Germany urged to boost aid as cost of inaction looms large

Supporting Ukraine is in Germany’s political and economic interest. The costs of a Russian victory could be ten times or even twenty times higher than the current aid.

Therefore, Germany should maintain or even increase its aid, contributing to credible deterrence against Russia and thus increasing the likelihood of ending the war.

These conclusions are drawn from the report published on Saturday by the Kiel Institute for the World Economy.

So far, German military aid to Ukraine has been regarded as limited by the authors and amounted to €10.6 billion, which is equivalent to 0.1 per cent of the German GDP. By comparison, during the first Gulf War (1991), Germany spent six times more – 0.6 per cent of GDP or 4 per cent of the annual budget. Even including humanitarian aid, current aid amounts to 0.14 per cent of GDP annually.

According to the authors – President of the Kiel Institute Moritz Schularick and his colleague Johannes Binder – the cost of interrupting aid would be highly significant due to the potential wave of refugees from Ukraine, increased spending on NATO due to the need to defend the Baltic states, and the severance of trade relations with a Russia-occupied Ukraine. A Western defeat would also increase the likelihood of new conflicts worldwide.

Binder and Schularick emphasise that Russia will agree to negotiations and an end to the war only when it sees that it cannot win militarily and the West demonstrates a firm commitment to supporting a fighting Ukraine.

Detailing various points of the report, the authors note that German military aid has been limited, amounting to €10.6 billion since 2022, which corresponds to 0.1 percent of cumulative GDP. Germany ranks only 16th, surpassed by countries like Denmark (0.65 percent), Estonia (0.57 percent), Latvia (0.43 percent), and Poland.

To illustrate the thesis of limited aid, the authors point out that budget subsidies for company cars with combustion engines cost the budget €13.7 billion annually.

Referring to the anticipated consequences of a Russian victory over Ukraine, experts write that German defence spending would have to increase from 0.5 per cent to 1 per cent of GDP annually. Germany would also have to anticipate a wave of refugees estimated at between 2 million and 4 million and face economic losses from halted exports and lost investments in Ukraine.

Binder and Schularick state that only credible deterrence can encourage Russia to end the war. They reject populist claims that ending arms supplies to Ukraine will lead to peace. They note that the EU's economic strength is nine times greater than Russia's (EU GDP – £15.5 trillion, Russia – £1.6 trillion), and industrial production is five times greater. Even without US aid, Europe's potential is sufficient to repel Russian aggression. However, political will is necessary, they emphasise.

By adhering to the principles of consistent deterrence, the West can make Russia realise it will not win the war by military means.

In an interview with the weekly "Die Zeit," Schularick stated that Germany lacks the right attitude towards the new security situation more than it lacks money.

Since the end of World War II, we have relied on someone else to defend us – the Americans, NATO, the Western world. (…) The belief that someone else will do it for us is still widespread. (…) We do not want to take on the responsibility. But peace and freedom can't be free – noted the president of the Kiel Institute.

Schularick advocated for increased military spending. He recalled that when Willy Brandt was Chancellor (1969-1974), Germany spent 3 per cent of GDP on defence.

"If Germany reaches a level of 3 per cent, it would be €120 billion, equivalent to the annual subsidy from the central budget for pensions," he emphasised.