Denmark’s economy can currently absorb the increase in defense spending to 3.5 percent of GDP, as pledged by the Prime Minister, but long-term sustainability will necessitate tough political choices.

Economist Michael Svarer, a Professor of Economics at Aarhus University, suggests that while the Danish economy currently possesses significant financial flexibility, ongoing increased defense expenditures will require future prioritization. This could involve raising taxes or reducing public sector consumption.

Prime Minister Mette Frederiksen announced her support for NATO’s target of 3.5 percent of GDP on defense and 1.5 percent on other security measures at a summit in Vilnius, Lithuania.

Svarer notes that an upcoming adjustment to the economic leeway in late June could provide additional funds that politicians could allocate to defense without needing to make difficult cuts elsewhere. The exact amount is unknown but it will give politicians a choice.