Debts and belt-tightening: How much is the war in Ukraine costing the West?

If you want to be reminded of the security threats facing the world today, just look at how much governments have increased their defense spending. Deutsche Welle.

Military budgets at the global level reached 2,44 trillion dollars last year, which is almost seven percent more than in 2022.

This was the largest year-over-year increase since 2009, and was recorded during the second year of the Russian invasion of Ukraine.

World military spending is now the highest since the end of the Cold War, at $306 per person.

Since Kiev was not prepared to deal with such a large-scale conflict, Western countries stepped up military aid. At the same time, other escalations of tensions with Russia, as well as those in the Middle East and Asia, have led governments to strengthen their own defenses, the most since World War II.

This year, the United States allocated 886 billion dollars for defense, which is a growth of more than eight percent for a period of two years.

It is also expected that the European partners in NATO will for the first time fulfill the goal set by that military alliance: that they will set aside two percent of their gross domestic product (GDP) for defense.

This year alone, the Europeans allocated 380 billion dollars for defense from the budget, NATO Secretary General Jens Stoltenberg said in February.

Poland leads the way

Germany is still keeping pace with other NATO members - but with the help of Chancellor Olaf Scholz's special fund of one hundred billion euros set aside for the improvement of the Bundeswehr.

Poland will spend 4,2 percent of its GDP on defense this year. This is the highest percentage in the entire NATO.

Due to the increased threat at the borders, the withdrawals of other countries from NATO's eastern wing also far exceed or will soon exceed the two percent target.

That's why countries face increasingly difficult choices about how to pay for new spending at a time when economies are weakening from the effects of global tensions and lingering inflation. Many countries are already fiscally stretched.

"Short-term obligations for military equipment for Ukraine should be financed by additional borrowing." This is the way in which wars have been financed in history," Gunter Wolff, a senior associate at the Brussels Research Center, told DW. Bruegel.

"But for long-term increased defense spending, either taxes have to go up or other costs have to go down," he continues. "Is it politically painful? Of course it is! But it will hurt less if you spread the savings across various government ministries."

Germany cuts budgets - except for defense

Germany faces the prospect of lower tax revenues due to weaker economic growth. In Berlin, spending is being reduced in most ministries. Allocations for international development aid alone were reduced this year by almost two billion euros.

"Germany has to make very significant compromises." They need to be managed politically so that public support for strengthening security and defense is not eroded," Jeffrey Rathke, president of the American-German Institute at Johns Hopkins University in Washington, told DW.

Namely, left-wing political parties in several countries are advocating for peace negotiations between Russia and Ukraine, thus encouraging a debate on whether it would be better for military spending to be directed to health care or social programs.

Ratke points out that Germany's "debt brake" - a constitutional rule that prohibits new debt - means that Scholz's coalition has less room to maneuver compared to, say, France.

In Poland, a country whose finances are in much better shape than many Western European countries, Prime Minister Donald Tusk, who ousted a right-wing populist government last October, is struggling to fulfill some of his campaign promises because of increased defense spending.

What about other NATO countries from Europe?

Other countries, such as those hardest hit by the European debt crisis in 2011, have already faced severe austerity measures and any further cuts could affect the quality of public services.

Italy, for example, is expected to spend just 1,46 percent of GDP on defense this year. It is estimated that the country will hardly achieve the NATO goal of two percent by 2028. The country's debt this year could amount to 137,8 percent of GDP.

Countries with similar fiscal difficulties, such as Spain, could impose caps of 0,5 to 1,6 percent of GDP on any additional deficits needed to finance new military spending. Last year, Madrid increased its defense budget by 26 percent.

"The European debt crisis forced countries to cut their budgets by five to seven percent. In the case of Greece, even ten percent," says Gunter Wolff. "Thankfully, those cuts will be much less painful than what the south of Europe has already had to endure."

Sweden, Norway, Romania and the Netherlands have lower indebtedness. Despite this, the Dutch radical rightist Geert Wilders, in order to succeed in forming a new four-member coalition, plans to spend a significant part of the spending on social housing and agriculture.

"In addition to fiscal capacity and debt problems, this debate is characterized by differences in threat perception across Europe," says Jeffrey Rathke.

This means that countries further away from Ukraine may be less willing to prioritize defense than those closer to the country.

The next three percent goal?

Defense spending is expected to continue to grow over the next decade.

NATO's goal of setting aside two percent was first set in 2014, after conflict broke out between the Ukrainian army and Russian-backed separatists in the east of the country, and Moscow annexed the Ukrainian peninsula of Crimea.

Last year, at a meeting in Vilnius, Lithuania, NATO leaders agreed that the goal could exceed two percent.

Germany, which has so far struggled to meet the original target, is now debating allocating three percent of the budget. This would have even greater consequences for government finances.