Russia-Ukraine War Is Reshaping How Europe Spends

And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.

The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.

In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.

The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.

“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.

And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.

For Germany, Europe’s largest economy, the costs are enormous. The coalition government has committed $1.7 billion to buy more liquefied natural gas and is investing nearly as much in building a permanent L.N.G. terminal and renting several floating ones in order to reduce its dependence on Russian fuel. At the same time, it has agreed to keep coal-fired power plants in reserve, even as it earmarked nearly $220 billion over the next four years to revive the country’s transition to renewable energy sources.

Article source: https://www.nytimes.com/2022/03/29/business/economy/european-union-military-spending.html