Who Pays When Europe Rearms

Of the 19 member states that applied to the EU's €150 billion defence credit line, one is still waiting for approval in the summer of 2026: Hungary. And the clock is ticking: according to press reports, the Commission wants to decide before the summer is out, so that whatever is left uncommitted can be reallocated to other member states by the end of the year. Meanwhile, at July's NATO summit in Ankara, Hungary's prime minister reaffirmed the pledge — defence spending will rise to 5% of GDP by 2035 — even as the government's other flagship promise is to adopt the euro by 2030. Part one set out the rearmament machine; part two, its winners. This closing part is about the bill: who pays for Europe's rearmament — and whether Hungary's 5% target and its euro ambition can coexist at all.

1. The cost of rearmament: what the models and demographics show

The European Commission's own modelling finds that if member states raise defence spending by 1.5% of GDP between 2025 and 2028, EU GDP will end up 0.5% above the no-increase baseline by 2028 — but the debt-to-GDP ratio will end up 2 percentage points higher.

What is more, the spending race is unfolding in societies whose age structure points the other way. On 1 January 2025, the EU was home to 65 million children under 15 (14.4% of the population) and 99 million people aged 65 and over (22%). An ageing population means rising pension and healthcare bills — out of the same budget that has to meet the defence target.

France shows what that squeeze looks like in practice. Its 2026 budget gives the armed forces €57.1 billion, €6.7 billion more than in 2025 — and on 1 July 2026, parliament raised the ceiling of the military programming law by €36 billion, to €436 billion in total through 2030, aiming for 2.5% of GDP. All of this in a budget built on a €43.8 billion savings package designed to hit a 4.6% deficit target: defence was the one area spared the cuts. Spain took the opposite approach to the same dilemma, and is the only country to have asked for — and received — a formal exemption from NATO's 5% target.

And here is Hungary's starting point. The NATO secretary general's annual report puts Hungarian defence spending at 2.21% of GDP in 2024 and 2.07% in 2025 — a declining trajectory. The 2026 budget, passed by the previous government and due for amendment by the end of August, allocates HUF 2,016 billion (≈ €4.9 billion) to defence: when the law was passed that came to 2% of GDP, but the budget assumed growth of 4.1% this year, whereas the finance ministry now forecasts 1.6–2.0%. Measured against a smaller GDP, the same forint sum yields a higher ratio — the “2%”, in other words, is a figure from the budget's own growth path, and that path is now obsolete. Meanwhile, the Zrínyi programme, Hungary's armed-forces modernisation drive, originally due to conclude in 2026, has slipped to 2030–2032.

2. Hungary's SAFE file: a €16.2 billion envelope, a €10 billion request

The key question in financing Hungary's rearmament is the EU credit line. The chronology speaks for itself:

The lesson common to both governments is that “concessional” EU money comes wrapped in political conditionality. For the Orbán government, the SAFE envelope was held hostage to the Ukraine veto; for the new government, the contents of the inherited plan became a liability. The press close to Fidesz — since the 2026 election the country's largest opposition party — reads it as Brussels having blocked the envelope “for obvious political reasons”; the government's critics counter that the sticking point was precisely the transparency of the plan. The two are not mutually exclusive: the same plan can be a target of political pressure in Brussels and, at home, legitimately open to challenge on transparency grounds.

The government itself frames the scale of the stakes in these terms. On 2 June, the foreign minister, Anita Orbán, said that the nearly HUF 6,000 billion (≈ €14.5 billion) of EU funding unlocked by the late-May agreement in Brussels could grow further if the defence loan facility also becomes available — with the Hungarian daily Népszava reporting talks on a defence loan of as much as HUF 5,700 billion (≈ €13.8 billion). Despite the similar order of magnitude, the two are not the same money: the agreement of 29 May between Péter Magyar and Ursula von der Leyen concerned the release of frozen cohesion and recovery funds — a conditional promise, which we have examined in a separate analysis — whereas the €16.2 billion SAFE loan for defence is a distinct procedure, and still pending today.

In early July, the file entered a new phase — and the way it developed illustrates exactly the mechanics set out in part one. Press reports say the government is now asking for only around €10 billion of the €16.2 billion envelope: less than the previous government requested (the national investment plan it submitted came to €17.4 billion, even more than the envelope itself). The Commission, by these accounts, wants to decide before the summer is out so that whatever is left uncommitted can go to other member states by the end of the year — the envelope, in other words, is not available indefinitely. The government spokesperson's briefing, however, added that no decision had yet been taken on the exact amount, and that the loan would finance not only strictly defence-related purposes but also projects that benefit the civilian economy. Népszava reports that alongside military projects, rail, healthcare and job-creating investments may enter the plan. This matters: it is not the same rulebook as the 1.5-percentage-point “defence- and security-related” component of the Hague target — SAFE has its own eligibility conditions (joint procurement, a minimum European content share) — but the underlying logic is the same: part of the “defence” money can go on projects that add no military capability at all. That dual nature is part of the political appeal — and what makes the spending hardest to audit. The companies in the inherited plan are likewise an open question: according to the spokesperson, no decision has been taken either on whether 4iG — a Hungarian technology group close to the patronage network built up under the Orbán governments — will have a role in modernising the armed forces.

3. The double promise: 5% and the euro, at once

Tisza's election programme contains three pledges that matter for this series: raising defence spending to 5% of GDP by 2035, ruling out conscription, and keeping Hungarian soldiers out of the Russo-Ukrainian war. Alongside them sits the other flagship promise: adopting the euro by 2030. On 28 May 2026, meeting NATO's secretary general, Mark Rutte, in Brussels, Péter Magyar — the prime minister who led Tisza to a two-thirds majority in April — reaffirmed that Hungary would give Ukraine humanitarian aid but would supply no weapons, a position the Kremlin's spokesman, Dmitry Peskov, publicly praised.

Since then, the election pledge has matured into a government commitment, and on an international stage at that: at the NATO summit in Ankara on 7–8 July, the prime minister said the government had already decided to raise defence spending in a “predictable” way, reaching 5% of GDP by 2035. He also restated the government's position on Ukraine — Ukraine is the victim, Russia the aggressor, Hungary gives humanitarian aid but sends neither weapons nor troops — and promised that the country would “once again become a reliable ally”. The pledge has therefore changed status: it is no longer a manifesto line but an alliance commitment. That difference matters for credibility — and it makes the bill that much more real.

Consider the arithmetic. Hungarian GDP in 2025 came to HUF 86,893 billion (≈ €210 billion) at current prices, according to the first estimate from Hungary's Central Statistical Office (KSH); in 2026, therefore, it will come to somewhere around HUF 90,000 billion (≈ €218 billion), which makes one percentage point of GDP roughly HUF 900 billion (≈ €2.2 billion). Climbing from today's 2% to the 5% target would mean extra spending of some HUF 2,700 billion (≈ €6.5 billion) a year at today's prices — about one and a third times today's entire defence budget, every year. Even the 3.5% “core” target requires an extra HUF 1,300 billion (≈ €3.1 billion) a year. This is not a figure we have invented — the detailed Hungarian defence path has not been made public — but the simple arithmetic of the pledge.

On the other side of the scales sits the euro. The European Central Bank's June 2026 Convergence Report — the ECB assesses every two years how far the member states obliged to adopt the euro have come towards meeting the criteria — finds that Hungary currently meets none of the Maastricht criteria: the deficit was 4.7% in 2025, the Commission expected 6.2% for 2026 when the report was drawn up, and public debt stands at 74.6%. Gábor Regős, chief economist at the fund manager Gránit Alapkezelő, puts the adjustment needed to adopt the euro by 2030 at around 4% of GDP, or HUF 3,000–4,000 billion (≈ €7–10 billion). We have written about that climb in detail in an earlier series on Hungary's euro ambitions.

And by midsummer, the starting point had turned out to be worse than the baseline forecast in the ECB's report. According to the finance ministry's audit, published on 8 July, parliament passed the 2026 budget in June 2025 with a deficit of 3.7% of GDP, whereas the internal forecast that came to light when power changed hands already showed 6.8%. The ministry broke the 3.1-percentage-point gap down item by item, in rounded figures: 1.3 percentage points from campaign measures missing from the budget (among them a 14th-month pension payment and housing support for public-sector employees), 0.9 from disadvantageous contracts and uncontrolled spending (the cost overrun on a 35-year motorway concession and the Budapest–Belgrade railway project), close to 0.5 from carbon-quota tax and mining royalties repayable following EU court rulings, and 0.3 from a weaker economic path than expected — growth in 2025 came in at 0.5% against a planned 2.5%, and 1.6–2.0% is expected for 2026 against a plan of 4.1%. The forecast then rose from 6.8% to 7.2%.

In parallel, the ministry published a second path: without EU funds, and had the previous government stayed in office, the deficit would have reached 8.3% absent further measures — and that 8.3% is brought down to 7.5% by drawing down EU support (0.5 percentage points), by winding up the public-interest asset management foundations (0.2) — the arm's-length bodies to which the previous government transferred large tranches of state assets — and by a stronger forint together with falling yields (0.1). The figure now being cited, then, is 7.5% — and the 7.2% and 7.5% figures come from two different calculation routes, which the ministry has not reconciled. For 2027, absent further measures, it puts the deficit at 6.1%. The timetable is public too: the government will amend the 2026 budget by the end of August and set a new deficit target when it lays the amendment before parliament, and by the end of October it will submit the 2027 budget and draw up the medium-term fiscal plan.

The two promises therefore impose conflicting demands on the budget at the same time: an adjustment of HUF 3,000–4,000 billion by 2028–2029 for the euro, and a defence increase of several hundred billion forints a year, rising into the thousands of billions, for the 5% path. The gap between the horizons — the euro in 2030, the 5% only in 2035, with the NATO path reviewed in 2029 — leaves some room for manoeuvre, as does the fact that 1.5 percentage points of the 5% sit in the “defence- and security-related” component, which can be read broadly and met in part by reclassifying existing infrastructure and cyber spending (we return to this in the counter-arguments): on paper it is possible to tighten first and rearm afterwards. But sequencing has a price. Every year that the defence ratio stays near 2% to support fiscal consolidation pushes the 5% target further out — at the expense of the credibility of the NATO pledge. And in reverse: every billion of defence spending brought forward works against the 3% deficit target. The government has yet to show how it will resolve this tension; what is certain is that with the deficit now heading towards 7.5% of GDP, the two cannot be paid for at once — they will have to be sequenced.

4. Who pays? The welfare squeeze

The “guns or butter” dilemma is not a metaphor; it is a budget line. The European Trade Union Confederation warns that member states risk being forced to choose between welfare and weapons, even as EU money originally intended for cohesion and recovery is already being redirected to defence. And it is not only the unions saying so: the Commission modelling cited in the first section has the extra defence spending lifting economic output only modestly (+0.5% on the level of GDP by 2028) while the debt ratio rises by 2 percentage points — even on the official scenario, rearmament does not cover its own cost. The Draghi report, meanwhile, warns that Europe's main problem is not the size of its welfare systems but its lag in innovation and investment: the competitiveness report put the annual investment need at €750–800 billion for the green, digital and defence agendas combined. If the defence target draws funding away from the rest of that investment, then on the report's own diagnosis it is aggravating the disease.

In Hungary, the squeeze is tangible: in a budget drawn from a GDP of some HUF 90,000 billion, the pension fund, healthcare and education will be competing with the extra defence spending of several thousand billion forints a year that the 5% path requires. Demography is a headwind here too: as in the EU as a whole, the share of Hungarians aged over 65 keeps rising. Anyone who says “5% on defence, a 3% deficit, the euro in 2030” therefore also has to say which spending line will give way, and when. Neither government has yet given the public that answer.

5. The best counter-argument: sequencing and structure may yet save it

The strongest expert objection to the paradox thesis runs like this: the two goals do not have to be met in the same year, and they are not paid for out of the same money. The 5% is a NATO measure covering a broad span of spending, including the 1.5% “defence- and security-related” component — road resurfacing, cybersecurity, dual-use infrastructure — so it can be met partly by reclassifying spending that already exists. Because the SAFE loan runs for 45 years with a 10-year grace period, only the interest weighs on the annual budget at first. And part of the defence investment feeds back into the domestic tax base: through the plants described in part two, some of what Hungary spends returns as tax revenue. On this logic, the timetable can be made to work: consolidation and euro convergence in 2026–2029 with a restrained defence ratio of 2.1–2.5%; after 2030, inside the euro area, a steeper defence ramp-up to 2035.

The argument is coherent, and from the government's point of view it is the only workable scenario — but it remains little more than an outline. It has two weak points. The first is credibility: at NATO's 2029 review, a Hungary stalled at around 2.1% will have to explain why anyone should believe in 5% by 2035 — while the alliance's eastern flank is already spending above 4% today. The second is the historical record: promises to “tighten, or spend, in the next term” have a poor record of being kept, and the postponed Zrínyi programme and the Hungarian euro target dates repeatedly set and then quietly dropped stand as evidence of exactly this kind of slippage. The sequencing approach is therefore possible, but every comparable Hungarian timetable so far has slipped well past its deadline.

6. What to watch

• Approval of the Hungarian SAFE plan. When it goes through, for how much and with what procurement list — how much of the roughly €10 billion request will go on military projects and how much on projects “of civilian benefit”, which firms are left out of the rewritten plan, and how much of the envelope is reallocated to other member states.
• The end-August amendment to the 2026 budget. The new deficit target will show how much adjustment the government is taking on this year — and whether the defence line rises or is sacrificed.
• The defence line in the 2027 budget. The first wholly new budget of this government, due to be submitted by the end of October, will show whether the 2% rises, holds or falls — the first test in numbers of the 5% pledge.
• The euro roadmap — and the sequencing. A parliamentary resolution requires the adoption timetable to be ready by 1 September 2026 (we set this out in detail in the opening part of an earlier series on Hungary's euro ambitions) — yet the medium-term fiscal plan beneath it will, on the government's own schedule, be finished only at the end of October. The roadmap will therefore be ready before the fiscal path on which it rests: it is worth watching whether the September document contains any defence or deficit figures at all.
• The twin tests of 2029. The review of the NATO path and the sustained sub-3% deficit required for the euro fall due in the same year — that will be the moment of truth for the paradox.
• The pace of Zrínyi procurement. Further slippage in a programme already pushed to 2030–32 sends a message about the defence pledge; acceleration sends one about the deficit target.

In summary. The bill for Europe's rearmament is split three ways: the taxpayer pays it in tax, the next generation in debt service, and the welfare state in spending forgone. In this story, Hungary is both fortunate and cornered: as a manufacturer it takes a share of the defence boom's revenue, but as a borrower and a signatory to the targets it faces the same dilemmas as the rest of the continent — only with less room for manoeuvre, a higher starting deficit and two flagship promises straining against each other. On today's numbers, the 5% and the 2030 euro cannot be funded at the same time; only strict sequencing can do it, and that sequencing has a measurable price: every year of consolidation weakens the credibility of the NATO pledge, and every billion of defence spending brought forward weakens the deficit target. And no Hungarian government has ever held to such a double timetable all the way through. Which way it tips will be decided not by statements but by three documents, all of them within a few months: the new deficit target in the end-August budget amendment, the euro roadmap promised for 1 September, and the 2027 budget due at the end of October, together with the medium-term plan. We will check all three, line by line.