The Socio-Economic Perspective for the Guns Vs. Butter Trade-Off in the European Union Countries

Research background At the NATO Wales Summit in 2014, European allies agreed to spend at least 2% of GDP on defence.1 However, the break-out of the Russo-Ukrainian war increased EU countries efforts to spend more on military capability not only because of solidarity in the alliance, but also as an effect of the support for Ukraine, let alone a rising security threat to their communities. Economic theory provides evidence that all-kind resources are limited, including public ones, therefore, many EU countries are facing or will face a fiscal challenges concerning the trade-off between military and non-military expenditure in the coming years. Purpose Our paper aims to identify which European countries may be vulnerable (resilient) to the guns versus butter trade-off in the near future. Research methodology We evaluated the national perspectives for reducing welfare expenditure to invest more in the army. Using an explanatory data analysis and a cluster analysis, we compared the socio-economic similarities and dissimilarities among 21 economies from the European Union. Results We conclude that national vulnerability (resilience) to the guns-butter trade-off is dependent on the current scale of defence financing and budgetary space for placing public debt on the financial markets. Novelty Our paper takes an ex-ante approach to the problem, whereas most literature offers an ex-post verification. We focused on the analysis of the preconditions for a trade-off, not the consequences.