Denmark can currently manage the Prime Minister’s proposed increase in defense spending to 3.5 percent of GDP, but long-term prioritization will likely be necessary, according to economist Michael Svarer. Svarer, a professor of economics at Aarhus University and former chairman of the Danish Council of Economic Advisers, stated that the Danish economy possesses a “fairly large margin of maneuver” at present.

Prime Minister Mette Frederiksen announced her support for NATO’s goal of member states spending 3.5 percent of GDP on defense and 1.5 percent on other security challenges at a summit in Vilnius, Lithuania, on Monday.

Svarer anticipates a further upward adjustment of the economic margin in late June. This would give politicians the option to allocate more funds to defense without needing to make difficult choices in other areas.

According to the Ministry of Defence, a total of DKK 315 billion has been allocated to defense through 2033, including DKK 50 billion for an Acceleration Fund dedicated to investments in 2025 and 2026. This current allocation equates to 3.2 percent of GDP spent on defense.

Svarer cautions that if the higher defense spending becomes a permanent fixture, politicians will eventually need to consider raising taxes or reducing public sector consumption to maintain fiscal balance.