The Guns and Butter Debate Again

When she was the German chancellor, Angela Merkel was wont to point out that while Europeans made up 7% of the world’s population and produced about 25% of its GDP, they also accounted for 50% of world expenditure on welfare. This was, she warned, obviously unsustainable in light of Europe’s existence within a competitive world market and, a fortiori, given the ageing population, with its higher healthcare and pension costs.

However, all that these warnings achieved was to stir debate, with critics warning that the economies that she implied were necessary would be bad for social cohesion, let alone for all manner of less fortunate social groups. Moreover, every such social group – poor children, single parents, old people, battered wives, the homeless, immigrant groups, and so on – tends to have an energetic NGO fighting for its cause, demanding higher and higher social expenditure for the sake of “social justice”. Over time such pressure groups have had considerable success.

Sooner or later a party of the left comes to power and legislates in favour of their causes and then, when the right returns to power, it finds it impolitic to cut back on that.

In any case, in practice, European electorates were very wedded to high welfare expenditure and only wanted more of it. So, when the Cold War abruptly ceased with the collapse of communism, European governments happily commandeered the “peace dividend”, cutting back on defence expenditure – with the money thus released typically ending up as increased welfare expenditure.

Then came the war in Ukraine and the re-election of Donald Trump, causing Europe to realise that it was at least as vulnerable as it had been in 1939, with a consequent need for rapid re-armament. Almost all European countries have responded by promising higher defence expenditure, but this is not the reality. To be sure, all political leaders insist that they have no higher priority than defence of the realm and national security: both the president of France, Emmanuel Macron, and the British prime minister, Keir Starmer, have made ringing declarations to that effect.

But in practice the political groups insisting on a higher priority for increased welfare spending still have the whip hand. This is best seen in the case of Europe’s two nuclear powers, the United Kingdom (UK) and France.

Overseas Aid

In Britain, all that has been done so far is that the government has cut the overseas aid budget so as to allow defence expenditure to rise from 2.3% of GDP in 2024 to 2.5% of GDP by 2027. Then in June 2025 came the Strategic Defence Review (SDR). There was a protracted stand-off between the authors of this review and the Treasury, at which point the government said that the review would merely be “advisory”, which in turn meant that the review ceased to be about what had to be done and merely became a set of pious wishes about “the direction of travel”. It was announced that the Ministry of Defence would bring forward, before last Christmas, a Defence Investment Plan to put serious muscle into this, but Christmas has come and gone and there is still no sign of such a plan.

The review assumed that defence spending would rise to at least 3% of GDP, and meanwhile the North Atlantic Treaty Organisation (NATO) has pledged to increase spending to 3.5% of GDP by 2035 and Trump has talked of NATO nations all spending 5% of GDP on defence.

However, in November 2025, the British Chancellor of the Exchequer Rachel Reeves mapped out spending plans to 2030-31 and there was no mention of any increased defence spending at all. James Murray, the Chief Secretary to the Treasury, spoke of the government’s “ambition” to raise defence spending to 3% of GDP during the next Parliament (2029-34) but there was no mention of the 3.5% figure that Britain has promised to NATO. To put it mildly, it seems that the Labour leadership has no real commitment to put its money where its mouth is on defence.

The NATO Secretary-General, Mark Rutte, has publicly warned all NATO members that they could well face an all-out war with Russia within five years. He warns that this will be war on a scale that only the grandparents and great-grandparents of current voters experienced. And there is no doubt that the Russian threat is serious. In addition to wanting to destroy Ukraine, Russian spokespeople openly talk of wanting to take back more of the old Russian empire – Moldova, the Baltic states, and beyond.

And already Russia has embarked on a campaign of sabotage, assassination, and cyber warfare throughout Europe. Putin talks openly of being ready to fight the whole of Europe and how he is already at war with the West.

“Ambition”

Yet the best the British government can do is to have the “ambition” to increase defence spending to 3% of GDP by 2034, eight years from now. Moreover, since 2010 the government has included in the defence budget spending on the intelligence service, nuclear deterrence, and military pensions. What this means is that real spending on defence is considerably lower than the 2% figure of 2010.

The British Army is now smaller than at any time since 1793. The heads of the three military services are all issuing dire warnings about how under-strength they are.

The Army warns that in the event of hostilities it would run out of ammunition in ten days. The First Sea Lord, Sir Gwyn Jenkins, the head of the Navy, warns that the UK’s advantage in the Atlantic, which it has enjoyed since 1945, is now seriously at risk, with its opponents far outspending it. The key is the Greenland-Iceland-UK Gap, known as GIUK. Russia’s Northern Fleet, based in Murmansk, has 22 submarines and 10 large surface ships and they threaten to dominate GIUK. The effect of that would be the same as in World War II, when U-boats threatened Britain’s trans-Atlantic supply routes. In addition, the Russian submarines threaten the vital undersea cables clustered in the area. Meanwhile, in December 2025, HMS Lancaster – one of the Royal Navy’s only 11 remaining frigates – was retired. It was not replaced. In fleet strength the Royal Navy now ranks only 31st in the world.

The SDR showed that Britain has no effective anti-missile defence. It recommended that the Army be increased by at least 20% and that the Royal Air Force should have more F-35s, more upgraded Typhoons, more autonomous platforms such as drones, and similarly that the Navy badly needs new nuclear submarines. But there is no sign of money for any of this.

Altogether, the SDR made 62 recommendations and in theory the government accepted them all, but of action there is absolutely no sign.

Pensions

In 2024-25 the UK spent $419.4 billion on welfare (10.9% of GDP), of which pensions cost $202 billion. Pensions are a special problem, both because there will be more and more pensioners and they are living longer, but also because the government has trapped itself into a “triple lock” catch-22 whereby pensions go up faster than inflation every year.

In mid-2025 Starmer tried to cut welfare costs by tightening rules on eligibility for disability payments, but this produced a major rebellion by left-wing Labour MPs, forcing Starmer to back down – although he had warned that the whole system was unsustainable. In effect the crux was that all present claimants were to be protected and stricter rules would apply only to future claimants from 2026 on. This reflects the political fact that the Labour vote depends in no small part on the recipients of welfare payments.

Against that, the UK spent only $80.7 billion on defence in 2024-25 and is scheduled to increase that to $98.5 billion by 2028-29. That is, the defence budget is less than 20% of the welfare budget – and even then, as we have seen, the defence figure also includes military pensions – welfare spending of its own. Quite clearly – if indeed defence and national security are the top priority – the only solution is to slash welfare spending and sharply increase defence spending, but the question is which party, if any, has the nerve to do that.

The French situation is eerily similar, though in some ways worse. Whereas the UK’s national debt is around 95% of GDP, France’s debt is already 113% of GDP – higher in Europe than anywhere save the traditional basket-cases of Greece and Italy. French welfare spending was an extraordinary $1 039 billion in 2023 – 31.7% of GDP. This is the highest figure in Europe, higher even than richer and more populous Germany.

In 2017 France spent a mere $37.4 billion on defence. This was increased to $71.4 billion in 2026 and in 2027 it should reach $75 billion, though this has been achieved only thanks to a budget deficit of 5.4% for 2025, a figure that France cannot afford given its already very high national debt. Naturally, the European Union and the European Central Bank regularly point out that France is breaking all Europe’s fiscal rules.

In particular, France has a problem with pensions, which are relatively generous and paid at a retirement age of 62. Every year the social security system runs at a sizeable deficit, making pension reform essential. President Macron managed to force through a reform lifting retirement age to 64 by 2030 (still a far lower age than in most of Europe) with 43 contribution years required for a full state pension to be received. But this faced a massive public backlash.

No Majority

Macron had meanwhile lost his parliamentary majority, causing his prime minister, Sebastien Lecornu, to agree to postpone the retirement age increase until after the 2027 presidential election. This has led both the European Commission and the ratings agencies to express concern about the economic consequences, but since both the left and Marine Le Pen’s right-wing Rassemblement National (RN) party oppose any reduction in the retirement age, there is no certainty about any reform. Currently, the RN seems poised to win the next presidential election.

Inevitably, the leaders of France’s military have been issuing much the same sort of warnings as their British counterparts. The Chief of the Defence Staff, General Thierry Burkhard, has stressed that Russia has “openly designated France as its primary adversary in Europe”. So, while Macron and Starmer have launched the Coalition of the Willing – thirty countries willing to back Ukraine – there are major questions about the ability of either Britain or France to really lead such an effort. In practice, Germany, with a defence budget of $106 billion, is putting in a far greater effort than either of them.

Striking

What is striking is the institutional failure that underlies this situation. Starmer has a huge parliamentary majority, which is secure until 2029 and which theoretically ought to put him in a commanding position to make whatever changes he wants. But in practice he has lost the necessary authority to carry his party with him, and it is unclear that any possible replacement prime minister would fare any better.

In France, General de Gaulle despaired of the Fourth Republic because even key matters of national security were hostage to irresponsible party antics in the National Assembly. Hence his drive to impose a new Fifth Republic with a much stronger presidential executive particularly charged with primacy in matters of defence and foreign policy. Under De Gaulle’s presidency, that really worked and he was able to impose a completely decisive style of governance in those two key areas. But De Gaulle is long gone and the Fifth Republic now is looking more and more like its predecessor, the Fourth Republic.

The real question that Macron and Starmer face, however, is will they one day look like Edouard Daladier and Neville Chamberlain, the prime ministers of France and Britain in 1939?