Who Will Pay the Cost of Freedom in Europe?

Why It Matters

Financing the defence surge without eroding public trust is crucial for European security and fiscal stability. Successful funding models will shape the EU’s ability to meet NATO commitments while sustaining economic growth.

Key Takeaways

• Netherlands targets 3.5% GDP defence spending by 2035
• “Freedom contribution” tax faces public resistance
• Debt financing viewed as short‑term, not sustainable
• Growth‑oriented competitiveness can create fiscal space
• EU citizens split on need for higher defence budgets

Pulse Analysis

Europe’s security agenda has sharpened after years of geopolitical tension, prompting NATO allies to accelerate defence budgets. The Netherlands, a key EU member, pledged to lift its defence share to 3.5 % of GDP by 2035, a jump from the 2.49 % level recorded in 2025. To bridge the financing gap, the new coalition unveiled a “freedom contribution”—a tax aimed at citizens and businesses. While the proposal signals political resolve, it also highlights a broader dilemma: many European capitals lack clear, publicly palatable pathways to fund the required spend, and the Dutch case serves as a bellwether for the continent’s fiscal strategy.

Policymakers traditionally juggle three levers: increase public debt, raise taxes, or cut welfare. Debt is politically easier in the short run, as seen in Germany’s recent suspension of its spending brake, but it postpones the fiscal burden to future taxpayers. Tax hikes, such as Estonia’s temporary defence levy, often trigger backlash, especially when corporate contributions are withdrawn, as happened in May 2025. Welfare reductions remain the least popular option, with surveys consistently showing defence as a lower priority than health or education. Consequently, communication has become a decisive factor; framing defence spending as a long‑term investment in competitiveness and a shared European market can soften resistance and align public perception with strategic goals.

The economic payoff of higher defence outlays is nuanced. Euro‑area forecasts suggest that reaching 1.5 % of GDP in defence could lift real GDP by roughly 0.5 % by 2028, yet country‑specific studies, like the Netherlands Bureau for Economic Policy Analysis, predict near‑zero growth impact for the Dutch economy. A more promising route lies in leveraging defence spending to stimulate a competitive European defence industry, reducing procurement costs and expanding export potential. Initiatives such as the EU’s Competitiveness Compass aim to integrate defence procurement with broader industrial policy, creating fiscal space without over‑reliance on taxes or debt. Ultimately, sustainable financing will depend on coupling transparent, growth‑oriented narratives with concrete measures that boost both security and economic resilience.