Accidental Rivals? EU Fiscal Rules, NATO, and Transatlantic Burden-Sharing

Abstract

Both theorists and practitioners continue to show interest in transatlantic burden-sharing. International security and political economy scholarship offers plausible explanations for transatlantic imbalances in military expenditures. However, NATO Allies and EU Member States have pledged to one another to allocate resources in particular ways within defense budgets, a behavior that extant scholarship, even in the field of interorganizational relations, does not fully address. I argue that stringent fiscal rules dampen the kind of defense spending NATO and EU strategists seek: governments respond to increasing stringency by reducing overall defense expenditures, while at the same time shifting existing defense resources to personnel, and away from equipment or other expenditures. I find evidence in support of this argument by using education levels and age dependency ratios in the states in question as instruments for fiscal rules. This phenomenon represents a significant risk for important transatlantic strategic initiatives, namely NATO’s Wales pledge on defense investment.

Keywords: NATO, EU, Transatlantic Security, Defense Economics, Fiscal Rules, Fiscal Sanctions, Excessive Deficit Procedure

JEL Classification: C01, C12, C13, C33, C36, F50, F52, F53, F55, H56, H62, H87