How the Ukraine War is Draining Billions from the West

The ongoing war in Ukraine has imposed a staggering financial burden on Western countries, costing them billions of dollars as they ramp up defense spending and military aid

by Sededin Dedovic
How the Ukraine War is Draining Billions from the West
© Finnbarr Webster / Getty Images

The governments of Western countries are facing increased debt, with some announcing higher taxes and reduced investment in the public sector—all to finance growing military budgets. This is a tough sell to voters. If you need a reminder of the security threats the world faces today, just look at how much governments have increased their defense spending.

Global military budgets reached $2.44 trillion last year, almost seven percent more than in 2022. This was the largest year-over-year increase since 2009, occurring during the second year of Russia's invasion of Ukraine. Military spending worldwide is now at its highest level since the end of the Cold War—amounting to $306 per person.

As Kyiv was unprepared to handle a conflict of this magnitude, Western countries ramped up military aid. Simultaneously, other escalations of tensions with Russia, as well as those in the Middle East and Asia, prompted governments to bolster their own defenses, to the greatest extent since World War II.

This year, the United States allocated $886 billion for defense, an increase of more than eight percent over two years. European NATO partners are also expected to meet the alliance's target for the first time: allocating two percent of their GDP to defense.

This year alone, Europeans allocated $380 billion for defense, said NATO Secretary General Jens Stoltenberg in February.

Ukrainian troops ride upon a repaired Russian tank© Paula Bronstein / gETTY iMAGES

Poland Leads

Germany is still keeping pace with other NATO members—but with the help of Chancellor Olaf Scholz’s special fund of 100 billion euros dedicated to upgrading the Bundeswehr.

Poland will spend 4.2 percent of its GDP on defense this year. This is the highest percentage within NATO. Due to heightened threats at the borders, other countries on NATO's eastern flank also far exceed or will soon exceed the two percent target.

As a result, states face increasingly difficult choices about how to finance new expenditures at a time when economies are weakening due to the effects of global tensions and prolonged inflation. Many countries are already fiscally stretched.

"Short-term commitments for military equipment for Ukraine should be financed by additional borrowing. That's how wars have historically been financed," says Gunter Volf, a senior fellow at the Brussels-based research center Bruegel, to DW.

"But for long-term increased defense spending, either taxes must be raised, or other costs must be reduced," he continues. "Is that politically painful? Of course! But it will hurt less if savings are spread across various government ministries."

Germany Cuts Budgets—Except for Defense

Germany faces the prospect of lower tax revenues due to weaker economic growth.

Spending is being reduced in most ministries in Berlin. Only allocations for international development aid were cut by nearly two billion euros this year. "Germany has to make very significant compromises. They need to be managed politically so that public support for strengthening security and defense is not undermined," says Jeffrey Rathke, president of the American-German Institute at Johns Hopkins University in Washington, to DW.

Indeed, left-wing political parties in several countries advocate for peace negotiations between Russia and Ukraine, thus fueling the debate on whether military spending funds would be better directed towards healthcare or social programs.

Rathke points out that Germany's "debt brake"—a constitutional rule that prohibits new debt—means that Scholz's coalition has less room for 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 last October ousted the right-wing populist government, struggles to fulfill some of his campaign promises due to increased defense spending.

What About Other NATO Countries in Europe?

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

Italy, for example, is expected to spend only 1.46 percent of its GDP on defense this year. It is estimated that the country will struggle to meet NATO's two percent target by 2028. Italy's debt could reach 137.8 percent of GDP this year.

Countries with similar fiscal difficulties, such as Spain, might introduce limits of 0.5 to 1.6 percent of GDP for all 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 make budget cuts of five to seven percent. In Greece's case, even ten percent," says Gunter Volf. "Fortunately, these cuts will be much less painful than what Southern Europe has already had to endure." Sweden, Norway, Romania, and the Netherlands have lower debt.

Despite this, Dutch far-right leader Geert Wilders plans to allocate a significant portion of spending to social housing and agriculture to form a new four-party coalition. "Apart from fiscal capacity and debt issues, this debate is also characterized by differences in threat perception across Europe," says Jeffrey Rathke.