Denmark warns: Military spending could become a “risk factor” for the European economy

The EU's efforts to increase military spending could undermine its financial security, according to the Danish Minister of Economic Affairs. To prevent this, EU member states must curb their rising deficits and debt.

Copenhagen – "While there is economic turmoil around the world, we need to increase defense spending very quickly," Denmark's Minister of Economic Affairs Stephanie Lose told Euractiv, whose country took over the rotating EU presidency from Poland earlier this month. However, she warned that such spending could pose an additional "risk" to the EU economy, which is already suffering from the dual impact of US tariffs and fierce Chinese competition .

"This is a risk factor for our economies because if we do not combine this with smart decisions for a more sustainable path for public finances, then I think this will lead to a problem in the form of rising debt levels and unsustainable finances," she added.

The minister's comments follow NATO members' pledge last month to increase their direct military spending to 3.5 percent of annual GDP by 2035, almost double the US-led alliance's previous target of two percent.

The 32-member military alliance, which includes 23 of the 27 EU member states, also agreed to allocate an additional 1.5 percent of its total budget to security-related infrastructure.

Sixteen EU member states—including Denmark—have also responded to the EU Commission's recent call to activate the "national derogation." This is a key component of President Ursula von der Leyen's €800 billion " ReArm Europe " plan to counter the threat to the continent from Moscow.

By activating the clause, national governments can spend an additional 1.5 percent on defense without violating the EU's fiscal rules, which limit member states' deficits to three percent.

However, France, Italy and Spain, which rank second to fourth among the EU's strongest economies after Germany, have refrained from invoking this clause in view of their already high budget deficits.

France and Italy are also among the nine EU countries against which the Commission has currently initiated an excessive deficit procedure , i.e. a formal reprimand, for violating the EU budget ceiling of three percent of economic output.

Lose, who will chair the EU finance ministers' meeting on Monday, said she could not "judge" the decision of France, Italy and Spain not to activate the clause, as it depended on their underlying motivations.

"On the one hand, it is good to stick to sound public finances: if that means looking for ways to achieve the NATO target of 3.5 percent without going even further down an unsustainable path than before, then that is of course good news," she said.

“However, if this means that there is no scope at all for increasing defense spending, then that is of course a problem,” she added.

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