The EU’s grand defense spending plan is getting a lot of attention, but let’s be real: they don’t have the money to pull it off. 26 member states have endorsed an ambitious proposal to spend anywhere from $800 billion to $1 trillion on defense, which is on par with the U.S. defense budget. But the reality is much more complicated than just writing a check.
For starters, the EU’s overall budget for 2021-2027 is already allocated. They’ve set aside about $1.16 trillion for all their programs, and defense is just a small part of that. With the EU’s annual budget hovering around $182 billion, that massive defense plan is going to need significant funding shifts or completely new funding streams. And even with the endorsement, it’s unclear if this will be a one-time investment or a yearly commitment.
To make matters worse, the EU’s financial situation is far from rosy. The plan would require reallocating funds from other critical areas, or simply relying on increasing member states’ contributions, which could lead to political tensions. And then there’s the question of whether the EU can even sustain such spending. This is 3 times the defense budget of China, 4 times Russia’s, and 50 times that of Canada, which raises doubts about whether they can maintain this level of spending without significant strain.
What’s most concerning is the speed at which this push is happening. The EU is aiming to rapidly ramp up its military capabilities, but the reality is that they lack the financial flexibility to make this a reality. Even with ambitious goals, Europe’s military strength is still limited by its financial limitations, and unless they can pull off some major economic restructuring, this defense plan could end up more of a statement than a reality.
🚨BREAKING
26 MEMBER STATES OF EUROPE ENDORSE THE EU PRESIDENT'S $800B- 1 TRILLION USD DEFENSE SPENDING PLAN
This is equivalent to US defense spending. A new global superpower is being born. pic.twitter.com/Rbveanu5oh
— Tablesalt 🇨🇦 (@Tablesalt13) March 7, 2025
The yield gap between 10-year bonds in the US and Germany has collapsed to the lowest since 2023. Bank of America's Hartnett said that it looks increasingly likely that German bund yields will trade above those on US Treasuries by year-end. pic.twitter.com/Qgx4QYjSeY
— Lisa Abramowicz (@lisaabramowicz1) March 7, 2025
Incredible Germany equity inflows pic.twitter.com/o0fmew2RV0
— Mike Zaccardi, CFA, CMT 🍖 (@MikeZaccardi) March 6, 2025
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