Ottawa’s intention to deepen defence ties with Europe amid uncertainty in its U.S. relationship could bring significant economic benefits, but there is uncertainty around the feasibility and viability of the pact, a group of former top officials suggests in a white paper.
Canada and the European Union (EU) announced the signing of a Security and Defence Partnership during the G7 Summit in Alberta in mid-June. The deal allows the start of negotiations for Canada to join the EU’s rearmament program.
The authors said the partnership offers “significant strategic and economic promise,” while adding its success is “far from assured.”
“Fiscal realities, political resistance, and structural challenges on both sides will likely slow or limit progress toward the ambitious goals set out in the agreement,” the report says.
It comes on the heels of NATO allies agreeing to increase defence spending to 5 percent of GDP by 2035 during the leaders’ summit in The Hague in late June. Earlier that month, Prime Minister Mark Carney had announced that Canada would reach the previous NATO guideline of 2 percent this fiscal year, several years ahead of schedule.
At the same time, Canada has been running structural deficits for years with no planned balancing of the books in sight.
The white paper notes fiscal constraints are an obstacle to a deepening partnership with the EU on defence.
For Canada to achieve and maintain the NATO targets, it risks “fiscal instability, especially if economic growth underperforms or political support wanes,” the authors say. They add that many EU countries are in similar or worse fiscal situations, with the planned defence spending hike being “likely unachievable for most without deep cuts elsewhere or politically fraught tax hikes.”
Aside from fiscal issues, political and structural obstacles could interfere with the defence pact, the former officials say. They note the typical procurement delays in Canada as well as potential efforts by the United States to prevent Canada, which purchases about 75 percent of its military equipment south of the border, from pivoting toward Europe for new acquisitions.
This was not well received by U.S. President Donald Trump, who said he would make Spain pay in tariffs if it doesn’t spend enough on defence.
Trump has long advocated for NATO members to increase spending. NATO Secretary-General Mark Rutte gave credit to Trump for allies announcing they would reach the 2 percent target this year and agreeing on the new 5 percent target in late June.
NATO members have agreed to review the new spending requirement in 2029. Trump at that time will be out of office.
Trump’s policies toward Canada, including three different sets of tariffs and talk of making the country the 51st U.S. state, have motivated the Canadian government to reduce dependency on the United States.
The defence agreement with the EU is an attempt to change that dynamic and provide greater access to suppliers, technologies, and investment opportunities, the white paper says. It notes EU defence spending could rise above $1 trillion in 2035, creating potential windfall for Canadian businesses.
The report has analyzed the potential economic impact of different scenarios, such as spending 2 or 5 percent of GDP on defence, or having access to the EU’s rearmament program.
Report authors said 2 percent defence spending could lift GDP by 0.2 to 0.4 percent this year, whereas having access to Europe’s defence program would raise it by 0.3 to 0.6 percent.
By 2036, if Canada spends $150 billion each year on defence (as mentioned by Carney) to reach NATO’s 5 percent target, this would lift GDP by 0.9 to 1.2 percent. The defence deal with the EU could lift GDP by 0.7 to 1.0 percent.
