In a landmark shift, the members of the North Atlantic Treaty Organization (NATO) have endorsed a new national spending benchmark: 5 per cent of gross domestic product (GDP) to be invested annually in ‘core defence requirements as well as defence- and security-related spending’ by 2035. Enshrined in a joint declaration from the 2025 NATO Summit in The Hague, the spending pledge is being hailed as ‘historic’ by its proponents. In fact, it more than doubles NATO’s long-standing 2 per cent of GDP spending guideline and signals a renewed focus on military preparedness in an increasingly uncertain geopolitical environment.
While the commitment was primarily about sending political messages, it has significant fiscal and operational implications for the NATO members that deserve careful scrutiny. This essay will first look at the political symbolism of the commitment. It will then break down the new benchmark and highlight a number of important questions around implementation, such as what it means in financial terms; what spending will be counted; what risks and challenges are involved in translating higher spending into necessary military capabilities; and what oversight mechanisms are in place.
A political signal, not a spending plan
The 5 per cent target is, above all, a political statement. It aims to demonstrate resolve, unity and a shared commitment among allies to shoulder the burden of defence and security—primarily as a deterrent to NATO’s adversaries, foremost among them Russia. It builds on the precedent of the 2 per cent benchmark adopted in 2014, but with a more assertive posture in a markedly changed geopolitical landscape.
There is also a clear target audience within the alliance: the United States, and specifically President Donald J. Trump. Trump has repeatedlythreatened to disengage from NATO over the ‘unfair’ share of the burden the USA shoulders, and allies on both sides of the Atlantic engaged in reciprocal trade tariffs with the USA. This unprecedented spending target—first proposed by Trump himself—is an attempt to mollify him and keep the USA committed to the alliance.
The 5 per cent target strongly indicates that NATO is prioritizing deterrence, strength and military preparedness over diplomatic mechanisms like arms control. This reflects a broader shift in how security is conceptualized. Whereas the 1990 Treaty on Conventional Armed Forces in Europe (CFE) was once heralded as the ‘cornerstone of European security’, embodying a vision of security built on arms control, transparency and confidence-building mechanisms (CBMs), security today is generally viewed through the lens of hard power and deterrence. This shift has significant implications. A more militarized posture may undermine current and future efforts towards dialogue, CBMs and any future arms control agreements. When you are a hammer, everything starts to look like a nail.
As with previous spending targets, there is a risk of conflating input with output. Military expenditure is a flow measure; it reflects the current year’s investment in defence but does not capture the accumulated stock of military capabilities such as existing equipment, infrastructure, doctrine or institutional knowledge. As such, military spending as a share of GDP is easy to communicate but must not be mistaken for a direct indicator of military capabilities. Moreover, it does not speak to whether funds are being used efficiently, whether the spending addresses real capability gaps, or how resources are balanced across categories such as personnel, major equipment, and operations and maintenance.
How much, and how sustainable, is 5 per cent of GDP?
The current economic context is sobering. Debt levels among many NATO member states are relatively high and the fiscal sustainability of several of them is questionable. Among the allies, only Germany has historically had a rigorous fiscal policy, with a debt-to-GDP ratio below 100 (62.5 per cent). However, in 2025 the German Parliament amended the country’s constitution to lift the debt brake and thus enable an increase in military expenditure.
Other major NATO economies face fiscal sustainability challenges due to high levels of public debt. In May 2025, the ratings firm Moody’s downgraded the USA’s credit rating due to concerns over its debt. Two out of three of the main ratings agencies assessed the outlook for France’s credit ratings as negative, after downgrading their ratings in 2024. In the last quarter of 2024, French debt was 112 per cent of GDP. The International Monetary Fund (IMF) has warned Italy about its debt and urged fiscal reform. In 2023, Italy’s debt reached 135 per cent of GDP.
The new NATO spending target is divided into two categories. States are to allocate at least 3.5 per cent of GDP ‘based on the agreed definition of NATO defence expenditure’ to ‘core defence requirements’. They should also ‘account for’ up to 1.5 per cent of GDP being spent on other ‘defence- and security-related spending’, including to ‘inter alia protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defence industrial base.’
It remains unclear what qualifies under this additional 1.5 per cent. For example, spending on ‘developing the defence industrial base’ and defence-related infrastructure would typically already fall under core defence. On the one hand, if the 1.5 per cent were to be clearly defined as investments in civil resilience, such as transportation or communication infrastructure, it could bring tangible benefits to the wider population. Military spending per se would then account for 3.5 per cent of GDP. On the other hand, if the 1.5 per cent is primarily used to boost production capacities in the arms industry or build military-related infrastructure, the broader societal benefits may be limited, reinforcing the defence-centric approach and pushing up states’ military burden to the headline 5 per cent of GDP.
However the money is spent, it is important to illustrate the scale of adjustment required to reach the new target. The average military burden for all NATO members in 2024 stands at 2.2 per cent of GDP, equivalent to approximately US$1.5 trillion. At 3.5 per cent of GDP, expenditure on core defence for many NATO allies would still constitute a doubling or tripling of their current expenditures. Only Poland, with a military burden of 4.2 per cent of GDP (see figure 1) would as of 2024 be considered to have reached the target.
Based on GDP projections, if all NATO allies met the target in 2035, they would need to allocate around $1.4 trillion more in annual military spending than they did in 2024 in order to reach 3.5 per cent of GDP. This would put total NATO annual military spending at $2.9 trillion. Spending 5 per cent of GDP in 2035 would require an additional almost $2.7 trillion, putting the allies’ total NATO spending in that year at roughly $4.2 trillion.
Looking at some individual countries, Germany would need to spend approximately $329 billion in 2035 in order to reach 5 per cent, France $221 billion and Italy $158 billion. For context, estimated public spending on education in these countries currently stands at around $283 billion, $225 billion and $126 billion, respectively. In 2024 only nine countries in the world had a military burden of 5 per cent or more, with the highest being those at war with others being petro-states or dictatorships that can finance military increases without necessary parliamentary consent.
Can the defence sector absorb the increased spending?
Even assuming the resources could be made available, a pressing question remains: can NATO’s national defence sectors absorb a doubling or tripling of military budgets in a responsible and effective way?
In the past, rapid increases in military expenditure have been associated with significant risks: procurement inefficiencies, overpricing, misuse and the bypassing of oversight mechanisms. Moreover, the capacity of the arms industrial base to absorb sharp and substantial increases in military spending is uncertain. The industry has struggled to scale up production, particularly in Europe, and meet rising demand since 2022. This mismatch between rising demand and supply could push European countries to buy off-the-shelf equipment from major US arms producers, which is arguably at odds with calls for Europe to increase its strategic and defence autonomy.
Moreover, inflation in the defence sector (so-called ‘defence cost inflation’) often outpaces general inflation, meaning that even significant nominal increases may yield modest real capability gains. In such a context, the marginal returns on investment may decline rapidly, and wasteful spending could proliferate. This inflation can be driven by ‘demand-pull’ factors, as demand outpaces supply, and by ‘cost-push’, as new generations of equipment become more technologically advanced and expensive. Factors such as limited competition and the lack of economies of scale contribute to rigidities in the market, pushing up production costs and prices.
Matching the 5 per cent target to NATO’s Defence Planning Process
The 5 per cent target is rationalized in part as funding for the new set of capability targets announced on 5 June 2025 as part of the NATO Defence Planning Process (NDPP). While these targets, according to NATO Secretary General Mark Rutte, are linked to NATO’s collective security and are ‘needed to keep our deterrence and defence strong and our one billion people safe’, there are two possible mismatches.
Firstly, different NATO members face different security environments and strategic priorities that require different conventional capabilities compared to the alliance-wide capability targets. Secondly, despite the collective capability and spending targets, the need to fund these targets remain at the individual country level, overseen by national parliaments.
However, the specific capability targets set under the NDPP are classified. As a result, the defence budgets meant to address these targets are developed and approved without the possibility of public scrutiny or democratic oversight. In a standard budgetary process, actors such as parliaments, auditing institutions, ministries, civil society organizations and the broader public play important roles in ensuring oversight and accountability. When key planning documents remain inaccessible, it becomes impossible for them to assess whether spending decisions align with actual defence needs. This lack of transparency and accountability poses a serious challenge to responsible resource management and undermines the principles of good governance.
Conclusions
The new NATO spending target marks a decisive moment in the alliance’s trajectory. It signals commitment, unity and a response to the threat from Russia. But it also poses significant challenges, both fiscal and operational.
A NATO alliance that substantially increases its advantage in military expenditure compared to its adversaries may deter aggression, but it also risks accelerating an arms race that overlooks diplomacy and could challenge the ability of domestic defence sectors to absorb the influx of new resources and erode arms control norms. Achieving the 5 per cent of GDP target would require an extraordinary mobilization of financial resources by NATO allies—on a scale that that has not been seen since the cold war. Ultimately, the continued growth in military expenditure reflects a move away from a culture that promotes peace through cooperation, dialogue, respect for international law, fulfilment of international commitments for the benefit of the common good, and peaceful resolution of disputes.
In considering the ramifications of the new target, it is important to ask not only how much is spent, but how it is spent; for example, whether taxpayers’ money is being invested with sufficient oversight and accountability in the defence planning and budgetary processes.
ABOUT THE AUTHOR(S)
Dr Nan Tian is a Senior Researcher and Programme Director of the SIPRI Military Expenditure and Arms Production Programme.
Lorenzo Scarazzato is a Researcher in the SIPRI Military Expenditure and Arms Production Programme.
Jade Guiberteau Ricard is a Research Assistant in the SIPRI Military Expenditure and Arms Production Programme.
In a landmark shift, the members of the North Atlantic Treaty Organization (NATO) have endorsed a new national spending benchmark: 5 per cent of gross domestic product (GDP) to be invested annually in ‘core defence requirements as well as defence- and security-related spending’ by 2035. Enshrined in a joint declaration from the 2025 NATO Summit in The Hague, the spending pledge is being hailed as ‘historic’ by its proponents. In fact, it more than doubles NATO’s long-standing 2 per cent of GDP spending guideline and signals a renewed focus on military preparedness in an increasingly uncertain geopolitical environment.
While the commitment was primarily about sending political messages, it has significant fiscal and operational implications for the NATO members that deserve careful scrutiny. This essay will first look at the political symbolism of the commitment. It will then break down the new benchmark and highlight a number of important questions around implementation, such as what it means in financial terms; what spending will be counted; what risks and challenges are involved in translating higher spending into necessary military capabilities; and what oversight mechanisms are in place.
A political signal, not a spending plan
The 5 per cent target is, above all, a political statement. It aims to demonstrate resolve, unity and a shared commitment among allies to shoulder the burden of defence and security—primarily as a deterrent to NATO’s adversaries, foremost among them Russia. It builds on the precedent of the 2 per cent benchmark adopted in 2014, but with a more assertive posture in a markedly changed geopolitical landscape.
There is also a clear target audience within the alliance: the United States, and specifically President Donald J. Trump. Trump has repeatedly threatened to disengage from NATO over the ‘unfair’ share of the burden the USA shoulders, and allies on both sides of the Atlantic engaged in reciprocal trade tariffs with the USA. This unprecedented spending target—first proposed by Trump himself—is an attempt to mollify him and keep the USA committed to the alliance.
The 5 per cent target strongly indicates that NATO is prioritizing deterrence, strength and military preparedness over diplomatic mechanisms like arms control. This reflects a broader shift in how security is conceptualized. Whereas the 1990 Treaty on Conventional Armed Forces in Europe (CFE) was once heralded as the ‘cornerstone of European security’, embodying a vision of security built on arms control, transparency and confidence-building mechanisms (CBMs), security today is generally viewed through the lens of hard power and deterrence. This shift has significant implications. A more militarized posture may undermine current and future efforts towards dialogue, CBMs and any future arms control agreements. When you are a hammer, everything starts to look like a nail.
As with previous spending targets, there is a risk of conflating input with output. Military expenditure is a flow measure; it reflects the current year’s investment in defence but does not capture the accumulated stock of military capabilities such as existing equipment, infrastructure, doctrine or institutional knowledge. As such, military spending as a share of GDP is easy to communicate but must not be mistaken for a direct indicator of military capabilities. Moreover, it does not speak to whether funds are being used efficiently, whether the spending addresses real capability gaps, or how resources are balanced across categories such as personnel, major equipment, and operations and maintenance.
How much, and how sustainable, is 5 per cent of GDP?
The current economic context is sobering. Debt levels among many NATO member states are relatively high and the fiscal sustainability of several of them is questionable. Among the allies, only Germany has historically had a rigorous fiscal policy, with a debt-to-GDP ratio below 100 (62.5 per cent). However, in 2025 the German Parliament amended the country’s constitution to lift the debt brake and thus enable an increase in military expenditure.
Other major NATO economies face fiscal sustainability challenges due to high levels of public debt. In May 2025, the ratings firm Moody’s downgraded the USA’s credit rating due to concerns over its debt. Two out of three of the main ratings agencies assessed the outlook for France’s credit ratings as negative, after downgrading their ratings in 2024. In the last quarter of 2024, French debt was 112 per cent of GDP. The International Monetary Fund (IMF) has warned Italy about its debt and urged fiscal reform. In 2023, Italy’s debt reached 135 per cent of GDP.
The new NATO spending target is divided into two categories. States are to allocate at least 3.5 per cent of GDP ‘based on the agreed definition of NATO defence expenditure’ to ‘core defence requirements’. They should also ‘account for’ up to 1.5 per cent of GDP being spent on other ‘defence- and security-related spending’, including to ‘inter alia protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defence industrial base.’
It remains unclear what qualifies under this additional 1.5 per cent. For example, spending on ‘developing the defence industrial base’ and defence-related infrastructure would typically already fall under core defence. On the one hand, if the 1.5 per cent were to be clearly defined as investments in civil resilience, such as transportation or communication infrastructure, it could bring tangible benefits to the wider population. Military spending per se would then account for 3.5 per cent of GDP. On the other hand, if the 1.5 per cent is primarily used to boost production capacities in the arms industry or build military-related infrastructure, the broader societal benefits may be limited, reinforcing the defence-centric approach and pushing up states’ military burden to the headline 5 per cent of GDP.
However the money is spent, it is important to illustrate the scale of adjustment required to reach the new target. The average military burden for all NATO members in 2024 stands at 2.2 per cent of GDP, equivalent to approximately US$1.5 trillion. At 3.5 per cent of GDP, expenditure on core defence for many NATO allies would still constitute a doubling or tripling of their current expenditures. Only Poland, with a military burden of 4.2 per cent of GDP (see figure 1) would as of 2024 be considered to have reached the target.
Based on GDP projections, if all NATO allies met the target in 2035, they would need to allocate around $1.4 trillion more in annual military spending than they did in 2024 in order to reach 3.5 per cent of GDP. This would put total NATO annual military spending at $2.9 trillion. Spending 5 per cent of GDP in 2035 would require an additional almost $2.7 trillion, putting the allies’ total NATO spending in that year at roughly $4.2 trillion.
Looking at some individual countries, Germany would need to spend approximately $329 billion in 2035 in order to reach 5 per cent, France $221 billion and Italy $158 billion. For context, estimated public spending on education in these countries currently stands at around $283 billion, $225 billion and $126 billion, respectively. In 2024 only nine countries in the world had a military burden of 5 per cent or more, with the highest being those at war with others being petro-states or dictatorships that can finance military increases without necessary parliamentary consent.
Can the defence sector absorb the increased spending?
Even assuming the resources could be made available, a pressing question remains: can NATO’s national defence sectors absorb a doubling or tripling of military budgets in a responsible and effective way?
In the past, rapid increases in military expenditure have been associated with significant risks: procurement inefficiencies, overpricing, misuse and the bypassing of oversight mechanisms. Moreover, the capacity of the arms industrial base to absorb sharp and substantial increases in military spending is uncertain. The industry has struggled to scale up production, particularly in Europe, and meet rising demand since 2022. This mismatch between rising demand and supply could push European countries to buy off-the-shelf equipment from major US arms producers, which is arguably at odds with calls for Europe to increase its strategic and defence autonomy.
Moreover, inflation in the defence sector (so-called ‘defence cost inflation’) often outpaces general inflation, meaning that even significant nominal increases may yield modest real capability gains. In such a context, the marginal returns on investment may decline rapidly, and wasteful spending could proliferate. This inflation can be driven by ‘demand-pull’ factors, as demand outpaces supply, and by ‘cost-push’, as new generations of equipment become more technologically advanced and expensive. Factors such as limited competition and the lack of economies of scale contribute to rigidities in the market, pushing up production costs and prices.
Matching the 5 per cent target to NATO’s Defence Planning Process
The 5 per cent target is rationalized in part as funding for the new set of capability targets announced on 5 June 2025 as part of the NATO Defence Planning Process (NDPP). While these targets, according to NATO Secretary General Mark Rutte, are linked to NATO’s collective security and are ‘needed to keep our deterrence and defence strong and our one billion people safe’, there are two possible mismatches.
Firstly, different NATO members face different security environments and strategic priorities that require different conventional capabilities compared to the alliance-wide capability targets. Secondly, despite the collective capability and spending targets, the need to fund these targets remain at the individual country level, overseen by national parliaments.
However, the specific capability targets set under the NDPP are classified. As a result, the defence budgets meant to address these targets are developed and approved without the possibility of public scrutiny or democratic oversight. In a standard budgetary process, actors such as parliaments, auditing institutions, ministries, civil society organizations and the broader public play important roles in ensuring oversight and accountability. When key planning documents remain inaccessible, it becomes impossible for them to assess whether spending decisions align with actual defence needs. This lack of transparency and accountability poses a serious challenge to responsible resource management and undermines the principles of good governance.
Conclusions
The new NATO spending target marks a decisive moment in the alliance’s trajectory. It signals commitment, unity and a response to the threat from Russia. But it also poses significant challenges, both fiscal and operational.
A NATO alliance that substantially increases its advantage in military expenditure compared to its adversaries may deter aggression, but it also risks accelerating an arms race that overlooks diplomacy and could challenge the ability of domestic defence sectors to absorb the influx of new resources and erode arms control norms. Achieving the 5 per cent of GDP target would require an extraordinary mobilization of financial resources by NATO allies—on a scale that that has not been seen since the cold war. Ultimately, the continued growth in military expenditure reflects a move away from a culture that promotes peace through cooperation, dialogue, respect for international law, fulfilment of international commitments for the benefit of the common good, and peaceful resolution of disputes.
In considering the ramifications of the new target, it is important to ask not only how much is spent, but how it is spent; for example, whether taxpayers’ money is being invested with sufficient oversight and accountability in the defence planning and budgetary processes.
ABOUT THE AUTHOR(S)