It is a fair assumption that when NATO’s member-state leaders fly home again from the NATO summit in Vilnius next month, they will be suffering from a bad political headache. The summit will take place long enough after the Ukrainian military offensive against the Russians that the participants will have a good idea of where things are going on the battlefield. However, regardless of the outcome of the offensive and the war itself, one thing is clear: NATO will want to ramp up its forces and stocks of equipment.
There are two reasons for this, one being the concerns for a Russia that has proven its willingness and ability to invade other countries for the purported purpose of national security. The other reason is that after a year and a half of persistent support for Ukraine, NATO has drawn down its military stockpiles, in some cases to the point of depletion.
To the latter point, Secretary General Jens Stoltenberg is pointing to the solution, calling the attention of NATO member states to the problem. Reports the Atlantic Council:
Stoltenberg has dubbed it a “race of logistics,” and more than Ukraine’s future is at stake. The readiness of US and allied militaries is put at risk by ineffectively designed supply chains, cumbersome process-focused procurement, and political wrangling. This incapacity to replenish allies’ ammunition stocks and equipment undermines the deterrence posture of NATO as a whole.
This blunt declaration by the chief of NATO is a shocking admission of ineptitude. It means that NATO is proving to be ineffective at waging war, even an indirect one. Even though the organization is not directly involved in Ukraine, the consequence of its material support is that its resources are running out.
To make matters even more precarious for the defense alliance: this is a geographically limited conflict. Inevitably, one has to ask how NATO would fare if another armed conflict erupted while the war in Ukraine continues to rage.
How is NATO going to respond to the problem with its rapidly depleting stockpiles of military hardware?
Secretary General Stoltenberg recognizes the problem. In his view, NATO’s depletion of resources weakens the deterrence function of the organization. In all likelihood, he will send the member-state representatives home from the Vilnius summit with a demand that they ramp up military spending to replenish stocks. He may even demand that they expand their capabilities beyond their pre-Ukraine war levels.
Right here, Stoltenberg and NATO run into a brick wall. It is not a brick wall of indifference, let alone resistance from member states. There should be a universal awareness within the organization that it needs to ramp up its defense capabilities.
This brick wall is more ominous than that. It is popularly known as ‘budget deficits’ and it cuts across all of NATO’s member states. In fact, the problem with weak government finances is worse now than it has ever been in NATO’s history; bad government finances are hindrances to adequate military spending.
Once they are back from Vilnius, many of NATO’s member-state leaders will be thrown into the shocking reality that they can no longer take their military superiority for granted. Even more pressing is the fact that their resources for restoring defense spending to Cold War levels are strictly limited by the modern welfare state.
So long as there was peace in Europe, the inadequacy of military spending within NATO was never exposed as such. Europe was able to shirk its NATO funding commitments, with the American government looking the other way as European member states notoriously fell short of their obligations to NATO.
The organization requires members to spend 2% of their GDP on defense, yet only about one-third of the organization’s 31 member states reach that level on a regular basis.
As much as NATO needs new funding, its member-state leaders are increasingly likely to come up with nothing more than two empty pockets.
This problem is not helped by the kind of tinkering with funding formulas that took place during the Trump administration. While Trump was able to get Europe more involved in funding NATO, it is unlikely that the same trick can be pulled again. The United States funds approximately 70% of NATO’s total budget, and that may continue to be the case for the foreseeable future. European countries in general are too fiscally restricted to even fully meet their basic commitments to the defense alliance.
America is also unlikely to add more money. The federal government’s finances are in such bad shape that a debt crisis is almost a certainty. Under the recently signed agreement on the nation’s fiscal debt, there will be tougher limits on defense spending.
Europe is not doing any better, burdened as it is by government debt and seemingly unending budget deficits. As of 2022, the average budget deficit for the 27 EU member states was 6.75% of government spending—for every €100 that EU governments spent, they borrowed €6.75. As Figure 1 reports, only six member states had any meaningful surplus in their finances:
Figure 1
Source of raw data: Eurostat.
These deficits are neither new nor temporary: there is no doubt that Europe is facing tougher fiscal problems. Germany is on the verge of a recession and should expect major fiscal deficits in the near future. France, which is one of the largest economies in NATO, is already standing waist-deep in budget problems.
President Macron is not alone among Europe’s political leaders in addressing these problems without a plan and without a clue; there are influential forces at work in Brussels to raise taxes across the union. However, none of this will make much of a difference for Europe’s NATO members, who will be searching for more military funding in the deep deficit holes of their government budgets.
It is important to remember that NATO’s funding problems did not come about as a result of the Russian invasion of Ukraine. That may have been the reason why the member states of the alliance began paying attention to it, but the financing of NATO has been a problem for many years. As mentioned, it was a major issue for President Trump, who toward the end of his term in the White House persuaded the European side of the alliance to increase their spending.
It worked:
- In 2019, defense spending was cut in 12 NATO member states;
- In 2020, cuts were made in 7 countries;
- In 2021, only two countries reduced their defense spending.
During these years, total defense spending in NATO increased by 5.9% per year, on average.
This spending increase appears to be tapering off. That does not necessarily mean a decline in NATO funding, but one cannot be too sure. Defense outlays are probably the most volatile of the major items in the government budget.
The question is how NATO can address this, i.e., how the organization can stabilize its revenue. A first step is to make its funding more predictable. Over the few short years for which NATO provides budgetary data, its member states have exhibited significant volatility in how they pay for their military. This became evident in 2022 when the Trump-initiated spending increases flattened out. That year, seven NATO members cut their defense spending, and total military outlays only increased by 3%.
Differences in commitment are substantial. From 2014 to 2022—the period of its finances that NATO allows the public to study—some countries expanded their defense budgets by substantial amounts. The top three were:
- Lithuania, which expanded its defense appropriations by a total of 295%;
- Latvia, which doubled its defense budget (209%);
- Hungary, which increased defense outlays by 152%.
Over the same period of time,
- The United Kingdom grew its budget by only 10%;
- The French expansion was 7.5%;
- Turkey cut almost 32% of its defense budget.
With this wide variety in funding trends, it would seem logical that NATO start its quest for more defense spending by encouraging member states to fund their militaries in a more consistent fashion. It may not bring any substantial short-term increases, but it would make defense outlays, and therefore the military resources themselves, more predictable over time.
The question, of course, is how to make this happen. Almost all NATO members share the same fiscal problem: a substantial part of their government budgets is used for the ideological purpose of economic redistribution. We cluster these programs together under the welfare state.
According to public finance statistics from Eurostat, welfare state programs consume nearly 80% of all government spending in the European Union. In 2021, the share was 79.6%. That same year, defense spending in the EU accounted for 2.5% of total government outlays; the welfare state got more than €32 for every €1 that went to the military.
The welfare state share varies a little bit across the union, with Austria, Denmark, and Ireland above 82%, and Hungary, Romania, and Cyprus below 75%. However, to a larger or lesser degree all EU member states, and indeed all NATO members, share one and the same problem: in times of fiscal stringency—a recession—the welfare state tends to become more important than national defense. This is clearly visible in the numbers on public finance: while it is easy to find examples of countries that cut military spending, it is almost impossible to find cuts to programs that belong to the welfare state.
From 2014-2022, 13 out of NATO’s 31 member states cut their defense spending for at least three years. Four of them made cuts for four years. All NATO members reduced military spending for at least one year—the only exception is Lithuania.
During the same period of time, 12 countries made at least one year’s worth of cuts in welfare-state spending. Of them, only Portugal made cuts for more than three years; another four countries reduced spending on the welfare state on two occasions.
In other words, the contrast could not be clearer: when tax revenue is tight and it is time to cut spending, the welfare state is more likely to come out unscathed than the military budget is.
This preference for the welfare state is ideological: the countries that form the Atlantic defense alliance have vowed to do whatever it takes to defend themselves and their alliance partners—so long as it does not mean they have to take money away from the welfare state. It is more important to NATO’s governments to implement socialist policies of forcibly taking money from ‘rich’ citizens and giving it—as services or cash benefits—to other citizens who are defined as ‘poor’ or otherwise entitled.
Not all NATO member states are as categorical in their choice here. In the aforementioned time period, Hungary increased its welfare state spending by an average of 7.9% per year, with only one annual (and rather mild) reduction. During the same period of time, Hungary increased its defense spending by an average of 15.6% per year.
The increases in defense outlays were uneven: after a cut of 6.4% in 2015, the Hungarian parliament dramatically expanded the military budget by 13.8% in 2016 and 32.5% in 2017. A small reduction took place again in 2018 (-5.4%) after which the defense budget increased significantly: 35.6% in 2019, 26.4% in 2020, and 12.4% in 2021.
Despite the volatility, the overall trend was positive and expanded the defense budget more than the welfare state programs. One reason why Hungary was able to do this is that its welfare state is not as pronouncedly socialist in its profile as other welfare states are. Put simply: the Hungarian welfare state is more oriented toward supporting traditional families than toward economic redistribution. This reduces the mandatory growth rate of welfare-state spending, thus allowing the government to consider other appropriations for its tax revenue.
The rest of NATO would be well advised to consider reforms to their welfare states—reforms that would permit them to shift spending to national defense without risking runaway budget deficits, and without leaving the poor behind.
