Debt and Rearmament

NATO countries face a delicate balancing act between urgent rearmament needs and fiscal sustainability. Public debt levels across the Alliance are at historic highs, constraining the ability of many governments to boost defence spending without risking financial instability.

Countries with ample fiscal space, like Germany, have responded to new security threats by creating special off-budget funds and invoking fiscal exceptions to finance military modernization. Highly indebted allies – exemplified by Italy, France, and Greece – confront far tougher choices.

This analysis answers: How are NATO countries balancing urgent rearmament needs against fiscal sustainability at historic-high debt levels? What fiscal mechanisms (off-budget funds, fiscal exceptions) do countries like Germany use versus highly indebted allies like Italy, France and Greece? Is defence spending a stimulus or a strain, drawing on Cold War and post-Cold War lessons? What frameworks and innovations could enable sustainable rearmament?