The big question for Europe’s economic development is to minimize or even eliminate the distance that separates it from the digital and technological level at which the USA and China are located.
It is characteristic that in most technological conferences around the world, it is heard that “in a world that innovates, Europe legislates”. And that the regulatory and regulatory framework of Brussels, together with the bureaucracy and complexity of the procedures, act as a barrier to the development of purely European digital services and products.
However, despite the significant lag that Europe presents in explosive technological developments, Europe in previous years had turned its attention to the forced shift to the Green Transition. Which it used as the Holy Grail of development and as a dominant investment tool. The energy crisis caused by the Russian invasion of Ukraine has shown that most policies were hasty and ill-conceived. And both businesses and households have paid the price.
And while Germany’s economy is flirting with recession and is preparing to gradually jump over the famous “debt brake” (Schuldenbremse) that requires balanced budgets, and France is in a fiscal leap into the void, a new solution has been found that will prevent the emergence of a major and widespread economic crisis on the Old Continent.
The name of this solution is an increase in military spending. Not only in Germany and France, but in all European NATO states. Already, the expected coalition government in Berlin, with the participation of the Christian Democratic Union (CDU) and the Social Democratic Party (SPD), has announced a fiscal plan that excludes significant military spending from Germany’s “debt brake” and creates an off-budget infrastructure and climate protection fund of 500 billion euros ($546 billion).
As a result, they are revising their forecasts for the course of German GDP upwards. Trust Economics estimates real GDP growth in Germany this year at +0.2% from absolute zero. At the same time, it is increasing its forecast for 2026 from +1% to +1.5%, while for 2027 it predicts an increase in German GDP from +1.4% to +2%.
Trust Economics predicts that France will increase its defense spending to 2.9% of GDP by 2027, Italy will reach 2.8% of GDP, and Spain will increase its military spending to 2.7% of GDP.
It is not clear where these specific increases in defense spending will come from. They could be offset by cuts in other public spending or tax increases. Or even by issuing debt since the aforementioned countries are also dangerously approaching their fiscal limits.
Nevertheless, estimates for the course of European GDP are already being revised upwards, with the ReArm Europe program of 800 billion euros, providing the necessary impetus to avoid economic stagnation. Thus, it is predicted that the increase in European GDP for 2025 will reach +0.8% from +0.7%, for 2026 to +1.3% from +1.1% and for 2027 to +1.6% from +1.3%.
The above forecasts for European GDP do not take into account the losses from the imposition of US tariffs and the increasing trade tensions with the US. In general, in moderate scenarios, it is estimated that there will be a negative impact on growth of -0.5% to -1%.
The prospect of increased government spending across the eurozone also relieves the pressure on the European Central Bank to reduce interest rates. Now everyone will be satisfied – and especially central bankers – if interest rates reach a final level of around 2%, after two reductions of 0.25% in April this year and next June.
Whether the European economy will be saved by increasing military spending remains to be answered. The previous similar attempt through the green transition cannot be described as successful.
At the same time, European governments will also be confronted with public opinion. The economic wounds to households from the green transition and the deep energy crisis that drastically changed the economic status of citizens are still open. And it is not certain that Europeans will support the increase in military spending without objections. According to the Eurobarometer, only 60% of Europeans are positive. According to the Bertelsmann Stiftung (Eupinions), there is also a decline in support for a unified European defense. In Spain, support has fallen from 92% in 2022 to 83% in 2024 and in France from 87% to 71% in the same period.
