When settling wars rewards lawlessness, displaces populations and fuels lasting grievances, the result is more war. That was the former foreign secretary William Hague’s verdict on Donald Trump’s approach to peacemaking, drawing lessons from the Balkans, the second world war and the Middle East. A more insecure world will require Britain to increase defence spending. The UK currently could not sustain major troop deployments in Ukraine, undermining the idea it could provide Kyiv with “security guarantees”.
This is a dilemma faced across Europe, leading the EU to see deficit-financed defence spending as the answer. In contrast, Britain remains seemingly bound by economic orthodoxy, prioritising fiscal discipline over borrowing. The UK Treasury has apparently asked unprotected public services – excluding health, education and defence – to prepare for real-terms cuts of up to 11% ahead of June’s spending review, as funds are diverted to the military. This would be a mistake.
Britain’s austerity is at odds with the majority of EU states that seem ready to apply pandemic lessons to strengthen defence, counter Russian threats and reduce reliance on the US. At the Munich Security Conference, the European Commission president, Ursula von der Leyen, signalled a major fiscal shift, invoking an “escape clause” to exclude military spending from EU deficit rules – mirroring the Covid response, when the EU suspended fiscal constraints to enable stimulus spending.
This is a pragmatic shift, acknowledging that the menace of a revanchist Moscow outweighs self‑imposed budget limits. Sir Keir Starmer should take note. If the Treasury funds defence by cutting existing budgets, departments like justice, local government and welfare will suffer real-terms reductions to their outlays. This would be politically unsustainable. Neoclassical economists may argue that Britain’s debt-to-GDP ratio is too high, but it remains comparable to those of France, Italy and Spain. Defence spending arguably also has a high fiscal multiplier, generating more economic activity and job creation than other expenditures.
Mr Trump demands Nato members spend 5% of GDP on defence. This has forced a historic shift in EU policy, potentially setting a precedent for future deficit exemptions in green investment and industrial policy. Europe should also heed Mario Draghi’s advice: in crises, fiscal policy must drive growth and recovery. In December, the former head of the European Central Bank contrasted Europe’s austerity with US stimulus, noting that after the financial crash, the US injected €7.8tn into its economy through deficit spending, while the eurozone managed €560bn. Europe’s restrictive fiscal policy stifled growth, while the US used it far more effectively.
In this volatile world, the EU and Britain must address Covid-era debt. Ongoing negotiations over EU pandemic borrowing suggest more austerity ahead – misguided, since this spending wasn’t reckless but a necessary crisis response. The ECB should absorb EU pandemic debt to prevent further austerity and boost recovery. In Britain, the Bank of England should stop selling Covid debt, as it’s raising yields and tightening fiscal conditions unnecessarily.
“There are decades when nothing happens; and there are weeks when decades happen,” Lenin is often quoted as saying. The past seven days have underscored just how quickly history moves – and how swiftly governments must adapt. Europe has already begun that shift. Britain should follow.
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