Austerian Mantras

The expectations on defense spending are also hard to reconcile with the budgetary constraints for which the EU was established in the first place. Indeed, taming the welfare state by limiting the scope for public deficits and public debt is what the EU is all about.

This is clearly visible in the so-called European Semester, a process that gives the unelected European Commission extensive monitoring and sanctioning rights over national budgets. Member states must ensure that budget deficits remain below 3 percent of GDP and that public debt doesn’t break a ceiling of 60 percent of GDP. If they don’t, they risk the so-called “excessive deficit procedure,” meaning heavy pressure on governments who fall foul of Brussels.

It was all formalized in 1992, with the Maastricht Treaty, but amid the heady neoliberal triumphalism of the End of History few took heed. France, Italy, Greece, Belgium, Spain, Portugal, and even Germany, exceeded these budgetary guardrails with impunity. That suddenly changed in 2010, with the start of the euro crisis.

The long European recession (2010–16) that followed the Great Financial Crisis was the direct result of the frugal North — prodded by Anglo-American bond investors with not a little help from the European Central Bank (ECB) — starting to take the letter of the treaty seriously. Germany, the Netherlands, and Austria sacrificed their own citizens on the altar of budgetary sobriety, in order to teach Southern Europe an ordoliberal lesson.

While most member states came out of the euro crisis with rebalanced public finances, when COVID struck in early 2020, a concerted budgetary effort was needed to absorb their macro-economic effects. If emergency strikes, everything becomes negotiable, including decades-old treaties. This time around, the European Commission established grand-sounding emergency funds and lifted — conditionally and temporarily — the deficit and debt limits to help its members cope with the disaster.

Hard on the heels of the pandemic came another emergency, when Russia invaded Ukraine in early 2022 and pushed defense up the agenda. The template that had been developed during the pandemic proved useful. Again, the European Commission made big promises and allowed member states to breach the deficit ceiling without embarking on punitive “excessive deficit procedures.”

This is the ReArm Europe package announced by von der Leyen in March 2025 was quickly relabeled as Readiness 2030. The new package boils down to a one-off  $175 billion boost for the European defense industry, along with a complex set of conditions under which excessive deficits are allowed to create budgetary space to meet the new NATO norm.

This is all meant to help member states avoid the dreaded austerity that wreaked havoc on the eurozone and produced the “populist” monster. However, since the amounts are so huge, it could result in deficits prone to again rekindle Anglo-American bond vigilantes’ worries over debt sustainability (with or without prodding from the ECB), as such caused the euro crisis in 2009–10. If core EU member states like Germany, France, Belgium, Italy, and the Netherlands solely relied on deficit spending to reach the new NATO target, then — all else being equal — it would result in the following budgetary shortfalls: Germany 5.7 percent (up from today’s 2.8), France 8.8 (5.8), Belgium 8.2 (4.5), Italy 6.9 (3.4), and the Netherlands 3.9 (0.4).

Perceptions of debt sustainability are key here. Higher deficits tend to translate into higher public debt levels, which in turn translates into higher interest rates. To take one major EU economy: France, which currently pays a yield of 3.5 percent on its ten-year bonds, could then expect to pay double that — a figure similar to a hardly impressive economic power like Romania. While this may sound technical, given the current state of European budgets, doubling the amount of interest on public debt could quickly result in deficits spiraling out of control.

This in turn would further limit budgetary space for new policymaking, which is severely constrained in Europe anyway, as Armin Schäfer and Wolfgang Streeck showed in their 2013 work, Politics in the Age of Austerity. In mature welfare states like the European ones, they argued, most expenditures are fixed because they concern long-standing programs and commitments, leaving only small amounts for discretionary government spending.

Dutch Election

Take the case of NATO chief Rutte’s own country, the Netherlands, which faces snap elections in October.

Of total public expenditures of $461 billion in 2024, $51 billion went to (mostly foreign) bondholders, turning this into the third-largest budget item. According to the International Monetary Fund (IMF), the annual interest paid on public debt represents 0.7 percent of GDP. Yet, with the new NATO norm, the Dutch deficit would jump to 3.9 percent, over which it would have to pay a yield comparable to what Italy now pays — again according to the IMF, this boils down to 3.7 percent of GDP. This would imply a sixfold increase in Dutch interest payments, adding up to a staggering $43 billion. This by and large doubles (!) the extra annual expenditure linked to fulfilling the new defense-spending commitment itself.

Given this fiscal reality, one might expect forceful resistance from the country’s main social democratic force, the combined Green Left headed by Frans Timmermans. Surely it wouldn’t swallow the arguments peddled by the security establishment to justify ever-higher defense spending, especially in light of its two constituent parties’ long tradition of pacifism and anti-American imperialism? Data show that the European arsenals are not empty, that Europe is already outspending Russia, that there is no reason to assume that Russia is willing (or able) to challenge NATO, and that the United States is in the process of neither folding its nuclear security umbrella nor withdrawing troops from the European continent.

Data also show that higher defense spending locks states into trajectories of higher emissions for decades to come, turning their “green” ambitions into a charade — something which the Greens, obviously, should reject. The eagerness with which the European Green Left has embraced the case for more weapons raises pressing questions about their commitment to green causes in the first place.

Finally, after decades of austerity (in which both the Greens and Labor, then separate parties, have been complicit), Dutch infrastructure and public services (like everywhere else in austerity-afflicted Europe) are in desperate need of repair. It would seem that this alone can win back the average voter, who has dumped Timmermans’s progressive platform in favor of Geert Wilders’s right-wing populist outfit.

Not so. Thus far, Timmermans has been playing the shtick of the “safe pair of hands” with the skills, experience, and authority to steer the nation safely through the choppy waters of geopolitical turbulence. Moreover, in the run-up to the Dutch elections on October 29, his party has presented an electoral program which, unbelievably, completely glosses over the budgetary effects of its own warmongering.

In more detail: Timmermans’s outfit wants to expropriate large livestock farmers; build 100,000 new homes a year; lower health care insurance levies; insulate social housing; increase wages; hire more teachers and nurses; build more railway tracks; lower the costs of public transportation; and set up a borrowed fund of $25 billion for new industries.

Back-of-the-envelope calculations suggest that this easily adds up to another 5 percent of GDP in new spending. This would boil down to a deficit of 9 percent or more, comparable to Romania, the worst performer in the EU. Romania pays a yield on ten-year government bonds of no less than 7.35 percent, more than twice what the Dutch government would already have to pay in the new reality of the new NATO target. The bottom line is a further doubling of Dutch borrowing costs to the tune of $86 billion, eating even deeper into the available, already-limited budget space.

Granted, these are all fine and sensible progressive objectives. But even in the best of times it would have been an uphill political battle to secure a majority for them in the fragmented Dutch parliament, which, given the country’s long-standing tradition of fiscal frugality, would in any case have needed a convincing story of solid financial backing. Obviously, though, these are not the best of times. This makes the program’s twice-repeated assurance that “more spending on defense will not result in cuts on public services or derail green ambitions” a disingenuous incantation more than a reliable promise.

Moreover, to form a stable Dutch government, coalitions between two, three, or four parties are the rule. After three years of massive pro-NATO agitprop from all sides, more defense spending is what they all agree on, while there is no consensus on the rest. Hence, it is easy to predict what the outcome of the postelection negotiations is going to be: higher defense spending and not much else — notwithstanding the pious hopes to the contrary.

More wishful thinking can be observed in what the document has to say on the defense industry itself. In an attempt to put a ceiling on the expected profit boom, the Green Left proposes partial public ownership “to ensure that the profits flow back into the public purse,” it reads. It sounds smart, even though the details are lacking, before you recognize that the Dutch military obtains more than 95 percent of its hardware from US weapons producers like Lockheed Martin. It is hard to see how public ownership would work here. Again, this is more a profession of good intentions than a serious policy proposal.

Taxing the (Not Very) Rich?

The Green Left does acknowledge that deficit funding will only get you so far. The solidarity of leftish communitarianism is the lodestar here, not socialism: “we” and “together” appear no less than 300 and 202 times each; “class” does make it in eight times, albeit mainly in reference to school classes. Hence the party turns to the proverbial rich for funding and aims to scrap mortgage interest deduction as well as explicit and implicit subsidies for large polluters, targeting large firms and (wealthy) homeowners. The first is meant to generate revenue and ease access to the housing market for young starters (new homeowners), while the second is meant to incentivize polluters to go green as well as generate revenue.

A closer look reveals more bark than bite. On paper, scrapping the first will generate a hefty $10.5 billion annually. However, this is less than a tenth of what is needed. Moreover, it will not help new homeowners a bit since deductions not only increase house prices but also the available loan space, implying that scrapping brings zero net gains for starters. At the same time, it would seriously hurt the financial prospects of more than 3.5 million Dutch mortgagees — over seven million voters (!) out of a total of 13.3 million — who depend on $9.300 in average annual deductions to cover their housing costs.

On paper, scrapping the second generates an even heftier $44 billion annually. However, most are of the chimerical implicit kind, which can only be booked in by introducing hefty carbon emissions levies — a tall order politically in the best of times. Given Dutch consumers’ strong dependence on the products of these polluters, the ensuing price increases will immediately result in a cost-of-living crisis, especially when both measures are combined. Given their political heft, a voters’ revolt will quickly test the presumed solidarity, forcing politicians, including those of the Green Left, to again fiscally compensate the rich, who are actually the middle classes. Such are the politics of financialized housing. It is hard to see how this will plug the yawning fiscal gap.

To wrap up: if the Dutch case is anything to go by, it seems that the European left is in denial of the true budgetary consequences of the new NATO norm. Timmermans’s Green Left may sound like a milquetoast reformist force, yet it pretends that it can change the world in every way at once: arm the Netherlands to the teeth, save the environment from capitalist destruction, and repair the damage of thirty years of neoliberal austerity.

This is disingenuous at best and a recipe for disgruntled voters at worst: they will not get what they have been promised and will only receive what they don’t need — namely, a tightly packed arsenal and a constant fear of military escalation. If this is going to be the tune of the European left, the long-term consequences are not hard to predict: a further decline of green “progressive” forces across Europe, more disaffected voters, lower turnout, more ressentiment and anger, and, further down the line, an even larger swing to right-wing populists than we have already seen.

There is only one way to avoid all this: acknowledge that “rearming” Europe inevitably means guns for the generals and austerity for the rest of us. Since this a “security crisis” with only a feeble footing in objective geopolitical reality, the way out immediately suggests itself: reject the new NATO norm, force the warring parties to come to the table, and start a wider discussion on how to construct the Eurasian security order that was so tragically squandered in the early 1990s, as Richard Sakwa has shown.

In fact, this should have been the European left’s aim from the start.