The Economics Show Can Europe afford to rearm itself? With Jeromin Zettelmeyer
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Jul 21, 2025 Jeromin Zettelmeyer, director at the think tank Bruegel and former IMF and German Ministry official, joins to discuss Europe's defense spending amid rising geopolitical tensions. He delves into the challenge for NATO nations to allocate 3.5% of GDP to military budgets while managing public debt. The conversation highlights Germany's shifting debt regulations and the necessity for cooperative financing solutions across Europe. Zettelmeyer emphasizes the cultural changes needed for collaboration over national interests in defense production.
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NATO's Defense Spending Commitments
- NATO members have committed to raise military spending from 2% to 3.5% of GDP by 2035, with a broader 5% target including civilian defense spending.
- This represents a significant increase, averaging about 1.5% of GDP over 10 years, to counter threats like Russian aggression.
Return to Cold War Spending Levels
- The planned defense spending brings Europe back to Cold War levels after a lengthy peace dividend period.
- Unlike the Cold War era, all NATO members, including the US, are expected to meet similar spending targets amid high debt and deficits.
Limits on Accounting Tricks in Spending
- Countries may attempt some accounting tricks ('ducking and diving') to meet defense spending targets, but NATO oversight limits this.
- Meeting the new targets will be a real and challenging task due to scrutiny and persistence of spending patterns.