In late May, NATO Secretary General Mark Rutte reaffirmed a desire to set a defense expenditure rate of 5% of gross national product (GDP) for NATO’s current 32 allies. It will be one of the chief topics of conversation at this year’s NATO Summit to be held in The Hague later this month, where Rutte is hopeful of ratification from the NATO members.
The ramifications of this major strategic shift will also be high on the agenda at the Paris Air Show. Europe's aerospace and defense industry leaders are having to rapidly recalibrate their planning and assess how the new U.S. administration's abrupt reset on defense spending and defense partnerships could reshape the continent's approach to air power procurement.
Rutte is asking for a target of 3.5% GDP to be for “hard” military spending, and a further 1.5% to be security-related expenditure. The latter might embrace sectors such as communications, cybersecurity, and AI/computing technology. Both requests have a target date of 2032 at the latest. If approved, the combined spend would meet the 5% requirements outlined by President Trump.
Peace Dividend and Ukraine
Following the end of the Cold War, defense budgets fell away significantly as nations reaped the “peace dividend.” The overall European defense spend rose slowly throughout the 2000s, primarily as new NATO allies in eastern Europe sought to meet NATO compatibility requirements for their forces following decades of Soviet doctrine and equipment. However, in the early 2010s, overall expenditure began decreasing again, reaching its lowest point in 2014.
For many years, NATO has had a defense expenditure target of 2% of GDP. In 2014, only three NATO allies—Greece, the UK, and the U.S.—exceeded that figure, with many hovering around the 1% figure. All that changed during February and March that year, when Russia invaded and subsequently annexed the Crimean peninsula. The event would mark a sea-change in Europe’s defense position, and one which laid the foundation for the acceleration of defense spending being witnessed today.
Russia’s second invasion of Ukraine in February 2022 certainly underlined the lessons to be learned from the 2014 invasion, and left no one in any doubt as to whether Europe should increase its own defense commitments. It was also to provide the spur for two strategically important northern nations—Finland and Sweden, both partner nations—to become full NATO members. Recent messaging from the Trump administration further underscores the need for Europe to stand on its own feet more, and that it can no longer completely rely on the U.S. to meet its additional defense needs.
Defense Resurgence
By 2020, the number of NATO nations hitting the 2% target had risen to nine, although it slumped slightly over the next two years as governments tackled the Covid crisis, but rose again in 2023 to 10. By the end of last no fewer than 23 of the 32 countries had reached 2%, with several significantly exceeding the goal. The U.S. itself spent 3.4% GDP on defense.
Despite having a common goal in GDP-relative expenditure, there is a considerable disparity across the alliance, with a loose correlation between defense budget and distance from the “front line.” In south and southwest Europe, nations such as Italy, Spain, and Portugal still lag some way behind the 2% target, as do Canada and Belgium. However, Greece and Turkey are above the line, a result of continued tension between the two, as well as being on the “front-line” on the Black Sea.
With most of northwestern and central Europe hovering around the 2% mark, the nations closer to Russia have already considerably increased their defense spending, notably Poland and the Baltic states. The latter are relatively small and rely on other NATO nations to provide air defense, but nevertheless devoted between 2.8 and 3.45% of their GDP to defense in 2024, Estonia even exceeding the GDP-related spend of the U.S. New NATO member Finland, too, is also considerably above the 2% line, which is not surprising given its long land border with Russia.
While GDP percentage is a good reflection of overall defense commitment, there is another related yardstick that reflects on defense force capability. Major equipment expenditure across the alliance is up around 40% compared with 2014 (measured in 2015 prices), and expenditure on equipment as a percentage of overall defense spending provides a measure of a nation’s defense ambitions in terms of focus on the front line—the size of its forces and their modernity and capability.
Poland: Europe’s Big Spender
In this instance Poland is the leader within NATO, spending around 51% of its budget on equipment, compared with the U.S. that spends around 30%. The nation was also by a considerable margin the biggest spender in Europe in GDP terms in 2024, devoting 4.12% of its GDP to defense. That figure is projected to rise to 4.5% or beyond this year.
It is not surprising that Poland’s government can spend such a large proportion of its budget on defense in the face of other burdens without much political opposition. The population is overwhelmingly supportive of the drive for more robust defenses, due to the nation’s “front-line” status. With the Russian Kaliningrad enclave to the north, and long land borders with Russian ally Belarus and Ukraine in the east, the Polish population understandably feels vulnerable to any further escalation of war in Europe.
Funding for Poland’s arms expansion comes not only from direct government budgets (3% of GDP) through the defense ministry, but also from bonds issued by the state-owned national bank, which simplifies investment from overseas. This allows for rapid procurement programs, such as those made necessary to replenish military assets following large-scale donations to Ukraine.
In terms of airpower, Poland has been replacing its Soviet-era types for some time, and last month the last of the surviving Sukhoi Su-22 fighters were retired. The air force is now centered around the Lockheed Martin F-16C/D Block 52, of which 48 were acquired. A batch of 48 Korea Aerospace Industries FA-50s is being bought to provide additional combat capability, while the air force is looking forward to receiving its first of 32 Lockheed Martin F-35As on order, initial examples of which are now issuing from final assembly.
Europe and the F-35
The F-35 is perhaps the biggest beneficiary of Europe’s increased defense expenditure, at least in aircraft equipment terms. Although events in Ukraine have no doubt influenced decision-makers, it should be noted that the F-35 became available at around the time that many European air arms needed to replace ageing equipment anyway, with types such as the Panavia Tornado, Boeing F/A-18 Hornet, and F-16 all reaching or nearing the ends of their careers.
F-35s are already in service, or handed over to, NATO members Belgium, Denmark, Italy, the Netherlands, Norway, the U.S., and the UK. The type has been ordered by the Czech Republic (24), Finland (64), Germany (35), Greece (20, plus a possible 20), and Romania (32+16). NATO Partnership for Peace nation Switzerland has 36 on order, and Canada has ordered 88 to replace its CF-18 Hornets.
Germany represents an interesting case in the resurgence in European defense spending and a radical restructuring of its defense posture. This was brought on primarily by Russia’s 2022 invasion of Ukraine. In June 2022, a special fund was created to rapidly modernize the Bundeswehr and to offset donations of equipment to Ukraine, including air defense missile systems and Leopard tanks.
In 2024, Germany signed 97 defense acquisitions, part of a rise in GDP spending to the 2% target, the nation having spent just 1.38% GDP in 2022. There is consensus that it is still not enough, and a rise to 3.5% is likely.
In addition to big purchases from the U.S. such as the F-35—which will maintain the nuclear capability armed with U.S.-owned B61 weapons—and CH-47F Chinook helicopters, Germany’s own industry is benefitting, with sizeable orders being placed for more Typhoons to replace the ageing Tranche 1 version and the elements of the Tornado fleet not being replaced by the F-35.