At first glance, the headline sounds paradoxical—if not outright misleading. Yet it reflects a real, if deeply flawed, accounting quirk embedded in how the Eurozone measures fiscal health. The claim that increased military spending reduces public debt isn’t literally true in absolute terms—but it holds up mathematically in one specific, narrow metric: debt as a percentage of GDP.
How the Math Works
As confirmed by the Eurogroup and the European Commission—led by Commissioner Valdis Dombrovskis—military expenditures are officially classified as ‘investment’ under EU fiscal rules. That means they’re counted as part of government output and included in GDP calculations. Since the debt-to-GDP ratio is calculated by dividing total public debt (a numerator) by GDP (the denominator), any increase in GDP—whether from infrastructure, education, or arms purchases—lowers the ratio, assuming debt growth lags behind.
So if a country boosts arms spending without proportionally increasing its borrowing—or even while reducing debt—the headline debt-to-GDP figure improves. In effect, the Commission has rebranded military outlays as ‘productive investment’, treating tanks and missiles like schools or hospitals in national accounts.
But Are Arms Really ‘Productive’?
In reality, defence spending yields no marketable goods or services. At best, weapons stockpiles sit idle; at worst, they’re deployed to destroy infrastructure and lives—as seen in Ukraine or the Persian Gulf. Yet under current EU methodology, this destruction still counts as economic ‘output’.
The NATO Pledge and Its Implications
At the recent NATO summit—dominated by former U.S. President Donald Trump—most members (except Spain) agreed to raise defence spending to 5% of GDP by 2035. For Greece—which already meets NATO’s 3% target—this could mean annual military outlays of €12–15 billion by 2025, based on projected GDP growth.
This raises a critical question: Will these funds come from new budget allocations—thereby expanding GDP—or will they be diverted from other public priorities like healthcare, education, pensions, and civil service wages? The former would lift GDP more significantly; the latter would simply shift resources without boosting overall output. According to the Commission and the Eurogroup—currently meeting under Ireland’s presidency—that choice is left entirely to individual governments.