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Belgium is preparing to borrow more and implement painful cuts to reach Nato’s current defence spending goal, but will struggle to meet an increased target likely to be agreed after pressure from Donald Trump.
Belgian budget minister Vincent Van Peteghem told the Financial Times that bigger defence budgets would take a toll on Europe’s welfare systems. Nato leaders are likely to agree in June to raise military budgets to more than 3 per cent of GDP, following the US president’s threats to no longer protect European countries that spend insufficiently on their own security.
“Defence definitely requires our full attention, but so does also the sustainability of our welfare state,” Van Peteghem said.
While it was easy to commit to a higher target, he warned that “every euro that’s a deficit today . . . is a euro that will be debt, and that debt will be one day a tax or a cut and in the social welfare state”.
The Belgian government last week agreed to increase its defence budget to 2 per cent of GDP this year through a mix of temporary cash injections, creative accounting and structural reforms, Van Peteghem said.
Several other Nato laggards including Italy and Spain are also struggling to increase their military spending, with their public finances already under strain following the Covid-19 pandemic and years of economic languor.
The European Commission has proposed exempting defence spending from its fiscal rules, as well as providing €150bn in loans to EU countries. Van Peteghem said his government would make use of both options to reach the 2 per cent target this year.
Belgium is one of nine countries currently under a so-called excessive deficit procedure for failing to meet targets of 3 per cent for public deficits and 60 per cent for its debt-to-GDP ratio. In 2024, the Belgian deficit was projected to reach 4.6 per cent and its debt burden 103.4 per cent.
Van Peteghem said Belgium plans to spend an additional €3.8bn on defence this year.
Part will come from creative accounting: asking Nato to classify regional investments in roads and bridges as military expenditure, which would amount to €125mn. The minister also said Belgium would attempt to list as defence spending the €1.2bn in national taxes scooped up from the profits of Russian state assets frozen in the country, which are being donated to Ukraine.
The minister added that his government planned to raise more debt to maintain the 2 per cent level. One way to pay back the debt would be to sell state-owned assets, from a portfolio which includes stakes in the insurance company Ethias and the French banking group BNP Paribas.
“We are going to look at that portfolio of state assets and look [at] which of these assets can be privatised or can be optimised.”
Van Peteghem said the government hoped to raise at least €3.2bn through privatisation.
The rest of the debt would have to be paid back through spending cuts, including reforms agreed last week such as limiting unemployment benefits, cutting certain pensions, and a tax reform.
“But of course, we will need to do more,” he said.
Additional reporting by Paola Tamma in Brussels
