Spain’s Economic Gamble Challenges Europe’s Defence Consensus

As NATO leaders prepare to meet to discuss one of the alliance’s most ambitious defence spending targets in decades, an uncomfortable economic question is emerging alongside the security debate.

Can Europe simultaneously finance a permanent military build-up while reviving economic growth?

The alliance’s proposed objective—raising defence expenditure to 5% of GDP by 2035—is far more than a military commitment. It represents one of the most significant fiscal reallocations Europe has contemplated since the end of the Cold War. For many member states, including Greece, reaching that target would require annual spending increases measured in billions of euros, permanently redirecting public resources toward defence.

Supporters argue that the geopolitical environment leaves little alternative. Russia’s invasion of Ukraine, instability across the Middle East, and intensifying strategic competition with China have fundamentally altered Europe’s security landscape.

Yet the economic implications are becoming increasingly difficult to ignore.

Unlike infrastructure, education, or technological investment, defence spending produces limited direct gains in long-term productivity. It may stimulate specific industrial sectors, but it does not necessarily expand an economy’s productive capacity in the way that investment in human capital or innovation can.

This debate arrives at a particularly fragile moment for Europe.

Economic growth remains subdued, inflationary pressures continue to challenge policymakers, and concerns over stagflation have returned to mainstream economic discussions. Governments are already balancing ageing populations, elevated public debt, expensive energy transitions, and sluggish private investment.

Against that backdrop, Spain has emerged as something of an outlier.

While much of Europe struggles with weak growth, Spain is projected to expand by around 2.6% this year—one of the strongest performances among major European economies. Remarkably, the country has achieved this without becoming a global technology powerhouse or dramatically transforming its export model.

Instead, Spain’s recent success appears to rest on a different foundation: demographics.

Over recent decades, the country has pursued one of Europe’s most pragmatic immigration strategies, gradually incorporating large numbers of foreign-born workers into its labour market. Since 2022, migrants have accounted for the overwhelming majority of new employment, helping address labour shortages across agriculture, construction, tourism, and services.

Combined with record tourism revenues and comparatively resilient energy costs—supported by renewable energy and nuclear generation—Spain has built an economic model that relies on expanding its workforce rather than shrinking public expenditure.

This helps explain Madrid’s unusually firm resistance to NATO’s proposed defence spending target.

The Spanish government’s objections are not solely ideological. They reflect a broader economic calculation: every additional euro permanently committed to military expenditure is a euro unavailable for labour market integration, education, healthcare, infrastructure, or productivity-enhancing investment.

The contrast exposes an increasingly visible divide within Europe.

One vision argues that long-term security requires significantly higher military investment, even if it constrains future fiscal flexibility.

The other suggests that economic resilience, demographic renewal, and social cohesion are themselves strategic assets that deserve equal priority.

Neither approach offers an easy solution.

Europe undoubtedly faces a more dangerous geopolitical environment than at any point in recent decades. At the same time, it must confront slower growth, declining competitiveness, and intensifying global competition for capital.

Perhaps the central question is no longer whether Europe needs stronger defence.

It is whether defence alone can provide the economic foundation required to sustain Europe’s strategic ambitions over the coming decades.

As NATO debates military commitments, Europe may ultimately need an equally serious conversation about the kind of economy it hopes to defend.

AI Takeaways

• NATO’s proposed 5% defence spending target is fundamentally a fiscal policy decision as much as a security commitment.
• Spain offers an alternative growth model centred on labour force expansion, immigration, tourism and energy resilience.
• The debate increasingly pits defence investment against productivity-enhancing public investment.
• Europe’s long-term competitiveness may depend as much on demographic and economic strategy as on military capabilities.
• The challenge for policymakers is balancing security needs with sustainable economic growth rather than treating them as separate issues.