The European Union Still Can’t Shake the Austerity Habit
European leaders have been looking for ways to loosen budgetary rules so they can increase military budgets. But the new policy regime won’t create more room for the social and ecological investment Europe desperately needs after years of austerity.
French president Emmanuel Macron (right) and new German chancellor Friedrich Merz (left) speak to the media after talks at the Élysée Palace on May 7, 2025, in Paris, France. (Sean Gallup / Getty Images)
These are desperate times. As the rancorous Trump administration is turning away from Europe, accusing its “pathetic” nations of “free-loading,” and withdrawing support for thankless Ukraine, which Donald Trump blames for having “started the war” with Russia, dumbfounded European Union leaders are struggling to free up hundreds of billions of euros to increase defense expenditures.
The stress is palpable. Following decades of neglecting their own military budgets while remaining under the US defense umbrella and reaping the post–Cold War “peace dividends,” EU countries suddenly find themselves in a new, colder reality of having to fend for themselves. They are urgently exploring new ways to rapidly reinforce their defense infrastructure.
The biggest obstacle to this revival of “military Keynesianism,” reminiscent of the Cold War era, is the fact that the immediate step-up in public spending (to at least the NATO norm of 2 percent of GDP) requires deficit financing and higher public debts. This conflicts with the (self-imposed) fiscal discipline under the EU Stability and Growth Pact (SGP).
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