NATO countries agree historical upgrade: the way to the five percent goal

Konrad Wolfenstein

6 months ago

NATO states agree on historic rearmament: The path to the five percent target – Image: Xpert.Digital

Government consulting costs are exploding - new figures reveal shocking developments

Historic agreement reached ahead of the summit in The Hague

The North Atlantic Alliance is facing one of the most significant changes since its founding in 1949. Shortly before the NATO summit in The Hague, all 32 member states agreed on an unprecedented increase in their defense spending. This decision marks a fundamental shift in the European security architecture and represents the largest arms buildup initiative since the end of the Cold War.

The new target stipulates that each NATO member should spend at least five percent of its gross domestic product on defense-related expenditures by 2035. This doubling of the previous two percent target is a direct response to the changed threat landscape in Europe and the ongoing demands from the United States for a more equitable burden-sharing within the alliance.

NATO member states have agreed on a new target for defense spending just days before the official NATO summit in The Hague, which will take place on June 24 and 25, 2025. The agreement was reached through a written decision-making process that concluded on Sunday, June 22, 2025.

The decision was therefore not made during a major conference, but rather beforehand through a multilateral voting process in which all 32 member states agreed. Formal adoption of the new spending target is scheduled for the conclusion of the NATO summit in The Hague, where the heads of state and government will officially confirm the decisions.

Suitable for:

NATO summit in the Haag on June 24th and 25th, 2025: Tensions about defense spending and Trump fears

The structure of the new defense objective

The ambitious five percent target is strategically divided into two components to account for differing national circumstances and priorities. At least 3.5 percent of GDP is to be allocated to traditional military spending such as armaments, soldiers' salaries, and military equipment. The remaining 1.5 percent can be used for defense-related infrastructure and enhanced security measures.

This flexible structure allows member states to count investments in tank-resistant bridges, military-grade railway lines, expanded ports, cyber defense systems, and counter-terrorism measures. This broadening of the definition of defense spending reflects the modern reality in which security extends far beyond traditional military threats to include hybrid warfare, cyberattacks, and asymmetric threats.

Historical context: From the two percent rule to the five percent target

The development of NATO defense spending reflects changing geopolitical realities. The original two percent target was first established as a guideline for new member states at the 2002 NATO summit in Prague. At that time, the primary goal was for the Eastern European accession candidates to strengthen their defense capabilities in order to meet the alliance's standards.

The formal enshrining of the two percent target took place at the Wales Summit in 2014, immediately after Russia's annexation of Crimea and the outbreak of the conflict in eastern Ukraine. These events already made it clear at that time that the European security order was under pressure and that increased defense efforts were necessary.

Interestingly, the two percent target was never formulated as a legally binding obligation, but rather as a guideline towards which member states should "move". This deliberately vague formulation was intended to take into account the different national circumstances and political realities, but it also meant that many countries failed to reach the target for years.

Germany's defense turnaround

For Germany, the new five percent target represents a particularly dramatic change. The country only reached the two percent target for the first time in 2024, with estimated defense spending of €90.6 billion, equivalent to 2.12 percent of GDP. This increase was only possible thanks to the €100 billion special fund established after the Russian attack on Ukraine.

Chancellor Friedrich Merz has made the scale of the new challenge clear: Every percentage point of Germany's GDP currently equates to approximately 45 billion euros in additional defense spending. With a five percent target, Germany would thus have to spend around 225 billion euros annually on defense – almost half of the total federal budget of 466 billion euros.

These enormous sums illustrate the scope of the planned militarization. Germany would have to more than double its defense spending, which would necessitate fundamental changes in the budget structure and possibly also in tax policy.

European leaders and laggards

The current distribution of defense spending within NATO already reveals significant differences between member states. Poland leads the list with 4.12 percent of its GDP, bringing it close to the new five percent target. The country has consciously chosen to become "Europe's strongest land power" and plans to expand its armed forces from the current 150,000 to 300,000 soldiers by 2035.

Estonia follows with 3.43 percent of GDP, even surpassing the USA, which stands at 3.38 percent. These high expenditures by the eastern NATO members reflect their geographical proximity to Russia and the resulting perception of threat.

At the other end of the scale are countries like Spain, which brings up the rear with less than two percent of its GDP. The Spanish government under Pedro Sánchez described the five percent target as “inappropriate” and “counterproductive” and demanded an exemption. This stance delayed an agreement and necessitated intensive negotiations before a semantic solution was finally found that slightly weakened the target.

Trump's role and American interests

Donald Trump's demand for higher European defense spending is not new, but it has gained renewed urgency with his return to the White House. During his first term, he repeatedly criticized what he considered to be insufficient contributions from European allies and even threatened a US withdrawal from NATO.

Trump's argument follows a simple logic: The US protects Europe, but Europe does not protect the US. This view reflects a fundamental shift in American foreign policy, which aims for a more equitable distribution of the burden within the transatlantic alliance.

The demand for five percent of GDP for defense spending is noteworthy, as even the US itself does not reach this figure. Trump, however, dismissed this objection, emphasizing that the US bears a greater responsibility for global security than its allies.

Hub for security and defense - advice and information

Hub for security and defense - Image: Xpert.digital

The hub for security and defense offers well-founded advice and current information in order to effectively support companies and organizations in strengthening their role in European security and defense policy. In close connection to the SME Connect working group, he promotes small and medium -sized companies (SMEs) in particular that want to further expand their innovative strength and competitiveness in the field of defense. As a central point of contact, the hub creates a decisive bridge between SME and European defense strategy.

Suitable for:

The Working Group Defense of the SME Connect - Strengthening SMEs in European defense

Hybrid warfare: Why cyberattacks can now trigger NATO's collective defense clause

Russia as a driving force in rearmament

Russia's war of aggression against Ukraine since February 2022 has fundamentally altered the European security landscape. NATO is facing its greatest military threat since the end of the Cold War and has responded accordingly. Intelligence assessments suggest that, despite the ongoing war, Russia could be ready for a conflict with a NATO member state within just a few years.

This threat analysis has led to NATO's largest modernization program in decades. The alliance has adopted new targets for military capabilities, specifying precisely what each member state must contribute to collective deterrence and defense.

For Germany, this means specifically that the Bundeswehr (German Armed Forces) must increase its personnel strength by 50,000 to 60,000 additional soldiers. This massive increase in personnel is just one example of the far-reaching consequences of the new defense plans.

Suitable for:

Defense logistics: Germany's key role in the NATO strategy-how AI and robots can advance the Bundeswehr

New forms of threat and hybrid warfare

The modern security landscape is characterized by new forms of threat that go beyond traditional military attacks. Hybrid warfare combines military, economic, political, and technological means to undermine the stability of democratic societies.

Cyberattacks on critical infrastructure, disinformation campaigns to influence political processes, and economic pressure have become central elements of modern conflict. These developments necessitate a broadening of the traditional understanding of defense and justify the inclusion of cybersecurity and information defense in defense spending.

NATO has adjusted its strategy accordingly and clarified that hybrid attacks exceeding a critical threshold can also trigger Article 5 of the collective defense clause. This expansion of the defense concept is also reflected in the new structure of defense spending, which explicitly includes investments in cyber defense and related areas.

European defence integration as a parallel development

Parallel to NATO's modernization efforts, European defense integration is also developing. Permanent Structured Cooperation (PESCO) was established in 2017 as a milestone on the path to a European Defense Union and now comprises over 60 joint projects.

PESCO enables EU member states to make binding commitments in the areas of defense spending, planning, and harmonization. This European dimension of defense cooperation complements NATO structures and could, in the long term, lead to a “European Army,” referred to as a “military Schengen.”.

The development of European defense capabilities is also a response to American demands for greater European self-reliance. While NATO strengthens the transatlantic relationship, PESCO aims to enable Europe to remain capable of acting independently of American support.

Ukraine and the limits of solidarity

Despite massive military buildup, support for Ukraine remains a controversial issue within NATO. While the alliance has offered Ukraine the prospect of membership, it has attached strict conditions. Concrete reforms in the areas of democracy and security are required before a formal invitation can be extended.

This cautious stance reflects concerns about an unpredictable Russian reaction. Ukraine's accession to NATO would automatically extend the collective defense clause to the warring country and could lead to a direct confrontation between NATO and Russia.

The lukewarm support for Ukraine in the summit's final declaration highlights the limits of NATO solidarity and the complexity of the geopolitical situation. While the alliance is prepared to spend billions on its own defense, concrete assistance for its attacked neighbor remains limited.

Economic and social challenges

Implementing the five percent target will entail massive economic and social changes. Germany would have to increase its defense spending from the current level of approximately 90 billion euros to 225 billion euros – an increase of 135 billion euros annually.

These enormous sums raise questions about affordability and societal priorities. Critics warn of a militarization of society and fear that social spending will have to be cut to finance defense expenditures. The Spanish government argued that high military spending is “incompatible with our welfare state and our worldview.”.

On the other hand, proponents argue that investments in defense are necessary to protect the foundations of democratic society. The costs of defense are ultimately lower than the costs of war or submission to an authoritarian power.

A new era of security policy

The agreement on the five percent target marks the beginning of a new era in European security policy. NATO is transforming from a Cold War defense alliance into a comprehensive security organization geared towards the challenges of the 21st century.

The massive arms buildup will change the geopolitical balance of power and could lead to a new arms race. Russia is expected to respond to Western rearmament, which could further escalate tensions.

At the same time, increased defense readiness also offers opportunities for greater European autonomy and a more equitable transatlantic burden-sharing. Europe could emancipate itself from the American security guarantee and become an equal partner in the global security architecture.

Achieving the five percent target by 2035 will be one of the greatest political and economic challenges of the coming years. The success or failure of this initiative will be crucial for the future of European security and the stability of transatlantic relations.

The historic decision by NATO states to massively increase their military spending demonstrates that the era of the "peace dividend" after the end of the Cold War is definitively over. Europe is returning to a security policy characterized by military strength and a readiness to defend itself. This development will fundamentally shape the political and social landscape of the continent in the coming years.

Suitable for:

Advice - planning - implementation