NATO’s front-line countries doubling down on defence spending

The Wall Street Journal has published an article arguing that despite pledges to rebuild militaries following Russia’s invasion, some alliance members say Moscow’s poor showing limits need. Caliber.Az reprints this article.

Nations of NATO’s eastern flank are rearming and preparing for war. But Germany and most of NATO’s other biggest members aren’t.

Moscow’s attack on Ukraine last year drew promises from across the North Atlantic Treaty Organization to boost military budgets. Members have pledged to place multibillion-dollar weapons orders and put arms industries on a war footing. 

But, more than a year later, countries are moving at sharply different speeds, with some believing the poor performance of the Russian military means they don’t have to reinforce so quickly. 

That divide is greatest between neighbours Germany and Poland. Berlin this year will fall $18.5 billion short of a pivotal NATO benchmark, while Poland will spend almost exactly the same amount above that threshold, according to a new analysis by Germany’s IFO Institute, an economic think tank. The gap is particularly stark because Germany’s economy is roughly six times the size of Poland’s.

The widening gulf in defence priorities between two of Europe’s largest countries puts in sharp relief the broader tension among Western allies over their willingness to commit to the fight in Ukraine. With the conflict entering a crucial phase before an expected Ukrainian offensive and the prospect of a protracted war of attrition increasing, Kyiv’s staunchest supporters say Europe must follow the U.S. lead and prepare for an extended confrontation. 

While no NATO members openly oppose that position, many are lifting budgets only haltingly and a few, including Canada, Spain and Italy, are even spending less relative to GDP. Spending levels promise to be a hotly contested issue when NATO leaders meet for their annual summit in Vilnius, Lithuania, in July.

NATO members agreed in 2014 to spend at least 2 per cent of gross domestic product on defence by next year. Last year, only seven of 30 NATO members achieved 2 per cent, including Poland, according to the alliance.

Following Russia’s attack on Ukraine in February 2022, many members committed to increase spending. Countries closest to Russia have increased outlays most aggressively, while members further west have moved more slowly.

Defence spending in Germany, Europe’s largest economy, stood at 1.5 per cent of GDP last year, according to NATO, but days after Russia’s invasion German Chancellor Olaf Scholz pledged to surpass the 2 per cent target every year and announced the creation of an off-budget defence fund of €100 billion, or roughly $108 billion, to accelerate rearmament.

Since then, German military spending has barely budged and the fund remains almost untouched. Economists say that at this pace, Germany may not reach the 2 per cent target and could even fall further behind over time.

The German Finance Ministry declined to comment on whether Germany would hit the NATO target.

A spokesman for the Defense Ministry said Germany’s defence spending would keep rising and reach 2 per cent of GDP over five years on average.

“So in a given year, it could be more or it could be less, depending on whether the money appropriated can be spent,” he added.

IFO calculated that 2 per cent of German GDP this year would be €81.1 billion, and military spending will miss that by €17.1 billion. That is NATO’s largest shortfall in money value, although 14 other members with smaller economies have greater shortfalls in relation to GDP, IFO said. 

Poland, in contrast, will lead NATO in military spending as a per cent of GDP this year, at 4.3 per cent according to the IFO analysis. Warsaw, an outspoken advocate for Ukraine and opponent of Russia, has more than doubled that proportion since 2021, IFO said. It has placed large weaponry orders from the U.S. and South Korea, including for aircraft and tanks.

In Poland, 2 per cent of GDP this year would be roughly €14.8 billion, and spending will top that by €16.9 billion, according to IFO. That would be almost exactly the same monetary value as Germany’s shortfall.

Poland has urged its larger allies, including Germany and France, to spend more on defence. Prime Minister Mateusz Morawiecki in a recent interview praised Scholz’s commitment last year as “quite brave,” but lamented that the pace of action “is not meeting targets.”

Germany’s apparent backsliding began last year. The law setting up the special fund enacted last summer said it would help raise spending to the 2 per cent NATO target on average over its five-year lifespan, a step back from Scholz’s initial pledge of hitting the target every year. The law made no commitment for the period after that, merely saying that spending would improve the capacity of the military.

In an analysis published last December, the Cologne-based German Economic Institute forecast that total German military spending, including the fund, would briefly reach the NATO goal in 2024 and 2025 before falling to 1.2 per cent of GDP in 2026. By 2027, the shortfall would reach €39 billion, or more than two-thirds of the defence ministry’s current budget.

One reason is inflation, which boosts Germany’s nominal GDP, making it even harder to reach the target. Even in official NATO calculations using constant 2015 dollars, Germany tends to lag allies.

Inflation, and rising financing costs, also affect how money is spent, for example by raising running costs and wages while making military gear less affordable.

Political calculations also affect spending. German officials say the poor performance of Russia’s military in Ukraine has removed some urgency for rearming. And while Finance Minister Christian Lindner is sympathetic to higher military spending, he has ruled out raising taxes or increasing the budget deficit to fund it, at least without equivalent spending cuts elsewhere.

Poland’s Morawiecki said that while he believes a growing proportion of leading figures in Germany support Scholz’s shift on military spending and Russia, he also sees that “some part of their political elite and business elite would want to go back to business as usual, and this worries me.”

German officials say the 2% target sets a very high bar for Germany because of the sheer size of its economy. Its defence budget, they say, is the third largest in NATO, behind only the U.S. and the U.K., and has risen rapidly in recent years. The country is projected to spend more than €80 billion on defence by next year, almost twice the 2019 level.

German officials also say their defence-procurement procedures haven’t been organized for quick decisions.

“The bureaucracy and the political process are slow to decide, but that also seems to be a matter of political will in Germany,” said Florian Dorn, director of IFO’s economic policy platform and an author of the new report.

Poland legislated last year to set its annual military spending at 3 per cent of GDP and created a special fund for spending above that. The fund could account for about one-third of Poland’s military spending this year, according to IFO economist Marcel Schlepper. 

Maintaining the debt-financed fund at its current level could be challenging for Poland, so it could decrease over coming years, Schlepper said.

Germany has significantly increased its support for Ukraine, but not all of that counts as military spending. Ukrainian President Volodymyr Zelenskyy said in Berlin recently that Germany had become his country’s second-largest weapons supplier after the US, including a recently announced package valued at €2.7 billion.

German officials say their biggest priority isn’t how to spend more but how to spend better. 

Currently, less than a quarter of the defence ministry’s budget goes into equipment, while 69 per cent goes into running costs and pensions, a proportion that is set to rise because of inflation, according to a 2022 German Court of Auditors report. Last year, NATO put Germany’s equipment spending at 19.9 per cent of defence expenditure, the alliance’s fourth lowest.

So German officials say they want to speed up the military’s notoriously glacial procurement processes, in part by forcing it to buy more off-the-shelf weapons rather than commission tailor-made systems that take years to develop and are rarely delivered on time and budget. The military, they say, should buy the cheaper, faster option as long as it fulfils 80 per cent of its requirements. 

To this end, Boris Pistorius, Germany’s newly appointed defence minister, has begun shaking up his ministry’s bureaucracy, aiming to accelerate use of the special defence fund and weapon deliveries to Ukraine.