The Truth About European Defense Spending
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Much hay has been made about Sweden’s entry into NATO. While it is a good thing that Sweden – which was officially neutral but was essentially acting as a free rider – is finally partaking in the defense of its continent, its arrival highlights a continuing problem: Sweden, and most NATO states, are still spending less than 2% of their budgets on GDP. But it even moreso shines a light on why this is happening: many European states simply cannot afford to spend more on defense.

Firstly, let us dispense with what would likely be the liberal internationalist response to these statements: “NATO members have been increasing their spending.” This is true, in that spending has increased from anemic to slightly less anemic. But for all of the bragging in European capitals, many still fail to spend at least 2% on defense; in 2023, only 11 actually hit the mark. More have claimed that they will soon hit 2%, but this promise is not worth the paper it is printed on, as it can simply be reversed the moment a new government comes into power or the spotlight turns away. Much of it is also built on extrapolation: Sweden received positive press for their defense increases, but reading past the headlines reveals that they will only hit 2% in 2028, provided defense funding steadily increases (which is, again, far from a sure thing). Much of this increased spending also is due to Ukraine aid. German Chancellor Olaf Scholz was pleased to report Germany would spend over 2% on defense for the first time, but that benchmark will only be met because of one-time Ukraine aid increases, not to mention a shrunken German GDP.

But back to Sweden. Economists have a concept called “guns and butter.” States choose to spend on “guns” – defense and national security – or “butter” – social safety nets. It does not take an international relations expert to guess how Europe has allocated funding. Sweden spends about 1.3% of their GDP on defense, but they have a strong social network. They pay for the butter with extremely high taxes (taxes in the country are higher than the OECD average, and the highest rate is over 50%); this high taxation is repeated across Europe. A study revealed that, as a share of GDP, America’s total tax revenue stood at just under 25% – lower than every other NATO member state.

Because of America’s immense wealth, it can manage to spend on both guns and butter. Even if the U.S. cut its military budget in half – which would free up about $400 billion – its military would still have a budget about $200 billion higher than China’s. It could use that $400 billion to launch free education, expand healthcare, or simply reduce taxes; it can spend on guns and butter.

But if the other NATO member states cut their military budgets in half, they would be left with practically nothing. Sky-high taxation allowed them to construct decent social safety nets, but that’s all. They can afford brief, headline-catching increases (like Scholz’s 2022 promise to increase military spending by $100 million, which has essentially gone nowhere), but they cannot sustain a serious growth in spending without changing the way their governments collect revenues.

They can afford serious defense spending increases in one of two ways: raise taxes to pay for guns, or cut spending on butter. Both of those options would be catastrophic for European establishments. Europeans are already overtaxed; increasing taxes and fees significantly to pay for more guns would likely result in political annihilation.

But so would cutting spending on butter. Since World War II, Europeans have been happy to brag about their social safety nets. Any American who has traveled abroad has surely heard some haughty remark about the superiority of European “free” healthcare. But if they actually had to pay, or if service was reduced? That likewise would result in electoral blowback.

Why are establishments in this jam? Had European leaders been honest and readied their population for needing to spend on defense, they would possibly be able to weather the storm. But they were not honest. They have spent decades playing a verbal two-step: on the one hand, they regularly critique America for spending too much on the military and being too militaristic. But on the other hand, they become infuriated whenever America broaches the subject of burden-shifting, allowing Europe to do more for its own defense so the U.S. can free up resources for its own needs. This played out for all to see in 2020, when an ally of then-Chancellor Angela Merkel called Trump’s plan to remove 1/3 of America’s troops from Germany “unacceptable.”

But now, with America becoming increasingly skeptical of defending those who will not defend themselves, the two-step may be over. European establishments have no good choices, and they have arrived here entirely due to their own actions and the presumption that America will always defend Europe. They have all celebrated Sweden’s arrival to NATO, with some noting that, excepting Russia’s exclave Kaliningrad, the Baltic Sea is now a NATO lake. It is surely good news for the Baltic states, all of whom spend at least 2% on defense.

But that does not mean that it should be America which populates the Baltic Sea with its ships. It should be Sweden.

Anthony Constantini is a Contributing Fellow at Defense Priorities.