Governments warned: Soaring defense budgets strain public finances

European governments face increased borrowing, taxes, and public sector cuts to finance military budgets. It's a tough task, writes "Deutsche Welle." The German daily notes that the Ukraine war costs the West over a trillion dollars.

To comprehend the security threats facing today's world, one must look at how much governments have increased defense spending. The global military budget reached $2.44 trillion (2.25 trillion euros) last year, nearly 7 percent more than in 2022. This was the largest increase since 2009, achieved in the second year of Russia's full-scale war with Ukraine.

Global military spending is now the highest per capita since the end of the Cold War, amounting to $306 per person.

As Kyiv was unprepared to fight a large conflict, Western countries have increased military aid to Ukraine. Other escalating tensions with Russia and the Middle East and Asia have also prompted Western governments to bolster their defense efforts, something not seen since World War II.

In 2024, the United States allocated $886 billion for defense, an increase of over 8 percent over two years. For the first time, European NATO partners are anticipated to meet the alliance's goal of spending 2 percent of their GDP on defense—a major issue for former US President Donald Trump. As NATO Secretary General Jens Stoltenberg said in February, these countries will collectively spend $380 billion on defence this year alone.

While Germany is still catching up with other NATO members, helped by Chancellor Olaf Scholz's special fund of 100 billion euros ($109 billion) to modernize the Bundeswehr, Poland is set to spend 4.2 percent of its GDP on defense this year, the most in the entire North Atlantic Treaty Organization. Other countries on NATO's eastern flank are also significantly exceeding or will soon exceed the 2 percent goal due to heightened security threats at their borders.

As a result, governments face increasingly difficult choices about how to fund these new defense commitments, while many economies are weakening due to persistent global geopolitical tensions and ongoing inflation. Many countries are also facing a strained tax situation.

“Short-term commitments to supply military equipment to Ukraine should be financed by taking on additional debt. This is how wars have always been financed. But to increase defense spending in the long run, taxes must either be raised or other expenditures must be cut,” said Gunther Wolff, an analyst with the Brussels think tank Bruegel, in an interview with DW.

“Is it difficult and politically painful? Of course! But spreading these expenditures across various ministries will be less painful,” he explained.

Germany, which is facing lower tax revenues due to slower economic growth, has cut spending in most ministries and reduced its foreign aid this year by nearly 2 billion euros.

“Germany must make some very significant compromises,” Jeffrey Rathke, president of the American-German Institute at Johns Hopkins University in Washington, told DW. “They must, however, do this very carefully to avoid eroding public support for increased security and defense spending,” he added.

Leftist political parties in several Western countries have led calls for peace between Russia and Ukraine and have fueled debate on whether new military expenditures should instead be allocated to healthcare or social programs.

Jeffrey Rathke noted that Germany's debt brake, which restricts the government's ability to borrow money to cover budget gaps, means that Chancellor Scholz's ruling coalition has less leeway than France.

Other countries, especially those most impacted by the European debt crisis of 2011, have already faced severe austerity measures, and any further cuts could affect the quality of public services.

For example, Italy is set to spend just 1.46 percent of its GDP on defense this year and has warned that meeting the 2 percent NATO target by 2028 will be challenging. The country's debt-to-GDP ratio is projected to reach 137.8 percent this year.

Other countries in similar tax situations, such as Spain, may face constraints in funding new military expenditures, ranging from 0.5 to 1.5 percent of GDP. Last year, Madrid increased its defense budget by 26 percent.

“The European debt crisis forced budget adjustments of 5 to 7 percent or even 10 percent in Greece's case. Fortunately, such cuts will be much less painful than the European south previously had to endure,” said Gunther Wolff.

Sweden, Norway, Romania, and the Netherlands have lower debt levels. However, Dutch far-right politician Geert Wilders also plans substantial spending on social housing and agriculture to maintain his new four-party coalition.

“Besides fiscal capacities and debt issues, this debate on financial resources overlays ongoing differences in threat perceptions in Europe,” said Jeffrey Rathke, so countries farther from Ukraine might be less inclined to prioritize defense spending than those near its border.

Defense spending is expected to increase over the next decade. NATO's target of members spending 2 percent of GDP on defense was first set in 2014, following the outbreak of war between Ukrainian forces and Russian-backed separatists in eastern Ukraine and Moscow's annexation of Crimea.

Last year, at the NATO summit in Vilnius, Lithuania, NATO leaders agreed that this target could often exceed 2 percent of GDP. Germany, which has so far struggled to meet the original target, is now considering the prospect of 3 percent, which would have even greater consequences for its financial policy.