In late June, NATO’s 32 member states convened in The Hague for the military alliance’s annual summit. It was a noteworthy encounter, as NATO members agreed to allocate 5% of GDP to defense spending by 2035. European military spending has been growing since Russia launched its full-scale invasion of Ukraine in February 2022. But so far, the NATO average is 2.71% — 2.02% for Canada and the European NATO members.
There are some caveats to the 5% figure. To start with, it includes 1.5% that can be earmarked for investments loosely connected to security, such as the construction and protection of key infrastructure or cybersecurity. Second, the 5% goal is less a spending plan than a political signal addressed to US President Donald Trump, who has repeatedly called for increased European defense spending, and to Russia.
Furthermore, the objective will be reviewed in 2029, and there is uncertainty about which countries will ultimately comply. EU member states can also profit from the European Commission’s decision to relax the bloc’s strict deficit rules. Under the so-called national escape clause, countries can exceed the previously set debt limits for defense spending. Even with these caveats, the road to 5% will be full of trade-offs for NATO member states. As national budgets come under pressure to expand defense funds, spending on other areas, such as social welfare, education, healthcare, or foreign aid, will likely be impacted.
In May, Germany’s new chancellor, Friedrich Merz, declared that the German army, the Bundeswehr, would be provided with everything it needs “to become the strongest conventional army in Europe.” In March, lawmakers passed a key amendment to the constitution that exempts defense spending over 1% of the GDP (including military aid to Ukraine) from the strict limits on the national debt. Planning to spend 2.4% of its GDP on defense this year, Germany is projected to reach 3.5%, or €162 billion, by 2029. The debt brake, however, continues to apply to all non-military expenses. The Finance Minister, Lars Klingbeil, said that the government plans to save on personnel and administrative expenses. In his draft budget for 2025, which is expected to be approved by parliament in November, Klingbeil proposes cuts in both the development and cooperation and foreign ministries. At a time of significant cuts in foreign aid worldwide, Germany — traditionally a major donor — will reduce the budget of its development and cooperation ministry by 8% this year. With earlier cuts, this will come to a 25% reduction since 2022. And humanitarian aid will receive 1 billion € — 52% less than in 2024.
While the Merz-led government argues that Germany needs to increase its defense spending due to the war in Ukraine and Trump’s unpredictability, social organizations criticize the budget for not investing enough in social infrastructure and social security. Lucas Scholle, the editor-in-chief of the German economics magazine Surplus, explains that the extent of the budgetary cuts will “depend largely on economic developments, including in the context of exports. However, the coalition’s plans to ease the burden on the vast majority of the population are already being postponed, while relief measures for the wealthiest have already been approved.”
Contrary to other economists, Scholle doubts that defense spending can re-activate the German economy, which contracted by 0.2% in 2024. He notes that “when a tank is built, it doesn’t benefit the production of other companies in the long term. If, instead, you build a railway line that allows companies to transport their goods more quickly, this boosts growth potential in the long term.”
Poland is already a leader in defense spending, with 4.2% of its GDP allocated to defense expenditure in 2024, and plans to reach 4.7% in 2025. Warsaw also fields the third-largest army within NATO after the US and Turkey. Bordering on the Russian exclave of Kaliningrad and Russia’s ally, Belarus, Poland has seen its threat perception dramatically escalate since 2022, when it devoted a comparatively moderate 2.7% of its economic output to defense.
Although Poland’s economy is booming, it is not clear how this surge in defense expenditure will be funded in the long term, as the country has the second-largest deficit in the EU. Gavin Rae, a Sociologist at the Kozminski University in Warsaw, notes that “the increase in military spending has hardly been questioned by any mainstream political party or politician from the left or right in Poland.” Similarly, Patryk Kugiel, a Political Science lecturer at Warsaw University, remarks that “there is very little (or not at all) discussion about where the extra money for the defense budget will come from.” Kugiel adds that “for now, it is being financed by increasing fiscal and public expenditures deficits and borrowing of money,” and the government led by Prime Minister Donald Tusk has not introduced major cuts in social or other expenditure.
There is very little (or not at all) discussion about where the extra money for the defense budget will come from.
Patryk Kugiel
Tusk, explains Rae, is “pushing the idea that the increased military spending in the country will be used to develop Polish production and science.” There is also hope, adds Kugiel, that “spending on defense will rebuild the defense industry, create jobs and enhance growth – so it will be easier to pay back the bill later on.”
Still, in a country with a weak domestic weapons industry, the recent boost in the military budget has largely benefited providers in the US and South Korea, which are responsible for most of Warsaw’s weapons imports. Unlike Germany, the Polish government cannot help fund the rise in the defense budget by cutting development aid because the volumes allocated to it have always been very low. Even so, Kugiel expects to see a further decrease this year.
Poland and Spain represent complete opposites within NATO. Madrid allocated 1.3% of its economic output to defense expenditures in 2024 and will only this year reach the 2% goal set in the 2014 Wales NATO Summit. Furthermore, Spain has communicated that it does not plan to comply with the 5% target set by NATO. Although Spanish Prime Minister Pedro Sánchez signed NATO’s Hague Declaration at the end of the summit, he had previously reached a bilateral compromise with Mark Rutte, the Secretary General of NATO, to devote a comparatively low 2.1% of its GDP to defense.
Spain’s position, which drew Trump’s ire, is that this volume of spending is sufficient to reach the Spanish capability targets within NATO, that is, the range of tasks a country is expected to fulfill. Sánchez has promised Spanish citizens not to raise taxes, increase the deficit, or decrease spending in healthcare or education to accommodate the new defense budget. The promise is also directed to Sánchez’s junior government partner, the left-wing Sumar, which opposes increases in defense expenditure. And counter to the global trend, Spain recently expanded the budget for development aid — although it started from a low base level.
In any case, despite the stated intentions, Pere Ortega, honorary director of the Centre of Studies for Peace J.M. Delàs in Barcelona, expects that the Spanish government is likely to end up spending more than 2.1% of its GDP to fulfill NATO’s capability targets. Madrid, he notes, has already approved “31 new weapons projects for an amount of €34 billion for the next twelve years.” And like in other countries, to reach 2% of the GDP in defense expenditure this year, Ortega believes the government will take resources from other budgetary areas, which will “affect the well-being of citizens in general.”