In the 30 years since the Iron Curtain collapsed, trillions of dollars spent on Cold War armies and weapon systems have gradually been diverted to healthcare, housing and schools.
That era – when security took second place to trade and economic growth – came to an abrupt end with the Russian invasion of Ukraine last year.
“The peace dividend is gone,” said Kristalina Georgieva, the head of the International Monetary Fund, recently, referring to the mountains of money released as military budgets dwindled. “Defense spending has to go up.”
The urgent need to fight a ruthless and unpredictable Russia has forced European leaders to do unbearable things budget decisions that will have a huge impact on people’s daily lives. Do they spend more on howitzers or hospitals, tanks or teachers, missiles or roads? And how to pay: raise taxes or borrow more? Or both?
The sudden security demands, which will last well beyond the end of the war in Ukraine, come at a time when colossal spending is also required to care for the rapidly aging population and avoid potentially catastrophic climate change. The European Union’s ambitious goal of being carbon neutral by 2050 alone is estimated to cost between $175 and $250 billion a year over the next 27 years.
“The spending pressure on Europe will be enormous, not to mention the green transition,” said Kenneth Rogoff, a professor of economics at Harvard. “The entire European social safety net is very vulnerable to these great needs.”
After the fall of the Berlin Wall, social spending skyrocketed. Denmark doubled the money it funneled into healthcare between 1994 and 2022, according to the latest figures from the Organization for Economic Co-operation and Development, while Britain increased its spending by more than 90 percent.
In the same period, Poland more than doubled funding for culture and recreation programmes. Germany stepped up investment in the economy. The Czech Republic increased its education budget.
Military spending by European members of the North Atlantic Treaty Organization and Canada hit an all-time low in 2014 as demand for main battle tanks, fighter jets and submarines plummeted. After Russia annexed Crimea that year, budgets started to rise again, but most countries fell well short of the NATO target of 2 percent of national output.
“The end of the peace dividend is a big break,” said Daniel Daianu, president of the Fiscal Council in Romania and a former finance minister.
Before war broke out in Ukraine, military spending by NATO’s European members was expected to reach nearly $1.8 trillion by 2026, up 14 percent in five years, according to research from McKinsey & Company. Now spending is estimated to increase by 53 to 65 percent.
That means hundreds of billions of dollars that could otherwise have been used to invest in, say, bridge and highway repairs, childcare, cancer research, refugee resettlement, or public orchestras, are expected to be diverted to the military.
Last week, the Stockholm International Peace Research Institute reported that military spending in Europe last year saw its biggest annual increase in three decades. And the spendathon has only just begun.
The question of military spending will be on display on Wednesday as European Union trade commissioner Thierry Breton is expected to discuss his research trip to determine whether European countries and arms manufacturers are capable of producing a million rounds of 155-millimeter shells for Ukraine. year and how production can be increased.
Poland has pledged to spend 4 percent of its national production on defense. The German defense minister has asked for an additional $11 billion next year, a 20 percent increase in military spending. France’s President Emmanuel Macron has pledged to increase military spending by more than a third through 2030 and “transform” France’s nuclear-armed army.
Some analysts argue that cuts to military budgets were sometimes so deep that they compromised base readiness. And surveys have shown public support for increased military spending, clearly illustrated by Finland’s and Sweden’s swing to join NATO.
But in most of Europe, the painful budget compromises or tax increases that will be required have not yet penetrated everyday life. Much of last year’s tightening of belts that put pressure on households was the result of skyrocketing energy prices and stabbing inflation.
In the future, the game board has changed. “France has entered a war economy that I think we will be in for a long time,” Macron said in a speech shortly after announcing his spending plan.
But the crucial question of how to pay for the dramatic shift in national priorities remains. In France, for example, government spending as a percentage of the economy is the highest in Europe at 1.4 trillion euros ($1.54 trillion). Of that, nearly half was spent on the country’s generous social safety net, which includes unemployment benefits and pensions. Debt has also soared in the aftermath of the pandemic. Nevertheless, Mr. Macron vowed not to raise what is already one of the highest tax levels in Europe for fear of scaring off investors.
Debates over competing priorities are playing out in other capitals in the region – even if the compromises are not explicitly mentioned.
In Great Britain, on the same day in March As the government unveiled a budget that included a $6.25 billion increase in military spending, teachers, doctors and transportation workers went on strike over wages and working conditions. It was just one in a series of strikes by public workers who complained that underfunding, double-digit inflation and the aftermath of the pandemic have crippled essential services such as health care, transport and education. The budget included a $4.1 billion increase for the National Health Service over the same two-year period.
Romania, which has built up its national debt over the years, has pledged to increase military spending by 0.5 percent of national output this year. And this month it agreed to purchase an undisclosed number of F-35 fighter jets, which have an MSRP of $80 million each. While the increase will enable the country to meet NATO’s budget target, it will undermine efforts to meet debt limits set by the European Union.
The shift in government spending is perhaps most notable in Germany, where defense spending plummeted after the reunification of the former East and West German nations in 1990.
“Defense was always the place to save because it wasn’t very popular,” said Hubertus Bardt, the director of the Institute for German Economics.
Germany, Europe’s largest and most powerful economy, has consistently spent less money on the military as a percentage of gross domestic production than France or Britain.
It is a “historic turning point,” said German Chancellor Olaf Scholz, when he announced a $112 billion special defense fund last year. But that pot of money didn’t include spending on ammunition. And when the fund runs out, Germany will have to find an additional $38 billion to catch up with its NATO partners.
Mr Rogoff, the Harvard economist, said most Europeans do not yet realize the magnitude of the long-term effects of a declining peace dividend. This is a new reality, he said, “and governments will have to figure out how to get things back in balance.”
Melissa Eddie And Lara Jacks reporting contributed.
