By Anna M. Dowd and Stephen J. Flanagan
President Truman’s 1948 warning, “We must be prepared to pay the price for peace, or assuredly we shall pay the price of war,” resonates more than ever in today’s complex geopolitical landscape. NATO Secretary General Mark Rutte recently echoed this sentiment, emphasizing the necessity for increased defense spending to prevent conflict. The brutal reality of the war in Ukraine, where the nation is dedicating a staggering quarter of its GDP to defense – a figure ten times greater than many European NATO allies – starkly illustrates the unavoidable cost of security. This reality underscores a crucial point for global stability and even impacts international finance, subtly influencing factors like the Rand To Euro exchange rate through broader economic repercussions of conflict.
Failure to invest adequately in deterring potential aggressors like Russia and China now will inevitably lead to far greater financial burdens and security risks for Europe and its allies in the future. A scenario where Russia achieves its objectives in Ukraine, solidifying its sphere of influence and strengthening ties with China and other adversarial nations, would create a persistent state of insecurity across the Euro-Atlantic region. This outcome would impose immense costs on the United States and its allies, as Russia encircles NATO’s eastern flank and aligns with destabilizing global powers. The urgency to reinforce defense capabilities and strategically rethink burden-sharing within the alliance is paramount. Many in Europe, however, are yet to fully comprehend the significant financial implications and threats to allied security that such a scenario would unleash.
The Escalating Value of Transatlantic Security
The increasing globalization of geopolitical tensions dramatically elevates the cost of Euro-Atlantic security across military, economic, and societal domains. To effectively guide essential investments in military capabilities, critical infrastructure, societal resilience, and the strength of the alliance itself, it is crucial to understand and quantify these rising costs and establish a framework for equitable burden-sharing among allies.
Russia’s aggressive expansionism, its strategic weaponization of energy dependence, and its employment of gray zone tactics pose substantial threats to the interests of the U.S. and the broader Western world, extending far beyond the European theater. These actions not only destabilize regional stability but also strain the global security architecture. Simultaneously, China’s assertive actions in the Indo-Pacific region, coupled with its coercive economic measures targeting European nations, necessitate proactive measures to reduce supply chain vulnerabilities, particularly concerning dependencies on Chinese technology and essential raw materials. The growing alignment between Russia, China, North Korea, and Iran, forming what some analysts term the “Axis of Upheaval,” presents a generational challenge, demanding a robust and coordinated response to mitigate its long-term global impact.
These converging global challenges significantly amplify the strategic importance of allied security, reaching levels not witnessed since the Cold War era. The costs associated with these threats are multifaceted, encompassing not only financial expenditures but also substantial political and strategic considerations. A comprehensive and proactive approach is essential to conduct thorough assessments and implement robust preparations to ensure lasting security and prevent cascading destabilizing effects across other critical regions worldwide.
Should Ukraine fall under Russian dominance, the repercussions for European stability would be profound. It would fundamentally alter the regional balance of power, escalate tensions across the continent, and potentially embolden Russia to aggressively expand its influence over neighboring states, thereby destabilizing the broader geopolitical landscape. Such a shift could also strengthen the “Axis of Upheaval,” leading to far-reaching consequences that could destabilize regions as far afield as the Middle East and the Indo-Pacific.
While comprehensive research on this issue is still developing, existing studies consistently highlight that collective security through alliances and partnerships is the most efficient and cost-effective approach to ensuring stability. A 1997 Congressional report on NATO enlargement astutely pointed out that failing to expand NATO would incur greater costs and risks to European stability, emphasizing the inherent cost-saving nature of alliances. RAND research further corroborates this, demonstrating that instability anywhere in the world can impose significant costs on the United States, including economic disruptions, refugee crises, the rise of terrorism, and escalating conflicts requiring U.S. intervention. Collective action not only delivers cost efficiencies but also cultivates enduring strategic advantages against adversaries and competitors. Recent findings from the Kiel Institute for the World Economy indicate that a Russian victory in Ukraine could impose substantial economic burdens on Germany, potentially increasing military spending and causing economic disruptions that could reach up to 20 times Germany’s current expenditure on supporting Ukraine.
Germany would face significant pressure to substantially increase its contributions to NATO and Baltic security, manage a potential surge of refugees, and mitigate disruptions to trade and investment. Moreover, the erosion of Western deterrence capabilities could lead to a higher frequency of global conflicts, causing further economic damage and hindering global economic growth. An American Enterprise Institute report warned that a Russian victory would create a more dangerous and expensive world for the United States, potentially necessitating an additional $808 billion in U.S. defense spending over five years.
A thorough and comprehensive study of these critical issues is essential for policymakers, legislators, and the public alike. It is vital to fully understand the trade-offs between proactive collective action and the potentially devastating consequences of inaction in effectively deterring and defeating aggression from common adversaries.
The Demise of Geopolitical Outsourcing
Europe’s economy, nine times larger than Russia’s, possesses the inherent capacity to implement a robust and effective deterrence strategy. However, realizing this potential requires a fundamental shift towards increased investment in military strength and a revitalized defense industrial base to secure its strategic objectives and overall security. European nations are increasingly recognizing the unsustainability of relying solely on the United States for their security. As Polish Prime Minister Donald Tusk stated, “Some claim that the future of Europe depends on the American elections, while it depends first and foremost on us… On condition Europe finally grows up and believes in its own strength,” signaling a clear understanding that “the era of geopolitical outsourcing is over.”
Poland, strategically positioned on NATO’s eastern flank, is at the forefront of intensifying great-power competition. It serves as a critical theater for potential crises and large-scale conflicts between Russia and NATO. Poland clearly understands the high stakes and the trade-offs between the costs of security and the far greater costs of insecurity. In the event of a Russian victory in Ukraine, Russian forces stationed in Lviv, and Belarusian Brest and Grodno, would effectively encircle Poland and Lithuania. While Poland’s security is fundamentally underpinned by the collective strength of the NATO alliance, Article 5 guarantees, and extensive defense cooperation with the United States, Poland has proactively and significantly strengthened its own defense capabilities. Poland has emerged as NATO’s highest military spender as a percentage of GDP, allocating 4.12 percent and aspiring to reach 5 percent. National dialogues and a growing awareness of the true cost of insecurity have been pivotal in driving these decisions. Within the next five years, Poland may surpass the United Kingdom and Germany in contributions to NATO’s force structure. Its strategic resolve, rapid mobilization plans, ambitious modernization programs, and steadily increasing combat readiness are positioning its armed forces among the most capable and well-equipped in NATO for effectively countering Russian aggression. Hosting over 8,000 U.S. troops, Poland is also pioneering innovative and practical solutions to enhance deterrence while minimizing the financial burden on the United States. Through the Poland Provided Logistic Support (PPLS) initiative, Poland manages critical maintenance and operational requirements for U.S. equipment, facilitating the strategic pre-positioning of Army Prepositioned Stocks. The Polish government has also shouldered nearly all infrastructure costs, approximately $3.6 billion, for building facilities to host an American Armored Brigade Combat Team and has agreed to cover a significant portion of annual sustainment costs. These cost-sharing agreements with host nations demonstrate substantial financial savings for the United States.
However, Poland, along with the Baltic States and Finland, represents an exception, setting record defense budgets in direct response to the escalating threat from Russia, with a strong focus on equipment modernization and acquiring advanced weapon systems. While 23 NATO allies are now meeting their defense spending targets, decades of persistent underinvestment present a significant challenge to overcome. In 2023, the Estonian Ministry of Defense estimated that the cumulative shortfall from unmet commitments since 2014 has created a staggering total deficit exceeding $950 billion across the alliance.
To address this massive deficit and bolster collective defense, some nations are renewing their emphasis on bilateral defense collaboration. The recent Trinity House Agreement between the United Kingdom and Germany aims to foster unprecedented levels of cooperation and integration between their armed forces, potentially driving broader European security initiatives. Complementing the earlier UK-French Lancaster House Agreement and the German-French Aachen Treaty, the Trinity House Agreement revitalizes the “E3 Triangle” efforts to construct a stronger European pillar within NATO. This underscores a growing awareness among European NATO nations regarding the imperative to assume greater responsibility for regional security. Conversely, it also reflects a growing recognition that European powers face significant challenges in independently sustaining the comprehensive military capabilities necessary to effectively defend against multifaceted threats and fully meet alliance commitments.
Implications for Transatlantic Burden-Sharing
Reprioritizing security in Europe necessitates a strategic reassessment of transatlantic burden-sharing between Europe and the United States. While an increasing number of NATO allies meeting defense investment targets signals a positive political commitment, it does not automatically translate into enhanced preparedness to effectively deter Russia or address other evolving threats. The Washington Summit Declaration emphasized that despite increased defense expenditure and the acquisition of modern capabilities, “more is needed urgently to sustainably meet our commitments as NATO allies.” Reports preceding the summit indicated that NATO requires between 35 and 50 additional brigades to fully implement its revised defense plans designed to counter a potential Russian attack. The ongoing war in Ukraine has exposed alarming shortcomings in NATO’s existing capabilities, with only 5 percent of the necessary air defenses in place to adequately protect its eastern flank. Significant capability gaps also persist in long-range missiles, troop numbers, ammunition stockpiles, logistical support infrastructure, and secure digital communications systems essential for modern battlefield operations.
While NATO has established several metrics and benchmarks over the past decade to enhance defense capabilities, the primary focus has been on pledges to allocate 2 percent of GDP to defense spending and 20 percent of defense budgets to new equipment and research and development. While these benchmarks reflect national commitment, they are primarily measures of input rather than output. The 2 percent pledge, while important, is demonstrably insufficient to address long-standing allied underinvestment in defense and to effectively counter evolving threats from Russia and its increasingly assertive partners. Allies will need to spend significantly more than 2% of GDP on defense. Critically, it is also vital to sharpen the focus on outputs, ensuring that essential aspects of military preparedness, such as strategic resource allocation, the development of key capabilities, and interoperability across allied forces, are not overlooked. Furthermore, broader considerations, including civil preparedness, societal resilience, and the production capacity of the defense industrial base, must remain high priorities. A recalibrated approach to burden-sharing should embody a full commitment to measurably increasing defense readiness while promoting a balanced and equitable distribution of burdens and responsibilities among allies.
New NATO defense plans represent a significant strategic overhaul since the Cold War, providing a detailed framework for enhancing readiness, deployability, integration, and interoperability across all forces, capabilities, assets, and critical infrastructure. However, these ambitious plans are still “far from being fully executable,” which is crucial for achieving sustainable and credible deterrence. Given Russia’s faster-than-anticipated military reconstitution and its potential to achieve increased lethality through growing cooperation with key partners such as China, Iran, North Korea, and Belarus, European allies face a rapidly closing window of opportunity to modernize their forces for high-intensity conflict scenarios. Persistent issues with aging equipment, limited mobility, inadequate infrastructure, constrained production capacity, and insufficient resupply capabilities raise serious concerns about NATO’s readiness. To optimize national contributions to collective defense, NATO must prioritize comprehensive and continuous assessments of allied readiness, encompassing military, economic, and political dimensions.
The shift towards a new NATO force model emphasizes standing readiness over cyclical force generation, ensuring that forces are consistently prepared to respond swiftly and effectively to evolving threats. This strategic approach can serve as a detailed military requirements “shopping list” for nations, clearly outlining how defense spending should be strategically allocated, facilitating more effective coordination of investments, and optimizing burden-sharing across the alliance.
Benchmarking burden-sharing also requires a thorough assessment of economic readiness, particularly understanding the long-term sustainability of national defense investments. A McKinsey analysis cautioned that persistent inflation could erode European defense budgets by a staggering $326 billion, effectively undermining projected increases and planned investments in new equipment between 2022 and 2026. Record-high defense budgets, driven by acute security threats, may prove unsustainable without careful attention to affordability, potentially leading to cancellations or delays in critical weapons programs. For example, a UK National Audit Office report identified a $21.5 billion shortfall in the Ministry of Defense’s Equipment Plan directly attributable to inflation, representing the largest deficit in a decade. This starkly highlights the significant economic pressures that are impacting military capability delivery and widening the gap between allocated budgets and strategic priorities. High inflation within the eurozone is steadily reducing the purchasing power of EU defense budgets, significantly challenging efforts to overcome structural underfunding accumulated over decades. Germany’s “Zeitenwende” initiative, while pledging nearly $106 billion for defense, is still insufficient to fully address the Bundeswehr’s estimated $426 billion historic underfunding. The “debt brake” limiting public debt in Germany further raises concerns about the long-term fiscal feasibility of sustained increases in defense budgets.
Finally, understanding and rigorously evaluating political readiness to effectively deploy national defense capabilities for NATO or coalition operations is absolutely critical for optimizing burden-sharing and fostering sustained public support for collective security. Gauging public and political support for providing assistance to partner nations, such as Ukraine, and actively participating in joint international missions provides valuable insights into a nation’s true readiness to commit resources and share burdens. Evaluating how nations prioritize resource allocation across various commitments, including their willingness to reallocate or increase funding to meet evolving alliance needs, provides further crucial insights.
By comprehensively assessing these multifaceted factors – military, economic, and political readiness – NATO and its coalition partners can more effectively anticipate and strategically plan for the availability of national defense capabilities, ensuring a cohesive and truly effective response to shared collective security challenges while strengthening vital public support for these critical endeavors. To fundamentally reconceptualize burden-sharing, the United States should initiate with a detailed and in-depth evaluation of the specific allied warfighting capabilities urgently needed to effectively counter the evolving Russian military threat. This comprehensive evaluation should include a thorough stocktaking of NATO allies’ existing capabilities, their modernization plans, and their projected defense spending commitments. Furthermore, a qualitative assessment of how allies realistically plan to utilize these capabilities, carefully considering existing political, economic, and social constraints, is equally essential. Establishing a robust and continuous tracking mechanism for monitoring NATO allies’ capabilities is also paramount for long-term strategic planning and effective burden-sharing.
Conclusions
A deeper and more comprehensive understanding of the fundamentally altered and rapidly escalating costs of insecurity, and their potentially grave consequences, presents a critical opportunity for the United States and Europe to forge a renewed and strengthened understanding of the “great accretion of strength” that robust alliances can bring to bear in confronting major power competition. This crucial insight is indispensable for a strategic reassessment of transatlantic burden-sharing, one that must comprehensively incorporate rigorous assessments of allies’ military, economic, and political readiness to meaningfully contribute to shared common security objectives. While the era of geopolitical over-reliance may be definitively over, the fundamental reality remains that Europe urgently needs the United States, and the United States equally needs Europe, to effectively deter and, if necessary, counter Russia and China, and to collectively dismantle the emerging “Axis of Upheaval”. This mutual dependence is not only firmly rooted in their respective self-interests but is also demonstrably more cost-effective than any viable alternative. Abandoning allies in the face of these threats would be exceedingly difficult to reverse, dramatically increasing costs precisely when the United States finds itself most in need of reliable allies. As Churchill wisely observed, “There is only one thing worse than fighting with allies, and that is fighting without them.” And in a world of interconnected economies, even factors like the rand to euro exchange rate can be indirectly impacted by shifts in global security and defense spending.
The United States can no longer afford to rely solely on its own capabilities for effective deterrence and warfighting in the face of increasingly global and interconnected threats, especially given constrained resources and competing priorities. Its ability to effectively project power globally increasingly requires greater reliance on allies’ readiness and capacity to proactively address shared threats and collectively deter both Russia and China.
Allied security is profoundly impacted by developments extending far beyond the NATO Treaty Area and the Euro-Atlantic region, underscoring the interconnected costs tied to both individual and collective interests that now stretch across continents. A strategic reassessment of transatlantic burden-sharing is therefore essential to establish a robust cross-theater deterrence ecosystem encompassing both Europe and the Indo-Pacific. To effectively achieve this, the United States must clearly articulate its expectations to European allies regarding their roles and contributions in the Indo-Pacific region and strategically leverage their increasing defense engagement in this vital area. While the United States has rightly emphasized political cooperation, resilience building, reducing dangerous reliance on China for critical technologies and minerals, and maritime security in the past, it must now significantly enhance collaboration with European allies in these and other critical domains, including military procurement, advanced technologies, cyber capabilities, and space-based assets. Intensifying political dialogue and high-level consultations with allies regarding the multifaceted China challenge is absolutely crucial. For European nations, failing to proactively address China as a growing strategic challenge now will inevitably incur far more significant financial, political, and strategic costs when it inevitably escalates into a direct and unavoidable threat. This necessitates a renewed and highly concerted effort from the United States to urgently heighten awareness within the NATO alliance and substantially bolster allied contributions to collectively deterring China, thereby mitigating potentially catastrophic future financial, political, and strategic costs for all.
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Anna M. Dowd is a Senior International/Defense Researcher, and Stephen J. Flanagan is an Adjunct Senior Fellow at RAND, a nonprofit, nonpartisan research institution.
