Sweden's historic rearmament: A turning point in European security policy – financed through borrowing – Image: Xpert.Digital
Sweden plans historic defense upgrade costing 28 billion euros by 2035
An unprecedented political agreement for national security
Sweden is currently undergoing one of the most significant security policy shifts in its modern history. The Swedish governing parties, together with the opposition, have agreed on a massive increase in defense spending that will fundamentally transform the country. This cross-party agreement is remarkable because it encompasses all of the country's major political forces – from the ruling parties and the Social Democrats to the Sweden Democrats, the Left Party, the Centre Party, and the Greens.
The scale of the planned investments is unprecedented: By 2035, Sweden intends to invest an additional 300 billion kroner in defense, equivalent to approximately 28 billion euros. This sum represents the country's largest military buildup since the end of the Cold War. Prime Minister Ulf Kristersson described the project as a historic turning point for the security of Sweden and the entire NATO alliance.
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Financing through borrowing: A new approach
This massive military buildup is being financed largely through loans, an approach also being discussed in Germany. The Swedish government plans to issue bonds worth 300 billion kronor with a maturity date of 2035. This loan financing is intended as a temporary measure to enable a rapid response to the changing security situation.
Debt is capped at a maximum of 300 billion kroner, of which no more than 50 billion kroner may be used for investments in civil defense. The Swedish government has simultaneously emphasized that the debt-to-GDP ratio should remain at 35 percent in the long term to ensure the stability of public finances. Long-term financing is to be gradually introduced by 2035 to restore balanced public finances.
The new NATO target: Five percent of gross domestic product
Sweden's rearmament plans are aligned with NATO's new targets, which go far beyond the previous two percent target. The new target stipulates that NATO members should spend a total of five percent of their gross domestic product on security-related expenditures. This is divided into 3.5 percent for traditional defense spending and a further 1.5 percent for related expenditures such as strengthening civilian resilience, cyber defense, and militarily usable infrastructure.
Sweden currently spends about 2.4 percent of its gross domestic product on defense. The new target of 3.5 percent is to be reached by 2030. This dramatic increase reflects the changed threat landscape in Europe, particularly after Russia's war of aggression against Ukraine.
The Netherlands has already announced similar plans and also aims to reach the five percent target. Other NATO states, such as Poland and the Baltic countries, have also committed to this ambitious goal. Poland already leads the way with defense spending exceeding four percent of its gross domestic product, while the Baltic states of Estonia and Latvia, at 3.41 and 3.39 percent respectively, are also well above the current NATO standard.
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Sweden's path from neutrality to NATO membership
To understand the implications of current developments, it is necessary to look at Sweden's security policy history. For over 200 years, the Scandinavian country pursued a policy of armed neutrality. However, this neutrality was never absolute – as early as 1948, there were secret agreements with the USA and Great Britain regarding military cooperation with NATO in the event of a Soviet attack.
During the Cold War, Sweden possessed impressive military capabilities. The country had the fourth-largest air force in the world and could mobilize up to 850,000 troops. Domestically produced tanks, fighter jets, and submarines from the Swedish defense industry bolstered the credibility of its armed neutrality. After the end of the Cold War, however, military spending was drastically reduced – from 3.2 percent of GDP in 1988 to just 1.2 percent.
The turning point came with Russia's annexation of Crimea in 2014, which led to initial increases in defense spending. Russia's war of aggression against Ukraine in February 2022 then significantly accelerated Sweden's NATO accession. After almost two years of the accession process, Sweden was admitted to NATO as its 32nd member in March 2024.
The changed security situation in Europe
Sweden's massive military buildup is a direct response to the fundamentally changed security situation in Europe. Russia is now considered the greatest conventional threat to Europe. This threat is not limited to direct military confrontation, but also includes hybrid warfare, cyberattacks, and other forms of destabilization.
Prime Minister Kristersson also pointed to the uncertainties in transatlantic relations, particularly with regard to the policies of US President Donald Trump. These uncertainties, he said, would persist for a long time and therefore necessitate greater European self-reliance in defense. Trump is demanding that NATO countries increase their defense spending to five percent of their gross domestic product, while the US itself spends only 3.5 percent.
The threat from Russia is already having a concrete impact on Swedish defense planning. Parts of the Baltic states, which border Russia directly, are particularly vulnerable. Modern threats from long-range weapons and hybrid warfare necessitate entirely new defense concepts.
Sweden's defense industry as a strategic advantage
A key factor in Sweden's rearmament plans is its strong domestic defense industry. Companies like Saab AB play a central role in the European defense landscape. Today, Saab is a global player with 21,600 employees, serving 100 markets in 30 countries. The company is divided into four main divisions: Aerospace, Dynamics (weapons systems), Surveillance (electronic warfare, radar, cybersecurity), and Kockums (submarines and warships).
The Swedish defense industry has already implemented concrete projects to strengthen its defense capabilities. For example, Sweden and Denmark have jointly ordered 205 CV90 infantry fighting vehicles, 50 of which will replace vehicles donated to Ukraine. This cooperation demonstrates how the Nordic countries are coordinating the expansion of their defense capacities.
Nordic defence cooperation and European integration
Sweden is part of the Nordic Defence Cooperation (Nordefco), a military alliance of the Nordic countries Denmark, Finland, Iceland, Norway, and Sweden. This organization aims to strengthen military cooperation for defense against external aggression. Nordefco complements NATO membership and enables closer regional coordination.
Nordic cooperation has proven particularly effective, as the countries face similar security challenges and possess compatible military systems. The defense ministers of the member states meet regularly for consultations, with the chairmanship rotating among the countries.
Impact on support for Ukraine
An important aspect of Sweden's military buildup is its increased support for Ukraine. The aid earmarked for 2025 has been raised from the originally planned 25 billion kroner to 40 billion euros. This increase demonstrates that Sweden's military buildup serves not only its own defense but also the stabilization of the European security order.
Support for Ukraine is part of a broader European strategy aimed at stopping Russian aggression and defending the rules-based international order. Sweden has already delivered significant quantities of military equipment to Ukraine, including the aforementioned CV90 infantry fighting vehicles.
Germany in comparison: Similar challenges
Germany faces similar challenges to Sweden in financing increased defense spending. In March 2025, the German Bundestag passed an amendment to the Basic Law (Constitution) that allows debt-financed defense investments outside the debt brake. For defense and security expenditures, the debt brake is suspended for all spending exceeding one percent of gross domestic product.
Germany currently meets NATO's two percent spending target only through its existing €100 billion special fund for the Bundeswehr (German Armed Forces). According to current calculations, the new NATO targets could require Germany to spend approximately 3.6 percent of its gross domestic product annually. This would amount to a three-figure billion-euro sum and would necessitate a fundamental realignment of German fiscal policy.
Challenges and risks of credit financing
Financing rearmament through loans presents both opportunities and risks. On the one hand, it allows for a rapid response to changing threat levels without cutting other important government spending. On the other hand, it increases national debt and can restrict the financial flexibility of future governments.
Sweden has deliberately set limits on its debt and plans a gradual return to balanced budgets by 2035. The debt-to-GDP ratio is to remain permanently at 35 percent. This self-imposed restraint is intended to maintain the confidence of the financial markets and ensure long-term financial stability.
Strengthening civilian resilience and infrastructure
A key aspect of Sweden's military buildup is strengthening civilian resilience and infrastructure. The planned 1.5 percent of GDP for broader defense and security-related investments includes areas such as civil protection, critical infrastructure, and cybersecurity.
This holistic approach reflects the modern understanding of security, which extends far beyond traditional military threats. Strengthening societal resilience against hybrid threats, cyberattacks, and other forms of destabilization has become a central element of national security strategy.
International reactions and NATO summit
Sweden's rearmament plans are in the context of the upcoming NATO summit in The Hague on June 24 and 25, 2025. The new spending targets are to be officially adopted at this meeting. However, not all NATO members support the five percent target – Spain has already announced its opposition.
The differing positions of NATO members reflect their varying strategic priorities and financial resources. While Eastern European countries and those in Russia's immediate vicinity favor aggressive rearmament, other states are more reserved.
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A new era of European security
Sweden's historic rearmament marks the beginning of a new era in European security policy. The willingness to make massive investments in defense and finance them through loans demonstrates the seriousness of the perceived threat. At the same time, the cross-party agreement demonstrates the unity of Swedish politics on vital security issues.
The long-term implications of this development will extend far beyond Sweden. Other European countries will come under pressure to make similar efforts. Strengthening European defense capabilities could lead to a more balanced transatlantic partnership, in which Europe assumes greater responsibility for its own security.
Defense Minister Pål Jonson succinctly summarized the significance of the agreement: it paves the way for a historic defense buildup that will make Sweden and NATO more secure. Now, all parties involved must do everything in their power to accelerate this buildup in the coming years. These words encapsulate the urgency and determination with which Sweden and its allies are responding to the challenges of the 21st century.
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