Summary
Elevated Ambitions: NATO Allies Commit to Boost Defense Spending by 5%
NATO Allies have agreed to a landmark commitment to increase their collective defense spending to 5 percent of Gross Domestic Product (GDP) by 2035, marking a significant escalation from the longstanding 2 percent guideline established in 2014. This new target is divided into two components: 3.5 percent of GDP dedicated to core military expenditures such as weapons procurement, troop readiness, and major equipment, and an additional 1.5 percent allocated to security-related infrastructure investments including cyber defense, military mobility, and intelligence capabilities. The commitment reflects NATO’s response to evolving geopolitical threats, particularly heightened tensions following Russia’s 2022 invasion of Ukraine, and underscores the alliance’s strategic imperative to bolster military readiness and burden-sharing among members.
The move to a 5 percent spending target builds on decades of defense expenditure challenges within the alliance. While NATO members historically spent varying amounts on defense—with many falling short of agreed benchmarks—the 2 percent GDP guideline introduced in 2014 aimed to standardize member contributions and improve collective military capabilities. By 2024, 23 of 32 NATO members met or exceeded the 2 percent threshold, although major economies such as Spain, Italy, and Canada continued to lag behind. The elevated 5 percent goal seeks not only to increase overall spending but also to focus investments on modernization efforts, ensuring funds are directed toward combat-relevant capabilities and critical infrastructure necessary for rapid deployment and effective deterrence.
The commitment has generated both support and controversy within the alliance. Eastern European members and countries closest to perceived threats have generally welcomed the heightened spending ambitions as necessary for deterrence and defense. However, some nations, notably Spain, have voiced concerns about the feasibility and economic impact of meeting the new target, prompting adjustments in the official language from “we commit” to “allies commit” to allow for national flexibility in implementation. The timeline for achieving the 5 percent target was also extended to 2035 to accommodate differing fiscal capacities and political considerations among member states. These negotiations highlight ongoing challenges in balancing collective security objectives with domestic economic realities.
Overall, the 5 percent defense spending commitment represents a pivotal shift in NATO’s strategic posture, emphasizing modernization, resilience, and equitable burden-sharing in the face of intensified security challenges. While the implementation will require careful coordination and sustained political will, the agreement signals a unified effort to strengthen the Alliance’s military capabilities and readiness in a rapidly changing geopolitical environment.
Background
NATO has long maintained a commitment to collective defense, with member countries pledging specific levels of defense spending to ensure military readiness. During the Cold War, NATO Allies typically allocated more than 3% of their GDP to defense, though this figure experienced significant fluctuations and rarely fell below 2%. However, the post-Cold War era saw a marked decline in defense expenditures, with a notable reduction in the early 1990s and a further 20% decrease around the 2008 global financial crisis. This decline adversely affected the volume and readiness of Allied armed forces.
In response to emerging security challenges, particularly following Russia’s illegal annexation of Crimea in 2014, NATO Heads of State and Government agreed to commit at least 2% of their national GDP to defense spending. This target aimed to bolster the Alliance’s military capabilities amid growing geopolitical instability. Initially, only a handful of countries, including the United States, the United Kingdom, and Greece, met or exceeded this benchmark. Over the following decade, more Allies increased their defense budgets, with 23 countries reaching the 2% threshold by 2024. Despite progress, several major economies such as Canada, Spain, and Italy continued to fall short of the target.
Beyond overall spending, NATO members also agreed to allocate at least 20% of their defense budgets to major equipment procurement and research and development. This focus on modernization aimed to ensure that funds were directed towards capabilities directly contributing to combat power, rather than personnel costs or pensions. Defense expenditures encompass personnel expenses, equipment acquisition, and operational costs, with national governments retaining sovereignty over budget allocation.
More recently, NATO has proposed elevating the defense spending target from 2% to 3.5% of GDP for core military expenditures, supplemented by an additional 1.5% for security-related infrastructure such as cyber defense and military mobility enhancements. This cumulative 5% target reflects an ambitious effort to strengthen the Alliance’s resilience and preparedness, particularly in light of increased tensions following Russia’s 2022 invasion of Ukraine. Countries like Poland and Sweden have notably increased their defense outlays, with Poland leading at 4.12% of GDP and Sweden participating in its first NATO summit as an official member in 2024. While NATO operates by consensus, all 32 members must approve such commitments, and individual nations determine how to allocate and fund their contributions.
The 5% Defense Spending Commitment
In response to evolving security challenges and pressures from the United States, NATO allies agreed to a new defense spending commitment during a summit in The Hague. The agreement sets a target for member states to spend 5 percent of their Gross Domestic Product (GDP) on defense by 2035. This 5 percent figure is divided into two components: 3.5 percent allocated to “hard defense” expenditures such as weapons procurement and troop readiness, and an additional 1.5 percent dedicated to defense-related investments including cybersecurity, military mobility, and infrastructure adaptations like roads and bridges to accommodate military vehicles.
This commitment builds on the previous 2 percent GDP guideline established in 2014, which itself reinforced an earlier 2006 pledge. The 2 percent target was a political signal of member states’ resolve to contribute adequately to the Alliance’s common defense efforts, a priority that became more urgent following Russia’s annexation of Crimea in 2014. By 2024, the majority of NATO members (23 out of 32) had met or exceeded the 2 percent threshold, although some major economies, including Spain and Italy, continued to fall short.
The elevated 5 percent spending goal was initially proposed by then-U.S. President Donald Trump and has since been adopted with certain accommodations to maintain alliance unity. Spain, for instance, negotiated an exemption from the strict 5 percent GDP target due to difficulties in meeting such a steep increase from its current 2 percent level. As a result, the language in the official declaration shifted from “we commit” to “allies commit,” providing Madrid with flexibility to determine its own sovereign path to meeting capability targets, rather than a fixed spending quota. NATO Secretary-General Mark Rutte confirmed this flexibility, emphasizing that Spain can submit annual plans aligned with NATO’s capability objectives and that the alliance will review spending trajectories in 2029.
The timeline for achieving the 5 percent goal was also a matter of debate among members. While countries geographically closer to Russia advocated for a faster deadline, such as 2030, a compromise was reached on the 2035 target, balancing urgency with concerns from nations like Italy and the U.K. about the potential impact of rapid spending increases on public finances.
NATO defense budgets typically cover personnel costs, research and development, procurement of equipment, and operational expenses. Allies have agreed that at least 20 percent of their defense expenditure should be allocated to major equipment and related R&D, an indicator of modernization efforts. Common funding arrangements within NATO have also been adjusted and increased since 2021 to support evolving political-military objectives and burden-sharing among members, although non-U.S. allies still collectively spend less than half of what the United States contributes to defense.
In sum, the 5 percent defense spending commitment marks a significant escalation in NATO’s collective effort to enhance military readiness and capabilities, reflecting shifting geopolitical realities and the desire for a more balanced burden-sharing framework within the alliance.
Motivations and Strategic Considerations
The push for NATO Allies to elevate defense spending to 5% of GDP is driven by a combination of geopolitical threats, alliance credibility, and evolving security needs. Central to these motivations is the ongoing war in Ukraine, which has sharply heightened concerns about Russia’s potential to use military force against NATO members in the near future. NATO Secretary-General Mark Rutte highlighted that Russia could be prepared to act militarily against the Alliance within five years, intensifying the urgency for increased defense investment. This persistent threat, coupled with the need to bolster deterrence and collective defense capabilities, underpins the strategic rationale for raising spending commitments beyond the long-established 2% of GDP guideline agreed upon in 2006 and reinforced by the 2014 Defence Investment Pledge.
Another key driver is the pressure from the United States, which has historically contributed a disproportionate share of NATO’s overall defense budget and has repeatedly called on European allies to “pull their weight.” U.S. leaders, including former President Donald Trump, have criticized the slow progress of European NATO members in meeting spending targets, demanding substantial increases—originally pushing for 4% and more recently supporting a 5% benchmark to encompass broader security-related infrastructure such as cyber capabilities and intelligence. The recognition that “America can’t be everywhere all the time,” as stated by U.S. Defense Secretary Pete Hegseth, reflects a strategic recalibration that places more responsibility on European Allies to secure their own defense.
The elevated spending target also reflects NATO’s adaptation to new domains of warfare and technological advancements. The 5% figure includes 3.5% of GDP devoted to “hard defense” — encompassing troops, weapons, and equipment — alongside an additional 1.5% allocated for security-related infrastructure, such as cyber warfare and military mobility, underscoring the Alliance’s commitment to modernizing its military capabilities in line with evolving threats. NATO’s updated capability targets, though classified, emphasize investments in air defense, fighter jets, drones, logistics, and other critical areas necessary to maintain credible deterrence and effective defense posture.
While the majority of Allies have shown willingness to increase their defense budgets—evidenced by the record number of countries meeting the 2% target following Russia’s 2022 invasion of Ukraine—there remains diversity in perspectives and fiscal capacity. Some members, such as Spain, argue that a 5% spending goal is excessive and unnecessary to meet NATO commitments, advocating instead for a sovereign and flexible approach to defense spending that prioritizes efficiency over arbitrary percentages. Similarly, countries like Germany and Sweden have been revising their financial frameworks to enable increased defense investments, although some governments remain cautious about rapid or steep spending hikes due to domestic fiscal considerations.
Allocation and Use of Increased Defense Spending
NATO Allies have committed to increasing defense spending to reach a combined target of 5% of GDP, which includes 3.5% allocated to “pure” defense activities and an additional 1.5% dedicated to broader security-related investments such as cyber warfare capabilities, intelligence, and infrastructure adaptation for military use. This expanded investment strategy reflects the evolving security environment and the necessity to modernize and strengthen military capabilities across the Alliance.
The increased funds are primarily distributed among three principal common-funded budgets: the civil budget, which supports NATO Headquarters and consultation processes; the military budget, which finances the NATO Command Structure; and the NATO Security Investment Programme, which funds essential military infrastructure and capabilities including air and naval bases, satellite communications, fuel pipelines, and command and control systems. Collectively, these budgets amount to approximately EUR 4.6 billion annually, representing about 0.3% of total Allied defense expenditure.
To ensure efficient use of these resources, NATO Allies have agreed that at least 20% of their defense expenditure should be devoted to major equipment procurement and associated research and development, serving as a crucial indicator for the pace of modernization. This commitment is part of the Defence Investment Pledge endorsed in 2014, which set a guideline for Allies to meet 2% of GDP for defense spending and to allocate 20% of this expenditure to major equipment by 2024. Moreover, Allies are expected to spend an additional 1.5% of GDP on security-related infrastructure investments, such as adapting roads, bridges, and ports for military logistics, as well as enhancing cybersecurity and energy pipeline protection.
National defense budgets, which remain sovereign decisions, generally cover three categories: personnel expenses including pensions; research, development, and procurement of defense equipment; and operations, exercises, and maintenance. The armed forces encompass land, maritime, air, and joint formations, including specialized commands such as Cyber Command and Space Command, and may also include certain Ministry of Interior forces and coast guards insofar as they meet NATO’s criteria for military capability and deployability.
The enhanced spending is intended not only to modernize capabilities but also to improve the deployability, sustainability, and interoperability of Allied forces. NATO requires that member forces adhere to agreed standards and doctrines, enabling them to operate effectively together in joint operations and missions. The recent geopolitical context, including the war in Ukraine, has underscored the critical importance of maintaining adequate ammunition stockpiles, readiness levels, and rapid reequipping capabilities, as shortages have previously hampered support efforts and operational effectiveness.
Collectively, these measures and funding allocations demonstrate NATO’s commitment to burden-sharing and adapting to the demands of collective defense in a new era, ensuring that increased defense expenditures translate into enhanced military effectiveness and resilience.
Impact on NATO Military Readiness and Operations
NATO’s commitment to boosting defense spending by 5% significantly enhances the Alliance’s overall military readiness and operational capabilities. This increased investment ensures that member states meet NATO-agreed guidelines for deployability, sustainability, and interoperability, enabling their forces to operate together effectively under common standards and doctrines.
A critical aspect of military readiness involves maintaining forces at the appropriate levels of training, equipment, and ammunition to guarantee rapid deployment and sustained combat effectiveness. The ongoing conflict in Ukraine has underscored the necessity of ample ammunition stockpiles and the ability to quickly re-equip and deploy combat-ready units. By committing additional resources, NATO Allies can address these challenges and improve their capacity to respond swiftly under any circumstances.
Financial contributions supporting these improvements not only bolster personnel and equipment but also sustain essential military infrastructure such as air and naval bases, satellite communications, fuel pipelines, and command and control systems. NATO’s annual budgets and programs, currently amounting to around EUR 4.6 billion, are supplemented by individual member contributions, which collectively form the Alliance’s combined defense capability.
Furthermore, new capability targets set by NATO require member states to invest in specific military domains, including air defense, fighter jets, tanks, drones, logistics, and personnel. Although the exact targets are classified, these commitments reflect a strategic prioritization aimed at strengthening the Alliance’s deterrence and defense posture. Some member states, like Spain, have indicated that meeting these targets involves relatively modest increases in defense spending, such as 2.1% of GDP, demonstrating the feasibility of collective enhancement.
The 2% of GDP defense spending guideline, first agreed upon in 2006 and reinforced by the 2014 Defence Investment Pledge, remains a vital political indicator of member states’ resolve to contribute to NATO’s common defense. The elevated ambitions for defense spending foresee all Allies meeting or exceeding this target by 2025, a substantial increase from only three Allies achieving it in 2014. This collective effort underpins NATO’s strategic objective to ensure credible deterrence and effective defense capabilities across all domains.
Economic Impact and Financing Strategies
NATO Allies’ commitment to boost defense spending by 5 percentage points of GDP carries significant economic implications and necessitates strategic financing approaches. If all NATO states were to meet the 3.5% GDP defense spending target, total expenditure could reach approximately $1.75 trillion annually, representing hundreds of billions of dollars more than current levels. This substantial increase is driven by ongoing security concerns, notably Russia’s war in Ukraine and the perceived threat it poses to European stability, as well as pressure from the United States to enhance collective defense capabilities.
The financial burden includes not only direct military expenditures but also broader security-related investments. Allies are expected to allocate an additional 1.5% of GDP towards infrastructure adaptations such as upgrading roads, bridges, and ports for military use, alongside investments in cyber-security and the protection of critical energy pipelines. These broader expenditures reflect an integrated approach to defense, acknowledging the importance of both conventional forces and emerging domains in modern security.
National defense budgets typically comprise three main categories: personnel costs (including pensions), research, development, and procurement of defense equipment, and operational expenses such as exercises and maintenance. NATO guidelines recommend that at least 20% of defense expenditures be dedicated to
Reactions and Responses
The announcement of NATO Allies committing to boost defense spending by 5 percent of GDP elicited a range of reactions from member states and political figures. While the commitment signaled a unified front in addressing emerging security challenges, some countries expressed reservations about the new target and its implications.
Spain notably introduced last-minute complications to the agreement. Prime Minister Pedro Sánchez sought an exemption from the steep increase, citing difficulties in meeting the existing 2 percent of GDP defense spending target. To accommodate Spain’s concerns, the language in the declaration was amended from “we commit” to “allies commit,” providing Madrid with flexibility to meet NATO’s updated capability targets without strictly adhering to the 5 percent spending threshold. Sánchez described the final outcome as a “success” that preserved alliance unity without necessitating a drastic increase in Spain’s defense budget.
The commitment has received broad diplomatic support, with all 32 NATO members reportedly greenlighting the statement, pending formal approval by heads of state and government, including the United States. Eastern European countries, such as Poland, Estonia, Latvia, and Lithuania, have been particularly proactive in meeting or exceeding defense spending goals, reflecting heightened regional security concerns. By 2024, 23 NATO members had reached or surpassed the original 2 percent GDP target, with several, including Poland and the Baltic states, far exceeding it.
However, some major NATO economies, including Canada, Spain, and Italy, continued to lag behind the contribution threshold, illustrating ongoing disparities in defense spending within the alliance. The United States remains the largest defense spender by a significant margin, and past criticism from former U.S. President Donald Trump emphasized the expectation that European allies must increase their military expenditures to justify American support.
The NATO Office of Resources continues to provide expert advice on the planning and utilization of common funding to achieve the alliance’s objectives, while the Military Committee and International Military Staff ensure that military and financial assistance among allies is appropriately accounted for within national defense expenditures. The elevated ambitions reflect a collective political resolve to enhance NATO’s military readiness and address new threats, although the implementation of the 5 percent target will require navigating diverse national circumstances and priorities.
Challenges and Criticisms
The commitment by NATO Allies to increase defense spending to 5% of their Gross Domestic Product (GDP) has faced several challenges and criticisms from member states and analysts. One major concern is the significant financial burden such a steep increase would impose on national budgets, particularly for countries already struggling to meet the previous 2% GDP defense spending target established in 2014. For example, Spain has expressed strong reservations about the feasibility of this goal, arguing that meeting the new 5% target could necessitate drastic cuts to social programs such as state pensions or require substantial tax hikes, which could adversely affect the country’s social welfare and economic stability.
This debate reflects broader disparities among NATO members regarding defense expenditure. While some countries like Poland, Estonia, Latvia, Greece, and the United States have consistently surpassed the 2% target and are on track to meet or exceed the new 5% goal, others, including major economies like Canada, Spain, and Italy, have struggled to reach even the original benchmark. The uneven spending levels have long been a point of contention within the Alliance, with non-US Allies collectively spending less than half of what the United States allocates to defense, a gap that has widened since 2001.
Further complicating consensus on the 5% target, NATO leaders have adjusted the language of their commitments to accommodate divergent national positions. During negotiations, phrases like “we commit” were changed to “allies commit,” reflecting a compromise aimed at securing unanimous agreement despite differing national capacities and political will. Additionally, the timeline for reaching the 5% goal has been extended, with some Allies given until 2035 to meet the requirement, easing immediate financial pressures and allowing more gradual budgetary adjustments.
The emphasis on directing a significant portion of defense budgets toward “hard defense” capabilities such as weapons and troops—around 3.5% of GDP—and an additional 1.5% toward defense-related investments like cybersecurity and military mobility introduces further allocation challenges. Balancing these priorities against competing domestic needs remains a contentious issue for many member states.
Comparison with Previous NATO Defense Spending Commitments
NATO’s defense spending targets have evolved significantly since the alliance’s inception, reflecting changing security challenges and geopolitical dynamics. Historically, the issue of appropriate defense expenditure levels has been a persistent debate among Allies, centered on ensuring sufficient capability to preserve peace and deter threats across the Euro-Atlantic area.
In 2014, NATO Heads of State and Government agreed on a benchmark whereby member countries would commit at least 2% of their national Gross Domestic Product (GDP) to defense spending. This goal aimed to enhance the Alliance’s military readiness and was measured using U.S. dollars at average annual exchange rates published by the International Monetary Fund, excluding war damage payments and civil defense expenditures. At the time, only three countries—the United States, the United Kingdom, and Greece—met or exceeded this 2% target. Alongside this commitment, NATO members pledged that by 2024, at least 20% of defense expenditures would be dedicated to acquiring and developing military equipment.
Despite the 2014 pledge, many Allies historically failed to meet the 2% GDP spending target. However, in recent years, particularly following Russia’s full-scale invasion of Ukraine in 2022, a significant surge in defense investments has occurred. By 2023, twenty-three out of thirty-two NATO members had reached or surpassed the 2% threshold, up from only six countries in 2021.
Building on this foundation, NATO has proposed a substantial increase in defense spending ambitions. The alliance aims for members to allocate a total of 5% of GDP towards defense and related security investments. This enhanced target is divided into two components: 3.5% of GDP for core or “hard” defense expenditures such as weapons and troop capabilities, and an additional 1.5% of GDP for broader security-related infrastructure including cyber warfare, intelligence, and military mobility.
The new 5% commitment represents a significant rise from the previous 2% benchmark and is designed to address contemporary security challenges more comprehensively. However, the timeline for achieving this goal is extended; NATO members, except the United States, are expected to reach the 5% target by 2035, allowing for flexibility in national implementation plans to avoid disrupting public finances. This phased approach has been welcomed by countries like Italy, the United Kingdom, and Spain, which have expressed concerns about rapid spending increases.
Future Outlook
As NATO approaches 2024, marking the tenth anniversary of the Defence Investment Pledge, significant attention is focused on the milestone for achieving the target of allocating at least 2% of GDP to defence spending. The 2023 Vilnius Summit and the upcoming 2024 Washington Summit present critical opportunities for NATO leaders to assess progress and establish future commitments to defence investment.
By 2025, all NATO Allies are expected to meet or exceed the 2% of GDP defence spending target, a substantial increase from only three members meeting this threshold in 2014. This commitment builds on a guideline originally agreed upon by NATO Defence Ministers in 2006 and reinforced by the 2014 Defence Investment Pledge, underscoring the political resolve of individual Allies to contribute meaningfully to collective defence.
NATO Allies maintain sovereign control over their defence budgets, which typically cover personnel expenses, research and development, procurement of defence equipment, and operations, exercises, and maintenance. However, Allies have agreed that a minimum of 20% of defence expenditures should be devoted to major equipment spending, including research and development, as a critical indicator of military modernization efforts. Ensuring forces meet NATO-agreed standards for deployability, sustainability, and interoperability remains a priority, alongside the implementation of common standards and doctrines. NATO’s collective budget, amounting to around EUR 4.6 billion annually, supports the permanent military command structure, current operations, essential infrastructure, and capabilities shared among member countries.
Recent discussions have highlighted the need for enhanced military capabilities across various domains, including air defence, fighter jets, tanks, drones, personnel, and logistics. While specific capability targets remain classified, some Allies, such as Spain, assert that meeting these goals can be achieved with relatively modest increases in defence spending (e.g., 2.1% of GDP). Others, like Italy, France, and Poland, have already allocated higher proportions of their government budgets to military expenditure, reflecting varying national approaches to defence investment.
Looking further ahead, NATO Allies face a broader timeline to fully realize elevated defence spending targets. A NATO official indicated that members would have until 2035 to reach enhanced spending commitments, a timeline that accommodates concerns from countries like Italy and the United Kingdom regarding the impact of rapid defence budget increases on public finances. Achieving consensus on new spending targets remains a complex process, as each of the 32 NATO members holds veto power, reflecting the challenge of balancing collective security needs with domestic priorities. While some Allies have expressed reservations about the scale of spending increases, particularly in relation to social spending impacts, the overall trajectory points toward sustained enhancement of defence capabilities and investments across the Alliance.
The content is provided by Blake Sterling, Fact-Nest
