EU has been underspending on defense

Last Friday, during the Munich Security Conference, Ursula von der Leyen pledged to propose activating the escape clause for defense investments. This approach would allow member states to substantially increase their defense expenditure without the fear of cutting other expenses. The escape clause allows for a temporary deviation from the budgetary requirements for all Member States in a situation of a generalized crisis. On Friday, von der Leyen said Europe was now in another period of crisis which warrants a similar approach, referring to the war in Ukraine and recent developments. When looking at the cumulative gap in military spending from 2014-2024 against the 2 percent benchmark, Europe, in general, was not spending enough on defense. Within that period, only Poland, Greece, and Estonia consistently met the benchmark. Compensation for that gap would cost about EUR 945 million in 2025 prices, with about 30% attributed to Germany. Approximately 10 EU members would need to increase their military spending by at least 2 percentage points above the 2% of GDP benchmark for the next 3 years to compensate for underspending in the previous decade. Alternatively, they could increase spending by at least 1.3 percentage points above the benchmark for a period of 5 years.