View from London: How Ukrainian war could dismantle Europe’s welfare state

Cradle-to-grave support is in the crosshairs as nations battle to reach 5pc defence targets, The Telegraph notes.

And ever since Donald Trump returned to the White House, it has been clear that the luxury of relying on an American security blanket of weaponry and manpower is coming to an end.

Belatedly, European governments are setting out pathways to greater self-sufficiency, including that 5pc NATO target or some approximation of it.

The countries that border Russia, which feel the threat most keenly, are moving at a gallop. The rest are going at more of a canter: their deadlines are still distant, their targets fuzzy, the cash yet to materialise.

That’s because politicians are realising that spending more on defence involves more than just retooling and revamping the military. The funds required are vast and will touch every part of government.

Inevitable trade-offs

The ability of Europe to defend itself requires its politicians either to borrow more money, raise taxes or cut spending, especially on welfare.

None of these is a good option. Borrowing to fund defence is hard because European countries are either drowning in debt, like Britain, France and Italy, or they are allergic to it, like most of the Nordics.

Raising taxes is equally as hard because electorates, struggling with the cost of living and an economic slowdown, will punish governments if they choose this option.

Neither is cutting spending an easier option. Many north-western European societies and political cultures are founded on a generous cradle-to-grave welfare state.

Defence spending at the scale required to meet a threat may shake this social contract to its core.

Every country in Europe faces the same dilemma

They’d like to wriggle out of it by just expanding their economies, which smuggles in more tax revenue by the back door. But almost no GDP growth rate in north-western Europe is much above a meagre 1pc. So only the painful options remain.

According to calculations by The Telegraph, France needs to find at least $25bn (£19bn) a year just to reach its unambitious target of lifting defence spending from 2.1pc to 2.9pc by 2027.

To get all the way to 5pc would require more than $90bn.

Its budget deficit and public debt are at unsustainable levels, but political resistance means Emmanuel Macron, the French president, has had to burn through four prime ministers to get even modest spending cuts or tax increases over the line.

Sweden is trying to get to a 3.5pc target by 2030, requiring at least $6bn extra a year. But the taxes and spending that underpin its generous welfare model are already both close to 50pc of GDP.

Low-debt Germany is also reliant on borrowing. Chancellor Friedrich Merz is using an off-the-books scheme so that he can more than double defence spending over the next three years without triggering the constitution’s “debt brake”.

But Merz is also tightening welfare entitlements and has official commissions investigating how to overhaul pensions and healthcare.

The social welfare system invented by Otto von Bismarck in the late 19th century might never be the same again.

All this will sound familiar to Britons. Sir Keir Starmer has set a target of spending 3pc of GDP on defence by 2029. But his reluctance to touch welfare means the Government is so far committing just £10bn of extra spending to the job, spread over four years.

“The UK Government came to power without outlining to voters that there would be difficult trade-offs to be made. So I think now the Labour Government has locked itself into a very difficult position,” Calmfors says.

This lacklustre cash injection, which prompted John Healey to resign as defence secretary, means Britain will fall well short of its target.

“Most countries are not going to raise their defence spending very much at all over the next few years. They either won’t reach those targets, or they’ll recategorise other spending as defence, or they’ll do it very, very slowly.”

So it comes down to this. European politicians could go into yet more debt, crimping their economies’ growth potential. Or else they could raise taxes and become unpopular, or cut welfare and become unpopular.

If they do any of these things, they might fuel support for populist parties that are often more Russia-friendly. If they don’t, they’ll spend less than needed on defending themselves against “the Russian threat.”

For a beleaguered Putin, under pressure from Ukrainian bombs and a tanking economy, Europe’s spending dilemma will offer a crumb of comfort.

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