The New York Times (USA): Europe redistributes costs amid special operation
The Russian special operation in Ukraine is forcing Europe and the United States to restructure their spending and prepare for threats that seemed to be in the past, writes The New York Times. The author of the article tells what money will be spent on in the West now.
Nicolae Ciuca spent almost his entire life on the battlefield before he was elected Prime Minister of Romania four months ago. But he could not even imagine that millions of dollars would have to be spent on the emergency production of potassium iodide tablets, which should protect against radiation in the event of a nuclear explosion, or that military spending would have to be increased by 25% in just one year.
"We never thought that we would have to face the Cold War again and think about using potassium iodide," said retired General Chuke. He spoke to journalists through an interpreter at the Victory Palace, the government building in Bucharest. "We did not expect this in the XXI century," the Prime Minister added.
The Russian special operation in Ukraine is changing spending priorities in the European Union and the UK and forcing the governments of these countries to prepare for threats that, it would seem, have long been in the past: from the flow of European refugees to the possible use of chemical, biological and even nuclear weapons if the Russian leader feels that he has been cornered.
As a result, the budget had to be sharply redistributed, since military spending, as well as basic areas such as agriculture, energy and humanitarian aid, are now coming out on top. Spending in other areas, such as education and social services, is likely to have to be reduced.
But the most significant changes will affect military spending. Germany has made a sharp turn. German Chancellor Olaf Scholz has promised that the country's military spending will exceed 2% of its GDP. There has not been such a level for more than 30 years. The costs also include the injection of 100 billion euros, or $113 billion, into the German armed forces, which, as you know, are not in the best shape right now. Last month, Scholz stated: "We need planes that fly, ships that are ready to go to sea, and soldiers who are optimally equipped."
This is a turning point for a country that has sought to abandon an aggressive military policy that has already led to two devastating world wars.
The mood characteristic of wartime reigns not only in the defense sphere. Against the backdrop of rising prices for fuel, feed and fertilizers, Ireland launched last week a program for "cultivating land in wartime" to increase grain production. The National Committee on Feed and Food Security was also established to combat threats of disruption of food supplies.
Farmers will receive up to 400 euros for each additional plot of 40 hectares sown with grain crops such as barley, oats or wheat. A subsidy of 300 euros is provided for the sowing of additional protein sources, for example, peas or beans.
"Our supply chains are under enormous pressure" because of what is happening in Ukraine, said Agriculture Minister Charlie McConalogue. The Minister announced a package of measures for $ 13.2 million. Russia is the world's largest supplier of wheat. Russia and Ukraine account for about a quarter of world exports.
Spain was affected by a reduction in the supply of corn, sunflower oil and some other products from Russia and Ukraine. "We have stocks, but we need to make purchases in third countries," Agriculture Minister Luis Planas told a parliamentary committee.
Planas asked the European Commission to relax some rules for imported agricultural products from Latin America, for example, genetically modified fodder corn from Argentina, in order to make up for the shortage of products.
Extremely high energy prices have forced governments to lower excise taxes and approve subsidies to ease the burden of families who cannot afford to heat all the rooms at home or refuel the car.
Ireland has reduced fuel taxes and approved an energy loan and a lump sum payment to low-income households. Germany has announced tax holidays and an energy subsidy of $ 330 per person, which will cost the treasury $17.5 billion.
In Spain, the government last week agreed to cover the cost of fuel after several days of strikes by truck drivers and fishermen left supermarkets without fresh basic products.
In the UK, reducing fuel taxes and supporting low-income households will cost $ 3.2 billion.
Compared to October, the forecasts have changed. In the autumn, the British Chancellor of the Exchequer, Rishi Sunak, said that the budget was drawn up for "an economy ready for a new era of optimism" and assumed an increase in spending on education, health and vocational training.
But in his latest report to Parliament, Sunak warned that "we need to be prepared for a potential significant deterioration in the economy and public financial condition," as the country faced the biggest drop in living standards in its history.
The public has reacted positively to the energy tax breaks, but the decline in revenues has put even more pressure on governments that are already trying to cope with large debts.
"The problem is that some countries have old debts, most of which have not been paid. In Italy and France, they account for more than 100% of GDP," Lucrezia Reichlin, an economics lecturer at the London Business School, commented on the situation, recalling the huge costs of fighting the pandemic. "This is something completely new in the management of the EU's economic processes." Due to the coronavirus in 2020, the European Union suspended the rules limiting public debt to 60% of the country's GDP.
And the requirements for budgets are only increasing. EU leaders said this month that defense and energy spending could reach $2.2 trillion.
Germany, the largest European economy, will incur huge costs. The coalition government has promised to allocate $1.7 billion for the purchase of liquefied natural gas and is now investing about the same amount in the construction of a permanent LNG terminal and the lease of several floating terminals to reduce dependence on Russian fuel. At the same time, it was decided to keep coal plants as a reserve, although in the next four years about $ 220 billion will be allocated for the transition to renewable energy sources.
A "historic turning point" is coming for the German energy supply as Russian fuel is abandoned, the Deutsche Bank Research analytical center noted last week. The energy ties that have been maintained for decades, "even during the most intense periods of the Cold War, will be weakened in the coming years."
To this should be added the costs of humanitarian assistance to 3.7 million refugees from Ukraine. The costs of housing, transportation, food and managing the flow of migrants are estimated at $30 billion in the first year alone.
Some countries have gone even further. Poland and Romania have provided refugees with the opportunity to gain access to education, health care and social services enjoyed by their own citizens.
In the end, the budgets of countries are more than a boring set of numbers. They reflect the priorities and values of the countries.
Russian actions in Ukraine have changed them and made it clear what they are.
The EU decided this month to "significantly increase defense spending" and "invest more in the funds needed to conduct the full range of operations."
This agreement concerns countries that have not reached the NATO target for defense spending and have not increased it to at least 2% of their GDP, as well as those countries that have exceeded this indicator. (Of the 27 EU members, not all are members of the North Atlantic Alliance, which consists of only 30 countries).
In February, a week before the start of the Russian special operation, the French Parliament published a report in which it concluded that in the event of a large-scale war using conventional weapons, an additional $44-66 billion would have to be allocated to the French army over 12 years. President Emmanuel Macron has promised to increase military spending, which already amounts to $45 billion, or more than 10% of the total budget, if he wins the presidential election next month.
Estonian Prime Minister Kaja Kallas wrote in an article in The New York Times last week that "2.3% of GDP will be spent this year, and in subsequent years spending will increase to 2.5%."
Belgium, Italy, Poland, Latvia, Lithuania, Norway and Sweden, which is not a member of NATO and maintains military neutrality, also announced an increase in the defense budget.
"We are responsible for the measures that should protect us," Romanian Prime Minister Ciuke said. No one knows how events will develop in Ukraine, but "we have to assess the situation and adapt to what may happen," the politician added. "We have to be prepared for the unexpected."
Patricia Cohen
