Financing freedom

funding europe’s security in a time of war

Abstract

Initial assessments suggest an increase in European defence spending of about 250 billion euros annually (to around 3.5 percent of GDP) is warranted in the short term. However, most of this additional expenditure will be implemented at a national level for national needs. This paper highlights that Europe remains a wealthy continent characterised by greater cash reserves, higher household savings and a significantly higher rate of mortgage free homeowners than the United States. Europe possesses ample financial resources to support higher levels of defence spending. Italian households alone save approximately 400 billion euros annually, with the majority of these savings resting in low yielding bank deposit accounts or insurance policies. Across Europe, trillions of euros of household savings remain underutilised. In this context, this paper highlights that European households should be better incentivised to participate in national level investment accounts that offer additional tax and financial benefits. These accounts can be specifically constructed to channel household savings into long term security and defence investments. Europe’s capital markets must be built at the national level before grander European plans become politically achievable. The UK ISA model in identified as a template in this regard.