The new NATO defence spending commitment, agreed 25 June, would see member countries aiming to dedicate 3.5% of GDP to ‘core’ defence spending and an additional 1.5% on flanking infrastructure and digital resilience, making for a total of 5%. European Union member governments on 26 June said EU countries should “coordinate among themselves the implementation of relevant commitments”.
This is significant because the targets are unrealistic and politically unsustainable for countries to meet individually. They can only be reached with a shift towards central provision of defence goods at the European level as part of a comprehensive common EU defence strategy. This would reduce waste of public resources and increases the effectiveness of defence spending.
Many EU countries face hard fiscal constraints. It is unrealistic to expect countries that have struggled for decades to reach a 2% defence spending target to embrace credibly an ill-justified, much higher target. Even with political will (and it is uncertain that it is present) these countries face market discipline and societal constraints. Without mutualisation of defence expenditure, the fiscal trade-offs implied by a 5% target would be indigestible for the publics in many EU countries. The goal can be expected to lead governments to turn to creative accounting and handing over of decisions to their successors: ‘extend and pretend’ will likely become the norm.
Citizens, meanwhile, prefer to spend better before spending more. In the European context, this means centralisation and coordination of national capabilities to avoid duplication, to standardise equipment and to provide defence public goods jointly. Only once the major inefficiencies associated with 27 separate armies have been reduced, thus freeing substantial additional resources for rearmament, will the higher nominal spending target become a politically actionable proposition. Efficiency and effectiveness gains may ultimately prove that the targeted increase in overall spending is excessive, justifying a review.
EU countries on 26 June took stock of the new NATO targets, acknowledged that land, sea and air-border defence are European public goods (point 18 in their communiqué) and invited the European Commission to propose new initiatives for priority defence capability financing (especially if jointly procured) and cross-border military mobility. The Commission should now offer an ‘EU pathway’ to make the 3.5% plus 1.5% targets politically and financially sustainable.
The Commission should work down the list of capability gaps identified earlier in 2025 by the European Military Staff. Some of these, including air defence, border fortifications and naval patrolling, can be considered European public goods, and the Commission should propose that they be financed via EU bonds and connected to the next EU budget cycle (Multiannual Financial Framework, 2028-2035).
This could amount to about 1% of GDP, which would leave countries to finance the remaining 0.5%-point increase in core defence spending from their national budgets. The composition of the spending increase is also important – it should not just end up paying for higher military salaries, without increasing the workforce and amount of equipment.
On the 1.5% infrastructure target, the EU should issue a cross-border infrastructure plan, with the EU and member countries each providing 0.75% of GDP for long-range and cross-border infrastructure to connect Europe, insofar as these infrastructures contribute to military readiness. If done cleverly, there will also be benefits for civilians. The increased effort will need to be made as part of a plan to reconcile the short-term imperative of rapid response with the long-term need to create a true European Defence Union.
Only with a significant acceleration of EU integration, comprising joint delivery and financing of common capabilities, will the 3.5% and 1.5% targets be politically and financially viable. Without such a push, some countries will invariably fail to deliver what is needed – whether or not they formally meet the targets. This might be interpreted by other EU countries as a lack of solidarity and could undermine reciprocity, also in future crises. It would also provide the US administration an easy excuse to wriggle out of any NATO obligation to defend EU members.
About the Authors
Roel Beetsma is Dean of the Faculty of Economics and Business of the University of Amsterdam and Professor of Macroeconomics. He is also Visiting Professor at Copenhagen Business School and Research Fellow of the CEPR and CESifo.
Marco Buti holds the Tommaso Padoa-Schioppa Chair in economic and monetary integration at the European University Institute. He is the Former Chief of Staff of the Commissioner for the economy, Paolo Gentiloni, and was, until 2019, Director-General for Economic and Financial Affairs at the European Commission (DG ECFIN).
Francesco Nicoli is assistant professor of political science at the Politecnico Institute of Turin. He also serves as professor of political economy at Gent University and he is Affiliate Fellow at the department of economics of the University of Amsterdam as well as Non-resident Fellow at Bruegel.