The ‘eye-watering’ cost of ending the peace dividend

Boris Pistorius is proud to come from Lower Saxony — a part of Germany where people, as he puts it, “have their feet firmly on the ground”.

Yet the defence minister is worried that even these stoic voters will balk at the idea of Berlin spending tens of billions of euros a year on building up the country’s military capacity.

Convincing electorates of the need to spend more on defence requires “a totally changed mindset”, Pistorius said at a gathering of defence ministers this summer.

Since the fall of the Berlin Wall, politicians have grown so accustomed to spending next to nothing on defence that peace is now considered, in the words of Sweden’s defence minister Pål Jonson, something so freely available that it is akin to air. “When you have it, you don’t really miss it,” he said.

This “peace dividend” has also enabled countries to spend billions of dollars on health and education policies instead of on their armed forces.

Russia’s invasion of Ukraine has been a brutal wake-up call not just to Germany but all western governments. Alongside China’s rise, the threat of a nuclear-armed Iran and instability in Africa, the war has forced ministers to commit to more defence spending.

Sweden, which has applied for Nato membership, announced on Monday that it planned to raise defence spending by more than a quarter to meet the military alliance’s target of 2 per cent of gross domestic product.

However, persuading voters of the sacrifices required to make such commitments a reality represents a seismic reordering of the budget and electoral priorities.

“Everyone is still living in a peacetime dream world, but those days are gone,” one western defence adviser said.

Pistorius believes there needs to be “honest” discussions with voters about the price of security. That will be tough to have in a climate where greening the economy and other social priorities associated with ageing are high on the agenda and governments’ own borrowing costs are shooting up owing to higher interest rates.

In Japan, the question of how to fund its record increase in defence spending has divided a nation already grappling with ballooning social security costs.

The government was forced to push back plans to increase corporate, income and tobacco levies by a year to 2025 amid fears that a tax hike would hurt prime minister Fumio Kishida if he calls a snap election later this year.

In Denmark, the government opted to fund its increase in public spending by cancelling a public holiday — to much chagrin from voters.

In the US, only 1 per cent of respondents cite national security as their main concern, according to polls, while in the UK surveys suggest it ranks 11th on average after issues such the economy, health, immigration and housing.

Yet the financial implications of the newly security-conscious west were apparent at the Nato summit in Lithuania in July. There, alongside news of Swedish accession and Ukraine’s potential membership, leaders grappled with the thorny issue of budgets.

While all members committed to spend 2 per cent of GDP — currently only 11 of 31 members do — there was less clarity on how the laggards would hit the target, or when.

“Leaders have signed up to a generational shift in defence policy. But I do wonder if they fully understand, or have told their finance ministers,” a senior Nato official said.

Germany’s finance minister, Christian Lindner, warned this month that meeting the country’s Nato commitment would require “considerable funds” from the core budget in the years ahead.

Defence ministers have also backed calls for the military alliance to have 300,000 high-readiness soldiers, who would be deployable within a month — almost eight times the current number of 40,000.

“Nato’s new force model sets a benchmark that most allies will struggle with,” said General Sir Richard Barrons, former commander of the British armed forces. “I suspect it will make some eyes water.”

Nevertheless, looming issues demonstrate that there is a clear need for more funds to be devoted to defence, particularly in Europe.

Germany’s Bundeswehr had only 20,000 155mm artillery shells in stock, enough for less than three days of fighting, according to a confidential finance ministry assessment reported by Der Spiegel in late July.

Europe also cannot continue to rely on the US, whose $860bn defence budget is double that of all other Nato members combined. The US is forecast to run budget deficits of 6 per cent of GDP a year for the next decade and by 2053 federal debt will be twice GDP, the Congressional Budget Office estimates.

“The US . . . makes a disproportionate contribution to European defence,” said Ben Barry, a senior fellow at the International Institute for Strategic Studies think-tank in London. “But if Europe does not shoulder more of the defence burden, that is not going to foster US enthusiasm [for Europe], especially given Washington’s growing strategic interest in the Indo-Pacific.”

The war in Ukraine has also revealed the skimpiness of the west’s ability to manufacture weaponry.

“This has been a war of warehouses,” said Jonson. “You have to have an industrial base [and] not just for peacetime but one that can ramp up production” in times of conflict.

Defence specialists are keen to point out that investing in deterrence will cost far less than having to deal with the repercussions of conflict.

“Economic security depends on peace,” said Barry. “While expensive, military deterrence is a form of economic insurance.”

Referring to World Bank estimates that put the price of rebuilding Ukraine at more than $411bn so far, he added: “The bill for economic disruption caused by war is more expensive still.”

Additional reporting by Kana Inagaki in Tokyo

Data visualisation by Keith Fray