For a reminder of the security threats facing theinorld today, look at how much governments have raised defense spending.
Global military budgets reached $2.44 trillion (€2.25 trillion) last year, nearly 7% more than in 2022. This is the steepest year-over-year increase since 2009. It was recorded in the second year of Russia’s full-scale invasion of Ukraine.
Global military spending for every man, woman and child is now the highest since the end of the Cold War at $306 per person.
With Kyiv unprepared to fight such a large-scale conflict, the West has increased military aid to Ukraine, while rising tensions with Russia and other countries in the Middle East and Asia have prompted governments to beef up their defenses more than at any time since World War II.
In 2024, the United States has set aside $886 billion for defense, an increase of more than 8% in two years. For the first time, NATO’s European partners are expected to meet the target set by the military alliance of spending 2% of gross domestic product (GDP). This year alone, they have earmarked $380 billion for defense, NATO chief Jens Stoltenberg said in February.
Poland in the lead
While Germany is still playing catch-up with other NATO members — President Olaf Scholz’s special 100 billion euro ($109 billion) fund helped upgrade the Bundeswehr’s armed forces — Poland is set to spend 4.2% of GDP this year on defense for the military alliance. Others in NATO’s eastern flank will also exceed or soon exceed the 2% target as security threats on their borders increase.
As a result, governments face an increasingly difficult choice over how to pay for new defense obligations, even as many economies are weakened by the effects of ongoing global geopolitical tensions and lingering inflation. Many countries are already financially stretched.
Short-term obligations for military equipment for Ukraine must be financed with additional debt.
Wars have historically been financed by Gunther Wolff, Bruegel, a senior fellow at the Brussels-based think tank, told DW. But in the long run, increased defense spending would have to raise taxes or cut other spending.
“Is it politically painful? Surely! But if you spread it across various government departments, it’s less.
Germany cuts ministry budgets except defense
Germany cuts ministry budgets except defense
Facing lower tax revenues due to weak growth, Germany has cut spending across most government sectors and set aside almost 2 billion euros in international development aid this year.
“Germany has some significant trade exchanges,” said Jeffrey Rathke, president of the American-German Institute at Johns Hopkins University in Washington, DC.
“They must be politically managed so that they do not erode public support for strengthened security and defence,” he said.
Left-wing political parties in many countries have led calls for peace between Russia and Ukraine and fueled debate over whether new military spending could be better spent on health care or social programs.
Rathke noted how Germany’s debt moratorium limits the government’s ability to borrow money to cover gaps in the budget, meaning Scholz’s coalition has less room for maneuver compared to France.
While Poland’s finances are in much better shape than many Western European countries, Prime Minister Donald Tusk, who ousted a right-wing populist government last October, has struggled to deliver on election promises, including raising the threshold before income taxes are imposed.
Other EU countries struggle with the NATO target
Other countries, such as those worst hit by the 2011 European debt crisis, are already facing deep austerity measures, and any cuts could affect the quality of public services.
Italy, for example, is expected to spend just 1.46% of GDP on defense this year, and has warned that meeting NATO’s 2% target by 2028 will be tricky. The country’s debt-to-GDP ratio is projected to be 137.8% this year.
Other countries in fiscally tight spots, such as Spain, may find limits to the additional deficit needed to finance new military spending, which may range from 0.5% to 1.5% of GDP. Last year, Madrid increased its defense budget by 26%.
“The European debt crisis has adjusted budgets by 5% to 7%, even 10% for Greece,” Wolff said.
“Fortunately, these cuts will be far less painful than anything the European south has had to endure.”
Sweden, Norway, Romania and the Netherlands have the lowest debt burdens. Even so, Dutch far-right firebrand Geert Wilders plans significant spending on social security housing and agriculture to secure his new four-party coalition.
“As well as fiscal and credit issues, this resource debate is overlaid on the current divergence in threat perception across Europe,” Rathke said, so countries located further from Ukraine are less interested in prioritizing security than those closer to its borders.
Next target: 3%?
Defense spending is expected to increase over the next decade. NATO’s 2% defense spending target was first introduced in 2014 as war broke out between the Ukrainian military and Russian-backed separatists in the country’s east and Moscow annexed Ukraine’s Crimea peninsula.
Last year, at a meeting in Vilnius, Lithuania, NATO leaders agreed that the target would most likely be higher than 2%. Germany, which has so far struggled to meet the original target, has now floated the prospect of a 3% budget target, which would mean even bigger changes to government finances.
