War leading Europe to change spending

In the 30 years since the Iron Curtain came down, trillions of dollars that had been dedicated to Cold War armies and weapons systems were gradually diverted to health care, housing and schools. That era – when security came second to trade and economic growth – abruptly ended with Russia’s invasion of Ukraine last year.

“The peace dividend is gone,” Kristalina Georgieva, the head of the International Monetary Fund, recently declared, referring to the mountains of cash that were freed up when military budgets shrank. “Defense expenditures have to go up.”

The urgent need to combat a brutal and unpredictable Russia has forced European leaders to make excruciating decisions that will enormously affect peoples’ everyday lives. Do they spend more on howitzers or hospitals, tanks or teachers, rockets or roadways? And how to pay for it: raise taxes or borrow more? Or both?

The new security demands, which will last beyond the war, come as huge outlays are also needed to care for aging populations, as well as to reduce climate change. The European Union’s goal to be carbon neutral by 2050 alone is estimated to cost between $175 billion and $250 billion a year for the next 27 years.

“The spending pressures on Europe will be huge, and that’s not even taking into account the green transition,” said Kenneth Rogoff, an economics professor at Harvard University. “The whole European social safety net is very vulnerable to these big needs.”

After the Berlin Wall fell, social spending shot up. Denmark doubled the money it funneled to health care between 1994 and 2022, according to the Organization for Economic Cooperation and Development, while Britain increased its spending by more than 90 percent. Over the same period, Poland more than doubled funding for culture and recreation programs. Germany ramped up investments in the economy. The Czech Republic increased its education budget.

Military spending by European members of the North Atlantic Treaty Organization and Canada reached a low in 2014. After Russia annexed Crimea that year, budgets started to rise, but most countries still fell well below NATO’s target of 2 percent of national output.

Before war broke out in Ukraine, military spending by the European members of NATO was expected to reach nearly $1.8 trillion by 2026, a 14 percent increase over five years, according to research by McKinsey & Company. Now, spending is estimated to rise between 53 and 65 percent. That means hundreds of billions of dollars that otherwise could have been used for bridge repairs, child care or refugee resettlement is expected to be redirected.

The Stockholm International Peace Research Institute reported that military spending in Europe last year had its biggest annual rise in three decades. And the rise is just beginning.

On May 3, the European Union announced a plan to upgrade weapons production, providing 500 million euros ($551 million) to manufacturers. Poland has pledged to spend 4 percent of its national output on defense. The German defense minister has asked for an additional $11 billion next year, a 20 percent increase. President Emmanuel Macron of France has promised to lift military spending by more than a third through 2030 and to “transform” France’s nuclear-armed military.

Some analysts argue that cuts in military budgets were so deep that they compromised basic readiness. And surveys have shown public support for increased military spending.

The shift is perhaps most striking in Germany, where defense outlays plunged after the reunification of the former East and West German nations in 1990. It is a “historic turning point,” the German chancellor, Olaf Scholz, said when he announced a special $112 billion defense fund last year.

Yet that did not include any spending for ammunition. And when the fund is depleted, Germany will need to find an additional $38 billion to level up with its NATO partners.

Professor Rogoff of Harvard said most Europeans have not yet absorbed how big the long-term effects will be. He said, “Governments are going to have to figure out how to rebalance things.”

Melissa Eddy and Lara Jakes contributed reporting. This article first appeared in The New York Times.