The euro and the defense are the opposite of each other

If Europe now wants to stop its own pants for the defense of the country. That's the message that US President Trump is rubbing his European friends under his nose, as he should be. This will also be the main topic of discussion next week at the NATO summit. There is an agreement, what is called the NATO standard, to which many European countries have not adhered for more than twenty years. This standard says that 2% of national income must be spent on defense.

But who are the main culprits? In the Eurozone, there is an informal border between the northern countries, which call themselves "smart" and responsible, and the southern countries, which live in the north, but loosely. Wine and women, to paraphrase the former Minister Dijsselbloem

Remarkably, it is exactly the opposite in defense. German spending in 2017: 1.2 percent, according to data from the Swedish defense tank SIPRI. It is far below the NATO standard. Netherlands: 1.2 percent also. Austria (0.7%), Belgium (0.9%), Luxembourg (0.5) and Ireland (0.4)

place the south of the euro area in the opposite: Spain (1,2) low. But Portugal is 1.7%, Italy 1.5%, Greece 2.5% and France 2.3%. Together, the countries of the South are getting closer to the standard of 2%. The countries of the north are in the direction of 1%.

Meanwhile, there are complaints about high budget deficits and sovereign debt in the south. But should not we offset their much higher defense spending?

Suppose every country has adhered to the NATO standard since 1999. Countries with higher defense spending should have spent less, so they would not have had to borrow some of the money spent. Countries that are too low should have spent more and borrowed. We take a friendly interest rate of 2% for everyone.

Result: The Dutch national debt, the pride of the nation, would have been 10.7 points higher GDP than today. The German national debt was 11.2 percentage points. So not 64% of GDP for Germany, but 75%. France, which has always spent more than 2%, would not have a public debt of 96%, but 90%. Greece was allowed to deduct 17 points from its national debt. And so on. In addition, defense spending generally has a slightly depressing effect on the economy, compared to many other government expenditures. This was therefore an additional disadvantage for the south and an added advantage for the north.

Read also this article of opinion of Dick Zandee of the Clingendael Institute: Trump is right, we do not do enough on defense

Public finances of different countries in the euro area would ultimately be much closer. East. Faced with the accusation that the south would move freely on the running of the common currency, one could accuse the north of walking on the foot of the defense

With regard to the future: the countries of the South will be relatively easy defense requirements. Where they have been for a long time, in the case of France and Greece. Germany, the Netherlands and all other accountability preachers will have to make the greatest effort. Will they do that? In the Netherlands, the defense budget is up to 1.31% of GDP. In Germany, it is not much better at the moment.

These are political choices. But would it not be appropriate, when assessing the finances of the euro area countries by the European Commission, to take the defense more seriously?

Maarten Schinkel writes about the economy and the financial markets.