Target additional defence expenditure for greatest strategic benefit

This is according to a new analysis by De Nederlandsche Bank (DNB) on the impact of higher defence spending on the Dutch economy. The analysis examines the historical impact of European defence spending, the degree to which contemporary Dutch defence manufacturers rely on imports, and the products and technologies in which the Netherlands already has a strong position.

Rapid expansion of militairy capacity

The Netherlands has pledged to spend at least 3.5% of its gross domestic product (GDP) on defence until 2035. That means we will be ramping up spending each year from now on, with the aim of reaching an extra €19 billion by 2035.

In the short term, the focus is on rapidly expanding military capacity, with little room for economic considerations. We will have to import many of the goods we need now. But looking at the longer term, there is also time to build up production capacity. How can we spend the extra defence outlays efficiently in the medium term?  

Specalisation within Europe

First of all, it is important to conclude agreements at the European level about who will build and develop what. Such agreements provide the framework within which countries can specialise, enabling them to bolster the European defence capabilities jointly and efficiently.

In our analysis, we examined the strengths and weaknesses of Dutch defence production to find out how the Netherlands could contribute efficiently to such a European deal, based what is already being produced and by looking at patents.

No tanks, but semiconductors

The Netherlands is not well placed to manufacture defence goods that have no civilian application, such as tanks and ammunition. Other European countries, such as Germany, Italy and Spain, specialise in such goods. Given that the expertise and competencies of the member states already complement each other, optimising coordination in Europe is the next logical step.

The Netherlands can efficiently contribute to European agreements by focusing on various ‘dual-use’ domains – military products that can also be used for other purposes. Think of chips that can be used in both drones and phones.

Products in which the Netherlands is already ahead of the rest of the world include semiconductors, but also specific types of microscopes, for example. Dutch expertise and production facilities in these areas can help build a strong European defence industry.

We can build on our strengths, but also use our technological expertise and manufacturing capabilities to reduce our dependence on other countries. For example, the Netherlands could use its expertise in the maritime sector to reduce Europe's dependence on imports in this area.

However, the government will have to act as a predictable partner: the defence sector needs to know that it can count on the government as a customer for the years to come. It takes years to develop new products, and the defence industry will only do so if there is sufficient certainty of demand down the line. 

A long-term effort

For strategic urgency reasons, we cannot afford to wait until all new production capacity is built in Europe. Therefore, in the short term, increased spending mainly leads to more imports rather than new production. We thus agree with the analysis of the Netherlands Bureau for Economic Policy Analysis, released in November 2025, which already concluded that the Dutch government imports much of its defence equipment.

Our analysis complements this by showing, based on trade figures, that sectors that contribute to the production of defence goods also need to source many components from abroad. This means that even if the Dutch government starts buying its equipment in the Netherlands, much of that spending will still indirectly go abroad – unless the supply chains are also moved to the Netherlands. This is particularly true of thedefence industry that produces goods such as vehicles and machinery. This validates the idea that building defence production is a long-term effort.

Impact on our economy

The defence industry’s higher demand for staff does not have much positive economic impact at the moment because of the tight labour market. Rising labour costs affect the entire economy and carry a concomitant risk of higher inflation. We therefore do not expect any significant economic growth to follow from higher defence spending in the short term, even though historical figures show that rising defence spending in Europe did lead to economic growth in the past. It is especially important to keep an eye on the main goal of boosting defence spending: our security, not short-term economic gain.