The challenge of getting all Nato allies to spend more on defence

Good morning. Brussels has offered Germany a compromise deal to save the bloc’s 2035 combustion engine ban and keep the issue from spilling into a leaders’ summit starting tomorrow. And in the latest twist in the Credit Suisse saga, Switzerland has banned the failed bank from paying deferred bonuses to its employees.

Today, I explain how Nato’s push to get allies to sign up to spending a “minimum” of two per cent of GDP on defence would make Luxembourg’s tiny army very rich, while the Dutch health minister tells our Netherlands correspondent that the long-term impacts of Covid-19 need more attention.

Gold-plated tanks?

Should Luxembourg be forced to spend as much on defence per person as the US? That’s the quandary facing Nato’s leaders as they push the alliance to commit to a hard minimum of defence spending.

Context: Last year, just seven Nato members hit an aspirational target set in 2014 of spending two per cent of GDP on defence, even as Russia was waging war in Ukraine. Nato’s secretary-general Jens Stoltenberg wants to agree to make that level “a minimum” at an alliance summit in July.

The simplicity and ability to compare different economies is what gives “two per cent” its power. But it also creates headaches when applied to rich countries with a small population and tiny militaries. Enter Luxembourg.

The grand duchy currently spends just 0.62 per cent of GDP on defence, Nato’s lowest (bar Iceland, which doesn’t have a military). But when expressed by population, that equates to $674 per capita, more than Germany, Poland, Italy and Spain spend per head; and almost as much as France.

Reaching two per cent would mean increasing that to roughly $2,180 per person, the same as the US. Put another way, it would be $1.8mn for each of its 900 military personnel.

One Nato official suggested the country could spend more by purchasing weapons for use by other allies. Another, less seriously, suggested it invest in a few gold-plated tanks.

This shows, however, that while the benchmark is useful for cajoling capitals to raise spending, it ignores large differences in allies’ economies and capabilities.

Judging by overall spending also masks important nuances. Norway doesn’t hit two per cent but is a linchpin of northern European defence. The Baltic states all do, but rely on fighter jets from other members — many who don’t reach the target — to protect their air space.

Belgium and Portugal are bottom of the class for failing to meet both Nato’s overall spending target (1.18 and 1.38 per cent of GDP, respectively) and another benchmark ensuring at least a fifth of that spending is on equipment.

Overall, total defence spending across Canada and European Nato allies has risen for eight straight years. But it’s still way below the 2014 target.

“We are moving in the right direction, but we are not moving as fast as the dangerous world we live in demands,” Stoltenberg said yesterday. “The majority of allies could be at two per cent fairly quickly.”

Chart du jour: Slick moves

Russian budget revenues from oil have fallen over the past year. The Kremlin is now overhauling taxes on oil companies to capture a bigger share of crude prices — which often still exceed the G7 oil price cap.

Long aftermath

As long Covid casts a long shadow over the European economy and people’s quality of life, Dutch health minister Ernst Kuipers is pushing for Europe to do more to find treatments for it, writes Andy Bounds.

Kuipers told the FT that in his country, one in eight people who contracted Covid reported health problems afterwards.

“It doesn’t necessarily mean that they’re all unable to work or go to school or study, but prolonged symptoms are already impairing their daily life activities,” he said.

According to estimates by the WHO, at least 17mn people suffered from long Covid in Europe in the first two years of the pandemic, and millions may have to live with it for years to come.

Symptoms often vary by person, and there are few identified treatments, Kuipers said.

Getting those affected back to the job market helps ease the EU’s chronic shortage of workers.

Researchers are on to the issue, but the former doctor said scientists across the EU tended to replicate each other.

“We see a lot of publications on this, but when you critically look into them, it turns out that many of them give an answer to the exact same question, but then many other answers remain unknown,” Kuipers said.

He welcomed health commissioner Stella Kyriakides’ pledge last week to set up a network of academic centres to collaborate.

On top, as well as countries using national budgets, Brussels should “invest additional EU money,” he said.

What to watch today

1. EU commission to present law to fight greenwashing.

2. Ursula von der Leyen and Charles Michel meet business and trade union representatives.

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