Media: Europe’s defence boom risks economic bust without smarter spending

As European leaders gather for the NATO summit in The Hague, concerns are mounting that the continent’s ambitious plans to inject trillions of euros into defence spending may fall short of delivering long-term economic benefits.

According to new analysis from Bloomberg Economics, unless Europe overhauls how it invests in military capacity—particularly in research, development, and domestic production—the economic impact could prove fleeting, Caliber.Az reports.

While the primary goal is to reinforce military readiness amid rising threats from Russia, officials in Brussels and Frankfurt have expressed hopes that the surge in defence budgets might also act as an economic stimulus. However, Bloomberg Economics warns that without a strategic approach, much of the spending could “just leak out of the region’s economy without meaningfully helping expansion.”

“How the money is spent matters more than how much is spent,” said Bhargavi Sakthivel, a global economist at Bloomberg Economics. “Investments in research and development drive far greater economic growth than simply purchasing equipment from abroad.”

Sakthivel’s research suggests that economic growth from the defence splurge could fade within three years unless countries shift toward productivity-enhancing strategies. Simply acquiring foreign weapons systems, rather than cultivating Europe’s own industrial and technological base, would represent a missed opportunity to capture the full economic potential of the investment.

Pressure from US President Donald Trump, who is scheduled to attend the NATO summit, has contributed to the urgency. European governments are scrambling to demonstrate increased defence commitments amid fears that a second Trump term could see the US retreat from its NATO obligations.

To meet the alliance’s 3.5 per cent of GDP defence spending target by 2035, the cost will be enormous. Germany alone will need to allocate an additional €689 billion over the next decade, while France and Italy must each find over €400 billion, according to Bloomberg Economics.

The looming challenge for Europe is clear: Without a focus on innovation, domestic manufacturing, and smarter investment, the end of the post-Cold War peace dividend could fail to usher in a new era of sustainable growth.

By Vafa Guliyeva