Europe must urgently increase defence budgets—but it doesn’t have to mean deep cuts to public services. Here’s the alternative.
Faced with the emerging axis formed by Donald Trump and Vladimir Putin, Europeans find themselves, regrettably, compelled to swiftly rearm by significantly increasing military expenditure. Many influential voices already have a preferred solution for securing the necessary funds: drastic cuts to social spending and public services. Conveniently for them, these are precisely the policies they have been advocating for decades, though without significant success so far.
Yet, this approach presents a substantial risk. In democratic societies defined by genuinely competitive elections and free public debate, such austerity measures risk driving more citizens towards extreme right political forces willing to sacrifice Europe’s independence by aligning with the agendas promoted by Trump and Putin.
Fortunately, slashing social spending and weakening public services is far from the only way to generate the required financial resources. One viable alternative is borrowing. Historically, nations have always relied on debt in times of necessity. Admittedly, for countries like France, already heavily indebted due to Emmanuel Macron’s irresponsible budgetary policies, assuming additional debt would be more challenging.
However, the most promising solution would be joint borrowing at the European Union level. Currently, the EU itself carries virtually no debt. We should also finally decide to mobilise the frozen Russian assets and not just the interest they generate. Now that the United States has ceased to be a safe haven for foreign capital, the argument that capital would flee Europe if we made such a move no longer really holds water.
Unfortunately, the ReArm Europe plan proposed by Ursula von der Leyen and adopted by the Council on March 6, does not include either of these two measures. The overall amount announced — €800 billion — is certainly impressive, higher than the €750 billion mobilised in 2020 with Next Generation EU in response to the COVID-19 pandemic. But a closer look reveals that no new money is actually being put on the table at EU level.
The exclusion of military spending from the Stability and Growth Pact rules is undoubtedly a positive development. However, the increase in military budgets that this reform aims to facilitate will still be managed at the national level, continuing to place a burden on the public finances of individual Member States. The revision of the rules to allow the European Investment Bank (EIB) to finance defence projects was expected, but it is not accompanied by an increase in the bank’s capital. As a result, the impact of this change will remain limited. Redirecting the €150 billion in loans earmarked under Next Generation EU towards joint defence projects will come at the expense of investments in the energy and digital transitions. Similarly, reallocating cohesion funds will undermine efforts to combat territorial inequalities.
Significant new borrowing at the EU level would make strategic sense: effective rearmament requires coordinated efforts on a continental scale to address gaps in national armed forces, avoid redundancies, and ensure interoperability of equipment. Moreover, such a collective initiative would strengthen the EU’s ability to revitalise Europe’s military industries, which have been severely weakened by three decades of silent disarmament since the fall of the Berlin Wall. Encouraging European defence firms to collaborate would be far more effective than relying solely on national efforts.
Furthermore, this extraordinary situation presents an overdue opportunity to finally tackle intra-European tax havens. If France and Germany were determined, it would require only limited political capital to bring Luxembourg or Ireland into compliance. The persistence of tax havens within the EU remains an enduring scandal, particularly in light of the near-total tax exemption enjoyed by major technology firms and other multinationals operating in Europe—many of which are now closely tied to the United States, an increasingly assertive economic adversary.
Finally, Europe’s wealthiest citizens, who have profited significantly from economic policies implemented in the EU over recent decades, must contribute substantially more. To finance the war effort during the 1940s, Franklin Roosevelt’s United States—not Stalin’s Soviet Union—raised the marginal income tax rate to 94 percent. In contrast, France’s current marginal rate is only 45 percent and most European countries are below this level, clearly indicating ample room for an increase. Coupled with decisive actions against tax havens, this would enable significantly greater contributions from Europe’s wealthiest to fund the collective effort.
In short, the rapid military build-up essential to counter the Trump-Putin axis undoubtedly imposes substantial pressure on European public finances. Nevertheless, cutting social programmes and public services is not a viable solution. Indeed, such austerity would be politically disastrous, precisely when Europe must avoid handing Trump-Putinism an easy victory.
Guillaume Duval is the former editor-in-chief of Alternatives Economiques and former speechwriter of HRVP Josep Borell.