NATO’s 1.5% target could generate €822bn infrastructure boost for Europe

The commitment by NATO allies to spend 1.5% of their GDP on security-relevant infrastructure could trigger an economic boost of €822 billion annually and generate 4.4 million jobs in Europe, a study by EY and DekaBank found.

“These investments in defence-related infrastructure will have significant economic effects and benefit national economies as a whole, since they – even more so than arms investments in the narrower sense – can strongly stimulate the economy,” Jan Friedrich Kallmorgen, a partner at EY-Parthenon, said in a statement released on Friday.

Last year, NATO allies agreed to increase their defence spending target to 5% of GDP by 2035 following pressure from the US. Of this 5%, 3.5% is to be spent on core defence and 1.5% on broader security-related investments.

To reach the 1.5% goal, European NATO allies would need to invest around €320 billion each year, which in turn would generate €822 billion in production value – a return of 2.51 for each euro invested, according to the study.

The goal is to improve Europe’s military mobility by strengthening strategically important roads, railways and ports – to alleviate possible bottlenecks – and invest in a more secure electricity grid and cyber infrastructure.

This 1.5% target is currently defined as an investment to “protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defence industrial base”.

The new study expects the spending to primarily benefit construction and logistics firms, communications companies, and the electronics and electrical engineering sector.

The investments could create 4.4 million jobs across Europe, of which 1.8 million would be in the infrastructure sector. Suppliers would experience a similar rise in jobs, provided the extra spending is carried out in addition to already planned investments, the study stated.

Defence experts have criticised the vague definition of the new spending goal in the past, since there is no clear definition of what counts towards resilience and preparedness.

Swedish security research institute SIPRI warned recently that nebulous definitions of what constitutes defence spending could lead to “creative accounting”.

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