European NATO members are intensifying discussions on increasing defense spending, with proposals to raise the alliance’s target to 3% of GDP by 2030. These talks, influenced by Donald Trump’s anticipated return to the U.S. presidency, reflect concerns over his past criticisms of NATO’s reliance on American military funding. Trump’s push for Europe to take greater responsibility for its defense has renewed urgency, compounded by Russia’s ongoing aggression in Ukraine.

Currently, 23 NATO members meet the existing 2% GDP spending target, up from just six in 2018. However, significant disparities remain, with countries like Italy and Spain still lagging. Proposals include an interim target of 2.5% by 2028, though fiscal constraints challenge many nations, including Germany and the UK.

For Europe, higher defense budgets aim to bolster NATO capabilities, modernize militaries, and signal strategic independence. However, such commitments would place additional strain on national budgets already stretched by economic uncertainties, raising questions about feasibility and long-term sustainability. NATO’s June summit will likely formalize these ambitious goals.

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ECB Cuts Rates Amid Growth Concerns

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The European Central Bank lowered its deposit rate by 25 basis points to 3%, marking its fourth cut this year as economic risks mount. ECB President Christine Lagarde highlighted "abundant uncertainty" and a worsening growth outlook, driven by political instability and potential U.S. trade tensions. The move signals ongoing efforts to support the eurozone economy, with further easing possible in early 2025 as inflation approaches the 2% target. Markets anticipate additional rate cuts ahead.

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