Dutch central bank urges targeted use of extra defence billions

The Netherlands will spend more than €19 billion extra on defence each year in the long term, but those funds should be deployed strategically to strengthen areas where the country already has an edge, the Dutch central bank said on Friday.

The bank said the greatest economic and strategic return would come from focusing on so-called dual-use technologies – military products that also have civilian applications.

The Netherlands has committed to spending at least 3.5% of GDP on defence within 10 years. That implies a gradual increase in annual spending, rising to around €19 billion extra by 2035.

In the short term, the priority will be to expand military capacity quickly, the bank said, and much of the equipment needed will have to be imported. Over a longer period, however, there will be room to build up domestic production capacity.

The Netherlands, the bank argues, is not well placed to produce purely military goods such as tanks or ammunition, areas where countries including Germany, France and Spain are already specialised.

Instead, the Netherlands has a comparative advantage in dual-use domains, including semiconductors and specialised microscopes, where its technology and production facilities are already globally competitive.

“Think of chips that fit in a drone and which can also be used in mobile phone,” the bank suggested.

These strengths, the bank said, could be expanded and used to reduce European dependence on imports from outside the EU. But developing new defence products takes years and “the government does need to provide a degree of predictability,” the bank said.

“For the defence sector, it is important to know that it can rely on the government as a customer for years to come. The defence industry will only develop new products – a process that takes years – if it has sufficient certainty that there will be demand at the end of that process.”