Bloomberg: The US and its allies face a $10 Trillion reckoning

A US Army M1 Abrams main battle tank rolls off an amphibious  rig on the Vistula River during the NATO Dragon 24 military exercise in Poland. March, 2024.
Photo: Getty

Leaders are just starting to come to terms with the vast increase in defense spending required to counterbalance the militaries of Russia and China. A new era of global rearmament is gathering pace, and it will mean vast costs and some tough decisions for western governments already struggling with shaky public finances, notes Bloomberg.

Despite world defense spending reaching a record $2.2 trillion last year, European Union nations have only just begun to consider what 21st-century security will require with an aggressive Russia stirring on their eastern borders, a volatile Middle East, and the expansion of the Chinese military tugging Washington’s attention toward the Pacific.

Political leaders have been congratulating themselves on the progress toward NATO’s targets for members of the alliance to set aside 2% of their gross domestic product on defense. But officials focused on security say that military budgets may need to emulate Cold War spending of as high as 4% in order to deliver on the alliance’s plans.

If the US and its Group of Seven allies were to reach such levels, that would equate to more than $10 trillion of additional commitments over the next decade, according to calculations by Bloomberg Economics….

Analysis from Bloomberg Economics shows how the increasing burden of preparing for war will create a new fiscal paradigm for most NATO members.

Even just meeting the alliance’s 2% of annual GDP minimum for military outlays would stall much of the EU’s post-pandemic debt consolidation. Getting to 4% would push the bloc’s weaker sovereigns to make painful choices between even deeper levels of borrowing, significant cuts in other parts of the budget, or else tax increases.

France, Italy and Spain would be particularly exposed if the extra spending is funded through bond markets, with Rome’s public debt jumping to 179% of output by 2034 from 144% this year.

Even the US, which is already allocating 3.3% of its annual GDP on defense, would see borrowings increase to 131% from 99% over the next decade if it pushed its military budget to 4%.

How a remilitarized world can reconcile such commitments with finite tax revenues and ever-greater welfare and health needs is set to become a searing political question in the years ahead? – Bloomberg puts a question.

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