The next decade could see an estimated $8 trillion surge in additional defence spending by the Group of Seven, according to former US Navy Admiral James Stavridis, creating a vast new source of economic stimulus while intensifying pressure on government finances and bond markets. The scale of the planned spending is comparable with the investment boom surrounding artificial intelligence, and the two are increasingly converging as military procurement shifts towards technology.
Stavridis, now managing director and partner at The Carlyle Group, estimates that additional defence commitments by G7 governments over the next 10 years amount to about $8 trillion on top of existing spending trends. The combined annual gross domestic product of the United States, Japan, Germany, France, Britain, Italy and Canada is now just over $55 trillion, meaning the additional defence commitments over a decade are equivalent to almost 15% of the G7’s 2026 GDP.
Reuters, in a column by Mike Dolan, said the spending surge represents another measure of the simultaneous stimulus being delivered to the global economy, while also adding to inflationary pressures, demands on public finances and borrowing costs. G7 defence spending has already risen to 2.0% of GDP, its highest share in more than 30 years, according to Stavridis, and is projected to reach 3.8% as soon as 2030.
Europe accounts for a substantial part of the projected increase. Stavridis estimates that broader European defence objectives imply roughly €4 trillion to €5 trillion ($4.5 trillion-$5.7 trillion) in additional spending over the coming decade. When related infrastructure is included, he puts the figure closer to €9 trillion. The spending is being driven by the changing security environment in Europe, including the Russian threat to the continent’s eastern borders and uncertainty over the future of US commitment to NATO under President Donald Trump.
The United States is also preparing for a major expansion. Defence outlays earmarked for fiscal year 2027 are expected to reach a record $1.5 trillion. The figure would exceed the US inflation-adjusted peak during the Second World War. Estimates from the Center for Strategic and International Studies cited by Stavridis put US defence spending at about 4.6% of GDP at that level, close to the peaks reached in 2009 and approaching proportions last seen during the Cold War in the 1980s.
That expansion has direct implications for US public finances. The higher defence bill could exceed the Treasury’s current annual debt-servicing costs, although rising bond yields could increase interest payments further. The result is a competition for government revenue between military expenditure and the cost of servicing existing debt.
The nature of military procurement is changing at the same time. Rather than concentrating primarily on warships, tanks and other traditional weapons systems, a larger share of the new spending is expected to go towards technology, drones, cybersecurity and artificial intelligence used on the battlefield. Stavridis wrote that “the centre of gravity is moving towards smaller, faster-moving companies in cyber, encryption, and hypersonics rather than the traditional prime contractors”, with deals becoming “smaller and more numerous”.
That shift creates a substantial overlap between defence expenditure and the wider AI and technology investment cycle. Data centres and the security required to operate them are among the areas where the two spending streams converge. Europe, in particular, could use the rearmament cycle to strengthen its technology sector. Stavridis observed that “two decades of declining European defence investment tracked closely with two decades of declining European tech competitiveness”, adding that the current rearmament cycle appears intended to reverse that pattern.
The financial cost of the spending is already being felt in government bond markets. The Washington-based Institute of International Finance estimates that average government borrowing costs across the G7 are now at their highest level since mid-2008, while annual interest expenses have increased by nearly 85%.
The figures put the scale of debt servicing into perspective. Over the past year, advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds alone. That exceeded estimated global spending of $2.6 trillion on AI, $3.1 trillion on defence and $2.3 trillion on clean energy.
The combined economic stimulus from defence and AI investment could help contain debt-to-GDP ratios by expanding economic activity, but it also places governments in a difficult fiscal position as borrowing costs rise. Reuters columnist Mike Dolan described the emerging situation as a high-intensity balancing act in which the spending programmes may achieve their intended objectives while increasing financial instability.
