After NATO defense ministers' meeting in Brussels earlier this month, the military alliance's Secretary General Mark Rutte said that allies had agreed on "new capability targets" forming the basis for a new defense investment plan. The proposal, expected to be endorsed at the NATO summit in The Hague on June 24 and 25, will call for allies to jack up defense spending to 5 percent of GDP, including 3.5 percent on core defense and 1.5 percent on defense and security-related investment such as infrastructure and resilience.
In 2014, NATO states committed to spending 2 percent of their economic output on defense. A decade later, the coalition is again looking to take advantage of the conflicts to ramp up its military expenditure, a move that could have serious economic and social implications for member states.
By the time NATO announced that 22 of its 32 members in 2024 had hit the threshold of 2 percent, U.S. President Donald Trump stunned allies by asking them to more than double the target, or he wouldn't protect them. Several NATO countries such as Belgium, Canada, Croatia, Italy, Luxemburg, Portugal and Spain as of 2024 were yet to meet the 2 percent target while those of Albania, Bulgaria, France, Germany, Hungary, Montenegro, Netherlands, North Macedonia, Norway, Romania, Slovak Republic, Sweden and Türkiye barely matched their commitment.
The new 5 percent target could allow Trump to declare a win at the coming summit, but it is economically and politically unviable for many NATO's European partners, which are facing a myriad of economic challenges and where defense spending isn't politically popular. Defense economists have also argued that even if Europe were to grow at quite an extraordinary rate of more than 10 percent in real terms in 2024, it would take 10 years to get to 3 percent of GDP.
Allies have agreed to boost their weapon inventories. Yet, given that many European countries either lack the economic wherewithal or are experiencing sluggish growth rates, it will be difficult for them to raise defense spending without squeezing their social safety net. The GDP in the euro area and European Union (EU) last year increased by 0.9 percent and 1.1 percent, respectively and is projected to stay at those levels in 2025, making the task of meeting the target more onerous.
The new commitment will take a heavy toll on NATO economies. For instance, one percent of Germany's GDP represents 45 billion euros (more than $52 billion). That means Berlin (with 2.12 percent) in 2024 spent more than 95 billion euros on defense and will have to earmark an additional 62 billion euros annually on core defense alone. The new goal of 3.5 percent will cost the Dutch government 16-19 billion euros a year on top of the existing defense budget.
Likewise, an extra 1 percent amounts to 30 billion pounds (about $40.7 billion) for Britain. The UK welfare cuts of 4.8 billion pounds and enhanced defense spending of 2.2 billion pounds have sparked concerns among Britons, lawmakers and poverty campaigners. The demand to ratchet up defense spending – at a time when the country's independent fiscal watchdog, the Office for Budget Responsibility, has halved its economic prediction for 2025 and raised forecasts for public borrowing and inflation – could exacerbate domestic challenges for the government.
What's more, several NATO countries in Europe have high GDP-to-debt ratios. The debt of Greece, Italy, France, Belgium and Spain exceeds their economic output, which would require them to borrow more to meet the target. This will compound their economic challenges and could be risky politically over its potential to trigger spending cuts on education, health and other welfare programs especially in Croatia, Hungary, Greece, Slovakia, Czechia and Italy where a majority of people, according to NATO's own survey, want to maintain current defense spending levels.
The Trump administration's coercive tactics, as well as these factors, have propelled an urge in Europe to gradual independence from the U.S. and may drive countries to ratify the 3.5 percent target with no intention whatsoever of ever reaching the target.
Already, rifts are surfacing in the alliance about this unreasonable and counterproductive target over its potential to dampen the ambitions of the welfare states, with some questioning NATO's existence. After much inside wrangling, Spain has won the exemption; it will inspire others to emulate Madrid's path to skirt political backlash and public wrath.
Studies have also found that Europe's shift toward defense spending increases economic activity moderately in the short term but crowds out private demand and pushes the debt-to-GDP ratio higher, activating a trickle-down effect on the economy. With NATO military expenditure touching unprecedented fiscal limits, social benefits and economic growth will be chopped, adding pressure to public finances, and climate goals will face an existential threat.
In an effort to protect the U.S. military-industrial complex and prevent NATO from sleepwalking into irrelevance, the Trump administration is setting a dangerous precedent for the rest of the world. This arbitrary target would elicit a reckless arms race internationally, slow down economic recovery, impinge on societal goals and weaken climate action, leaving people in NATO countries wondering whether their governments were standing with or against them.
*My article that first appearted in CGTN