The Danish government is responding to growing concerns about security and defence funding in the context of shifting U.S. interests and escalating threats from Russia, underlining the importance of European nations stepping up their military investments.
U.S. Interest in European Security Wanes
On Wednesday, U.S. President Donald Trump remarked on the “big, beautiful ocean” separating the United States from Europe, a statement that has raised eyebrows across the Atlantic. The implication of a decreased interest from the U.S. in the outcomes of the Ukraine conflict poses significant questions for European NATO countries, which are already bracing for ongoing threats from Russia and uncertain support from Washington. Danish Prime Minister Mette Frederiksen emphasized that Europe must conduct its “homework,” referring to the need for increased military spending in light of these developments.
Denmark’s Economic Position
Denmark finds itself in a unique position compared to many of its European allies when it comes to defence funding. According to several economic experts, Denmark boasts “exceptionally good” public finances, making it better equipped to handle military investments. Michael Svarer, a professor from the Institute of Economics at Aarhus University, highlighted that “Denmark is in a completely unique situation,” pointing out its healthy public finances in contrast to other nations. Niels Storm Knigge, a leading economist at Kraka, noted that Denmark has a low public gross debt and even a public net wealth, alongside a structural public surplus, providing a solid base for defence expenditures.
Increased Defence Spending
Denmark has already increased its defence spending from 1.37% of its GDP before the Russian invasion of Ukraine to over 2% following the conflict. The Danish government intends to invest around 120 billion Danish kroner (approximately $17 billion) in a so-called acceleration fund aimed at bolstering the military until 2033. This includes an additional 50 billion Danish kroner ($7 billion) allocated over the next two years, which is expected to help raise defence spending to over 3% of the GDP, according to Foreign Minister Lars Løkke Rasmussen.
Economists predict this may require an additional 30 billion kroner per year beyond the current 68 billion kroner that Denmark allocates to defence. To put this in perspective, Danish Chief Economist Las Olsen pointed out that this amount is slightly less than what the country spends on its hospitals, highlighting the substantial financial commitment that comes with increasing defence spending.
The Broader European Challenge
The initiative to enhance defence budgets comes amid a broader consensus among NATO countries to increase military expenditures significantly. NATO Secretary-General Mark Rutte remarked that member states must prepare for investment levels akin to those seen during the Cold War. The necessity for this increase was echoed in Paris, where various leaders discussed the need for heightened defence investment. However, achieving these spending commitments is more complex for several European nations grappling with significant budget deficits.
Many countries, including France, Italy, Spain, and Belgium, are facing hefty budgetary challenges, with eight EU nations currently scrutinized for potentially violating EU debt rules. This stark financial reality complicates their ability to elevate defence budgets, as they must first address existing debt concerns.
Germany and Economic Constraints
Germany serves as a notable example of a country with good economic standing but is similarly restrained by its long-standing debt brake policy, which has historically limited its ability to incur new debts. Michael Svarer emphasized this point, stressing that Germany, as the EU’s most populous nation, needs a sustainable approach to its defence financing. Conversely, countries like France and Italy are in more precarious fiscal situations, unable to support substantial increases in defence budgets due to their high public debt levels.
Niels Storm Knigge explained that these nations must grapple with the reality of needing to reduce their debt, which hinders their capacity to sustain large deficits essential for bolstering their military. Without increasing their debt levels further, these countries face difficulties in meeting NATO’s burgeoning defence expenditure expectations.
Exploring Solutions at the EU Level
The issue of financing NATO commitments has recently been highlighted within the EU context. During a security conference in Munich, European Commission President Ursula von der Leyen suggested activating a so-called “escape clause” that would allow member states to have greater flexibility in their budget by excluding defence spending from strict EU deficit rules. This approach mirrors actions taken during previous crises, permitting member nations to significantly ramp up public investment.
Additionally, the idea of issuing common EU bonds, whereby multiple countries share debt responsibility, has gained traction as a potential solution. Prime Minister Mette Frederiksen has expressed openness to this idea but stresses that implementing such a solution requires consensus on management and distribution methods.
As the security landscape in Europe evolves in light of decreased U.S. interest and increasing threats from Russia, countries like Denmark are stepping up to meet NATO’s funding expectations. With its robust public finances, Denmark is well-positioned to increase military spending, while other nations grapple with economic constraints that challenge their ability to do the same. The upcoming discussions at the EU level will be crucial in determining how European allies can collaborate to strengthen collective defence efforts in a time of uncertainty. The path forward will require careful balancing of national budgets and military commitments as Europe navigates these pressing challenges.
