments. The extra 1.5% appears designed to appease Trump, who has repeatedly called for European allies to boost military spending to 5% of GDP. Much of this additional spending is expected to rely on creative accounting rather than actual new funding.<\/p>\n\n\n\n

Supporting Ukraine through the war and the country\u2019s eventual reconstruction will also require a substantial financial commitment. While estimates vary, $100bn per year, for example, would amount to just over 0.4% of the combined GDP of the EU and the United Kingdom \u2013 significant but far from unmanageable.<\/p>\n\n\n\n

At some point within the 2028-35 budget window, the cost of rebuilding Ukraine will need to be addressed. Some studies have estimated the cost of reconstruction at around $500bn, though this figure includes areas that may remain under Russian control for the foreseeable future. Much will also depend on whether security guarantees and the prospect of Ukraine\u2019s EU accession can foster an environment conducive to large-scale private investment.<\/p>\n\n\n\n

Of course, new demands may emerge, placing additional strain on Europe\u2019s finances. Several European governments, for example, have already slashed development aid or diverted part of it to support Ukraine. While this may have been a necessary short-term response to Russia\u2019s invasion, its long-term consequences remain unclear.<\/p>\n\n\n\n

Currently, only Norway, Sweden, and Denmark meet the UN target of allocating 0.7% of GNI to development assistance. Following the Trump administration\u2019s dramatic foreign-aid cuts and the shutdown of the US Agency for International Development (USAID), there is a strong case for Europe to fill the void. A more desperate world will be more volatile and less secure, making development a strategic imperative as well as a moral one.<\/p>\n\n\n\n

Meeting all of these commitments will not be easy, especially for governments already grappling with high deficits and rising public debt. My guess is that Northern European countries will reach Nato\u2019s 3.5%-of-GDP defence spending target well before 2035, while Southern European countries \u2013 with the exception of Greece \u2013 will likely fail to meet it. With France, Italy, and Spain all heading for elections by 2027, the political appetite for the spending cuts needed to increase defence budgets will likely remain limited.<\/p>\n\n\n\n

This trend is already evident in the distribution of aid to Ukraine. In the first four months of 2025, the Nordic countries contributed $6.8bn, the UK provided $5.3bn, and Germany put up $760mn, while Spain and Italy gave only a fraction of those amounts.<\/p>\n\n\n\n

The irony is that the EU member states often labelled as \u201cfrugal\u201d are the ones actually willing to provide funding to advance the bloc\u2019s agreed-upon priorities. Meanwhile, the less frugal countries prefer to call for more borrowing, even though they have limited room to do so themselves.<\/p>\n\n\n\n

These tensions are now driving the intensifying battle over Europe\u2019s finances. There is a stark contrast between Nato\u2019s swift approval of large spending pledges and the EU\u2019s wrangling over far smaller amounts. Whatever the outcome, the coming fiscal fight will test how able and willing Europe\u2019s leaders are to confront the serious security challenges ahead. \u2013 Project Syndicate<\/p>\n","protected":false},"excerpt":{"rendered":"

04\/08\/2025By Carl Bildt StockholmSource \u201cMoney makes the world go around,\u201d sings the showgirl Sally Bowles in Cabaret, the iconic musical…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29],"tags":[],"class_list":["post-3478","post","type-post","status-publish","format-standard","hentry","category-europe"],"views":403,"_links":{"self":[{"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/posts\/3478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/comments?post=3478"}],"version-history":[{"count":1,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/posts\/3478\/revisions"}],"predecessor-version":[{"id":3480,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/posts\/3478\/revisions\/3480"}],"wp:attachment":[{"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/media?parent=3478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/categories?post=3478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/geopolitic.info\/index.php\/wp-json\/wp\/v2\/tags?post=3478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}