Defence spending across the 27 EU member states reached 418 billion euros in 2025, a 20 % jump from 2024 and nearly double the 218 billion euros spent in 2021. ECB Chief Economist Philip Lane warned at a conference organized by the European Stability Mechanism in Dublin that this fiscal acceleration poses significant macroeconomic risks. Historical analyses presented show that defence build-up episodes have historically widened fiscal deficits by an average of 2.6 percentage points of GDP and increased debt-to-GDP ratios by around 7 percentage points within three years. How this spending will be financed, whether through deficit spending, tax increases, or joint European borrowing, will ultimately determine the impact on inflation and bond markets.
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