European governments are once again haunted by a tough choice between financing the military or spending on social programmes. That, at any rate, is the narrative that has taken hold since Donald Trump’s retreat from the postwar global security order and the urgent pressure to rearm Europe.
But to frame the dilemma facing Europe in this way is a big mistake. History teaches us that the political choice has never been about guns or butter, but rather guns or taxes.
The collapse of the Soviet Union in the early 1990s seemed to close almost a century of global ideological conflict, but it was also supposed to make us all richer. With the end of the cold war, Europeans would no longer need to uphold an expensive military apparatus for territorial defence. Governments ditched conscription and walked back defence outlays. Cashing in on that so-called “peace dividend”, governments could spend on the domestic priorities of their liking, boosting non-military investment.
Last month’s Nato summit in The Hague showed how this tide has been dramatically reversed. Russia’s full-scale invasion of Ukraine and Trump’s uncertain commitment to Nato means that European governments have no choice but to invest more in their own mutual defence. The peace dividend, as Kristalina Georgieva, the head of the IMF, stated, “is gone”. Europe’s Nato members pledged to increase spending on “hard defence”, such as tanks and military salaries, from 2% to 3.5% of GDP by 2035.
The question now is how to finance it. For some experts, the only way to build a warfare state that can deter Russia is to slash social spending. After all, goes the misleading argument, governments in the 1990s splashed the savings from defence on expensive welfare promises.
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