A giant impasse in terms of meeting spending targets defense her EU -and NATO- from the point of view of all the countries – their members – describes the report of the council of German economic experts – the so-called “sages” of the German economy – which was made public yesterday (12.11.25) in Berlin.
On the one hand, through charging their national budgets, EU member states (although they voted unanimously in March 2025 in favor of the ReArmEU defense capability plan) have planned to spend on defense less than half the money, which Brussels exempts them from the rule of the spending limit increase…
On the other hand, in Berlin, although they see positively the increase in common defense expenses in the next Community Budget, there is a fear that the increase in the common European debt, through an even greater – compared to the one already foreseen – issuance of bonds to strengthen defense expenses will “dope” the incentives of its member states to default on their national obligations.
And all this while today (14.11.25) the defense ministers of the “5” initiative for European defense (Germany, France, Italy, Britain and Poland) met in the German capital, in the presence of the EU High Representative for Foreign Affairs, Kaya Kalas.
1. The member states will spend less than half of the money from their national pockets
In more detail, EU member countries will spend less than half the money compared to what they could spend on defense from their own national budget.
This is stated in the report of the council of German economic experts – the so-called “sages” of the German economy – which was made public yesterday (12.11.25) in Berlin. Specifically, the report states that “only about half of the member states have made use of the exception (eg Escape Clause) to date”.
The same report points out that “this corresponds to additional defense spending of around 293 billion euros, or 45% of the total volume that would be available (s.p. 650 billion euros) if all member states applied for the exemption” from the spending cap rule.
The German “wise men” state below how “in some countries, the lack of implementation is likely due to limited fiscal space for additional borrowing. For example, some member states, such as Italy and France, already have high debt. In other countries, such as Spain and Austria, achieving political consensus for higher defense spending is difficult. Therefore, the short-term option provided by the EU to finance additional defense spending through debt cannot be fully exploited.”
2. More defense spending from the next Community Budget
From this point of view, the German “wise men” turn their eyes to the Community budget and conclude that: “permanent European defense expenditure should be financed from the regular budget”, meaning the EU budget.
More specifically, they state that “to better integrate European conventions into the EU budget, the composition of the EU budget could be given greater priority in favor of European defense spending. Currently, a large part of the Multiannual Financial Framework (MFF) is allocated to agricultural and cohesion policies. These funds are mainly channeled to economically weaker EU member states (Deutsche Bundesbank, 2025). Alternatively, the EU budget could be increased through higher contributions from member states. However, it should be ensured that these additional funds are earmarked for defense expenditure. Shifting procurement activities from the national to the European level would also shift the corresponding costs. While this offers advantages in terms of desired coordination, it also creates risks associated with joint funding.
However, both options are only feasible in the medium term and have a limited amount of funding. While the future Multiannual Financial Framework (MFF) foresees a significant increase in defense and space funding of €131 billion, this equates to only 0.1% of European GDP per year in 2024. EU member states should support a more ambitious reprioritization of research and defense budgets, as proposed by the European Commission, in order to increase defense spending. To ensure that funds are used for specific purposes and transparently for joint procurement, EU budget funds made available through reprioritization or increases should be allocated to the European Defense Management Agency (EDM) for joint procurement. In addition, EDM funding could be supplemented by a contribution quota, which, as with the EU budget, could be based on a share of national GDP».
“To rapidly address the existing backlog in defense spending, debt financing, as outlined in the ReArm Europe Plan, can be considered in principle,” the same report notes.
“Specific funding requirements should be quantified in a transparent and understandable way in advance, to prevent retrospective debt coverage of already planned expenditures.
However, national borrowing can further limit the fiscal space of states with already high debt-to-GDP ratios.
Moreover, the mutualization of debt at the European level creates significant incentive problems: if liability risks are shared, the incentive for individual member states to pursue sound and sustainable fiscal policies is reduced. States could expect that excess debt would eventually be absorbed by the EU – resulting in inefficient use of funds and widening of fiscal disparities within the EU.”