How does Russia's military spending compare to Europe?
Hello,
I have published this video on how Russia's defense spending stacks up against Europe's. It's a topic that is unfortunately all too relevant in light of recent geopolitical events, where the transatlantic relationship is in its deepest crisis since the beginning of World War II.
Watch the video here or read the transcript below.
Best,
Anders
Transcript:
Recently there was a new story that got a lot of attention because it said that Russia's defense spending is bigger than all of the rest of Europe combined. And that is of course a very dramatic statement if you look at the geopolitical situation. So I think it's worth going into the numbers. The short version is that it's a bit of a mixed bag. On the one hand these numbers do draw attention to something that is important about Russia's military strength and how it's dangerous if we underestimate their military potential. But on the other hand it's also a quite embarrassing story for the Financial Times and also for the IISS that produced these numbers because they are represented in a way that's not trustworthy. So let's talk about it.
The background for the numbers that I'm talking about is that every year the International Institute for Strategic Studies, typically called the IISS, releases something that's called the Military Balance. This document is an overview, a comprehensive look at the military forces across the globe. And here in February they came out with the Military Balance of 2025 which includes the numbers for 2024. It gives a good overview of sort of global trends and what's happening in the armed forces of different countries.
When this document came out the Kyiv Independent published this article which has this very attention grabbing headline that "Russia's military spending surpasses Europe's as Putin ramps up the war budget". And in the article the Kyiv Independent referenced the IISS and the Financial Times which had a similar story. The Financial Times article is behind a paywall but from what I can tell this is how these numbers made their way into the mainstream media, through this story in the Financial Times.
The point is that Russia's defense spending if you adjust it for purchasing power, then in 2024 it was $462 billion. And if you take the combined defense spending of all of Europe then that number is $457 billion. In this case all of Europe means not just the European NATO countries but all the European countries. But for some reason excluding Ukraine. I don't know why, but Ukraine is not included in that number but it's the rest of Europe. And that is of course dramatic if Russia's defense spending is bigger than all of Europe's combined because that indicates that Europe is in huge trouble. The countries that are close to Russia wouldn't stand a chance against such an overwhelming force.
But there was also something about these numbers that to me just didn't seem right. So I went back to the source from the IISS to try to recreate these numbers and see where they came from. And the short version is that these numbers are wrong. It is a deceptive way to represent the statistics.
The problem is that in this comparison the Russian number is adjusted for purchasing power but the number for defense spending in the rest of Europe is not. So the Russian number is multiplied by a conversion factor that is quite high. But for the European number it's just the raw numbers without any conversion. And frankly this is embarrassing for the Financial Times. You really shouldn't compare numbers where one is corrected for purchasing power and the other one isn't. But it's also embarrassing for the IISS because it's actually a figure that they used in their launch event for this document. So it originates from the IISS.
But instead of just debunking the numbers and saying that it's embarrassing, I think it's also a good occasion to talk a bit about what these different numbers mean and how we can use purchasing power conversion to get a better idea about military spending when we compare different countries. And when we look at Russia's defense budget then there are two classical fallacies. One of them is to overestimate Russia's military power which is what is done here by the IISS and the Financial Times because they interpret the numbers in a way that makes Russia's relative strength look bigger than it actually is.
But there's another mistake and that is to underestimate Russia's military potential. The argument here is typically made by saying that Russia has a GDP that is comparable to Italy or some other country, and that therefore their defense spending will obviously be dwarfed by the rest of Europe. And I must say I'm really tired of hearing this comparison to Italy because it's often used as an argument for why it's unnecessary for Western Europe to increase the defense spending even though we are right now in the biggest geopolitical crisis since the Second World War. So I think this number is being used in a dangerous way.
The thing to be aware of is that defense spending is typically measured as a percentage of the gross domestic product or GDP of that country. But there are fundamentally two ways that you can measure GDP. One way is to use what is called nominal dollars. This is just a raw number of how big the gross domestic product is when it is converted from the local currency into dollars. That's how these numbers are typically presented.
A problem with nominal numbers is that they are very highly dependent on the currency exchange rate. So for example as I'm recording this the dollar to ruble exchange rate is about 85 rubles to a dollar. And that's a lot better than it was just a few weeks ago. Because the recent talks between Donald Trump and Putin have strengthened the ruble. It has created optimism in the Russian market. But just a few weeks ago the same dollar to ruble exchange rate was almost 110 rubles per dollar. And what that means is that if you convert the Russian GDP today into nominal dollars and you did the same say last month you will find that the Russian GDP has grown by about 20 percent over the last month just because the exchange rate today is different. It's the exact same number of rubles that they have in Russia but it's a different number in dollars. And that also means that according to this method then the Russian defense budget will have grown by about 20 percent over the last month even though the Russian military has exactly the same number of rubles to spend.
Another problem with using nominal dollars for comparison is that things don't cost the same in different countries. For example things are more expensive in the United States than they are in Russia. So if you go to a Russian store you can get more goods for the same money than if you go to an American store. And it's the same thing with salaries. The salaries in the United States are just much higher in raw dollars than they are in Russia. So that means that when the Russian military goes out to procure supplies or assign more contract soldiers then they can get a lot more for the same amount of dollars than the militaries of NATO can.
So to get around these two problems you can adjust the GDP for purchasing power and this is called PPP or purchasing power parity. And that gives a more accurate number for how much you can actually buy with this money and it also solves the problem of the fluctuating exchange rates.
If we look at this figure from the IISS we can see that Russia's nominal defense spending in 2024 was about 146 billion dollars. But when you adjust it for purchasing power it's about 462 billion dollars. That is a significant difference that really changes the image of military spending globally. It means that instead of in this case the United States being way ahead of everybody else then if you combine Russia and China and their military spending then it's about the same as the U.S. defense budget when it's corrected for purchasing power. That's an easy comparison in this case to make because for the United States the nominal number and the PPP numbers will be the same.
But if you take European countries that have different currencies then you need to adjust those numbers to get an accurate comparison of PPP. And I must admit I did not bother to go through all the European countries and do the conversion. But when you adjust for purchasing power between Europe and the United States then because things are more expensive in the United States than they are on average in Europe, you would get a higher number for PPP. So when adjusted for PPP the combined military spending of all of Europe is going to be higher than Russia's military spending.
It's an ongoing discussion among military analysts if the right way is to use the nominal numbers or the PPP numbers. Which is more correct when you try to sort of assess the spending in different countries? The argument for using nominal numbers is that if you go out on the international market and you buy military equipment from other countries then you will typically have to pay that in dollars and therefore it makes sense to have an idea of the defense budget in terms of nominal dollars. But if you have a domestic defense production like Russia does – they primarily they make their own stuff – then it makes more sense to use the PPP numbers because everything will be paid in rubles and it really doesn't matter what the exchange rate is to dollars. So there are arguments for using both of these types of numbers but I think that on average it makes more sense to use the PPP numbers to get an idea about in what ballpark the defense spending is in a country like Russia.
And that also means that we should best understand the relative strength between the European NATO countries and Russia by looking at the PPP numbers. That is why this Italy comparison is so annoying because when you correct for purchasing power you'll find that the Russian GDP is much bigger than Italy's. In fact corrected for purchasing power, Russia has the fourth largest economy in the world.
So if we make a rough assessment of how big the Russian defense budget is compared to the European NATO countries I would say that we should probably think about it as bigger than the German the French and the British defense budgets combined. I think we should think about it in that kind of ballpark. So Russia is clearly the strongest military power in Europe but it's not bigger than all of the European NATO countries combined.
The problem for European NATO countries is that it's not enough for Europe to be slightly bigger in terms of defense spending than Russia because that's not enough to deter Russia from starting a war. Because Russia might not believe that Europe has the determination to commit all its forces to a fight. And also Russia would have local numerical advantages in Eastern Europe where the fight is going to take place. Because basically all the expensive military capabilities that the NATO countries have in countries like France or Britain or Spain they won't count in a war. There it's about what you can actually deploy to the front line in Eastern Europe. So even if the European NATO countries all in all have a bigger defense spending than Russia then locally in the area where the front line is and where it matters, Russia will have the advantage.
And finally another thing to keep in mind is that there is also a question about whether Europe has the right types of equipment. There is a tendency for European countries to have very expensive high tech equipment that's very high quality but that offers low quantity and low robustness, because it's very expensive and this means that Europe will not be able to sustain a long attritional war with Russia because after the first say couple of months, then much of that high tech equipment would be lost. And then there might not be anything left. So that's why I say that looking at these numbers it clearly indicates the way I see it a need for dramatic increased defense spending in Europe, if the European countries are to deter Russia from starting a war and the United States is not committed to deterrence in Europe. And in that sense I agree with the notion in the articles from the Kyiv Independent and from the Financial Times but I think it was important to address the fact that the way these numbers are being used is inaccurate.
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