A Continent at a Crossroads: NATO's Big Bet on Defense
The post WWII peace dividend is over — and the bill for military deterrence is coming due likely at the cost of social programs.
Military spending is increasing.
Perhaps due to partisan anger over tax cuts, a largely overlooked provision of the US’ One Big Beautiful Bill Act was over $150 billion in additional military spending — largely going to shipbuilding, nuclear arsenal investments, and air and missile defense systems. Naively, this may seem a product of American military largesse — the United States spends more on its military than the next eight countries combined — but military spending around the world, particularly among NATO (North Atlantic Treaty Organization) countries, has also been skyrocketing. Indeed, at the 2025 NATO “Summit in The Hague”, NATO countries made a commitment to invest at least 5% of Gross Domestic Product (GDP) annually on defense and security by 2035 (for reference the US spent 3.42% of its GDP on defense in 2024).
Despite only making up 12% of the world’s population, according to the Stockholm International Peace Research Institute (SIPRI), NATO countries accounted for 56% of all military spending worldwide in 2024 and 45.5% of the worldwide increase in military spending between 2022 and 2024. From Polish military spending already reaching nearly 5% of Poland’s GDP to the UK, which is undergoing one of “the largest sustained increases in defense [sic] spending”, the Western world is undergoing a rapid shift, unprecedented since the fall of the Soviet Union.
The obvious culprit for this rapid rise in spending is the Russo-Ukrainian War, causing increased nervousness and skittishness among NATO nations. Over half of NATO’s military spending increase (54%) between 2022 and 2024 was driven by European countries, with nations nearest the Russian border increasing their spending the most. Given this rapid rise that seems to only be accelerating, I thought it apropos to understand some of the history of NATO military spending, the tradeoffs that these countries are facing, and what may come next for many of them.
NATO’s Former 2% Military Spending Target
Though I began this post by referencing NATO’s new 5% military spending goal, this may seem unrealistic and lofty to many. When the target was 2%, many NATO allies consistently failed to meet it.
Following the collapse of the Soviet Union in 1991, military spending fell precipitously among the United States’ NATO allies. NATO was initially founded as a defensive pact to counter potential Soviet aggression and provide collective security. With this perceived threat gone, there appeared no longer to be a reason to maintain high levels of military spending. Only five years after the collapse of the Soviet Union, President Bill Clinton could be found encouraging European NATO allies to shoulder a greater share of the burden and to assume greater leadership with regard to NATO operations in Bosnia.
However, the decline in European military spending only continued throughout the late 1990s, with military spending among European countries even remaining stagnant during the NATO-backed invasion of Afghanistan in 2001 — the only invocation of NATO’s Article 5, which provides collective security for allies that are attacked.
The decrease in spending led President George W. Bush to state more clearly than his predecessor that “the decline in defense spending amongst NATO nations must be reversed.” Eventually, due to these US-led pressures, a “gentlemen’s agreement” among NATO countries was reached in 2002 at the NATO Prague Summit. Allies were to maintain military spending to at least 2% of their GDP. However, Europe’s average military spending would continue to decrease until 2014 when it reached a paltry average of 1.33%. The same year that it reached this nadir, the Maidan Revolution erupted in Ukraine, and Russia annexed Crimea. These events led to the “gentlemen’s agreement” of the 2% target being formalized among NATO countries at the 2014 Wales Summit.
That same year, President Barack Obama voiced American frustration at the lack of military spending and preparedness among the US’ European NATO allies, stating:
“Going forward, every NATO member state must step up and carry its share of the burden by showing the political will to invest in our collective defense and by developing the capabilities to serve as a source of international peace and security.”
However, it is perhaps President Donald Trump who has the most well-known reputation for accosting the US’ European allies to increase military spending. In President Trump’s first term, he articulated that “massive amounts of money” were owed, and demurred on a question of defending NATO allies that were invaded— though he later walked back this particular remark.
The potential of the US not defending its European allies, unheard of in past administrations, increased apprehension and prompted a re-examination of Europe’s dependence on the US’ security umbrella. Unlike the remarks of Trump’s predecessors, President Trump’s statements and corresponding world events like the annexation of Crimea alarmed several European allies, leading to some of the first increases in military spending. Reportedly, during his first administration, when asked by a European leader, “If we don’t pay and we’re attacked by Russia, will you protect us?”, President Trump responded “No, I would not protect you. In fact, I would encourage them to do whatever the hell they want.”
These pressures have resulted in a corresponding jolt in the number of European NATO allies spending above 2% of their GDP on defense (see above graphs). This sense of insecurity has further been supercharged by the Russian invasion of Ukraine in February 2022, with the percentage of countries reaching the 2% target rising to 60%. Indeed, in recent years — on average — these countries have exceeded the 2% NATO baseline target for minimum spending. Indeed, despite the large amount of news coverage of Russian military spending, Russia, according to SIPRI, spends only 32.6% of the dollar amount spent by European NATO countries.
The Tradeoffs of Increased Military Spending
The recent increases in military spending by European countries have come — and will come — with tradeoffs. In February 2025, the United Kingdom’s Prime Minister Keir Starmer announced that foreign aid would be cut in order to fund defense. Germany, under its newly elected chancellor, Friedrich Merz, loosened restrictions on its “debt brake” — a constitutional measure that limits the amount that Germany can borrow to 0.35% of its GDP — in order to borrow more funds to increase its defense budget. However, future spending across the continent will likely come with more difficult political calculations than extra borrowing or reduced foreign aid.
Looking at available OECD (Organization for Economic Co-operation and Development) public social spending data¹ over the past forty years, European countries have consistently outspent — as a portion of their GDP — the United States, and it is the most likely source from which additional military funding will likely come. For example, 18% of all public spending in the United Kingdom is taken up just by its National Health Service. Shortly after becoming Secretary General of NATO in October 2024, Mark Rutte noted at a speech in Brussels:
“I know spending more on defence means spending less on other priorities. But it is only a little less. On average, European countries easily spend up to a quarter of their national income on pensions, health, and social security systems. We need a small fraction of that money to make our defences much stronger, and to preserve our way of life.”
¹ Social spending here includes public spending on old-age benefits, survivor benefits, incapacity-related benefits, health, family, active labor market programs, unemployment, and housing.
This does not mean that opinion across Europe is firmly for increased military spending. A survey by the European Council on Foreign Relations of 12 countries found a mixed bag of opinions, with 70% in Denmark and Poland being in favor of higher military spending while only 17% in Italy being in favor. On a recent podcast, former British MP and host of the wildly popular The Rest is Politics, Rory Stewart, stated:
“The increase in military spending [sic] is going to be about €650 billion every year. And that has got to come from somewhere. And the European Union’s latest calculations suggest that about 200 billion of that will come out of health, about 100 billion of that will come out of education, about 200 billion of that will come out of green investment, and about 100 billion will come out of social care. I think something that’s very dangerous — I also think that it’s something that the US may come to regret... when the European economy is in a much weaker position.”
At a time when many European countries are struggling with economic growth, many within Europe have been persistently worried that decreasing social spending in exchange for more military might may also bring with it increased political instability. “From London to Lisbon, politicians from centre-right and centre-left parties alike have steadily eroded social programmes, fostering a sense of scarcity and creating fertile ground for the stirring up of anti-migrant sentiment,” echoed Olivier De Schutter, the UN special rapporteur on extreme poverty and human rights. Yet it is unclear how European countries could possibly fund their ambitious military spending without facing these significant tradeoffs.
What Now?
As NATO enters a new era of heightened defense commitments, its European constituents stand at a crossroads. No longer able to rely solely on the US’s security umbrella amid growing American frustration and perceived unreliability, the decades-long peace dividend that allowed Europe to build generous social systems and expand welfare protections is coming face-to-face with a more insecure and unpredictable world.
The choice facing European leaders and their people is not simply about percentages of GDP — it is about priorities, tradeoffs, and the kind of societies they wish to preserve. For some countries, the renewed military buildup is an existential necessity in an increasingly dangerous time; for others, these military expenditures risk hollowing out the very social fabric they aim to defend.
Mark Rutte, NATO’s Secretary General, captured this tension bluntly at a speech at London’s Chatham House:
“If you do not do this, if you would not go to the 5%, including the 3.5% core defence spending, you could still have the National Health Service, or in other countries, their health systems, the pension system, etc., but you better learn to speak Russian. I mean, that’s the consequence.”
Methodology
For this post, I gathered military spending data from Stockholm International Peace Research Institute (SIPRI). I gathered social spending data from the Organization for Economic Co-operation and Development (OECD). Code for this analysis is available at https://github.com/hanshanley/nato-and-adversaries-spending. All graphs were made by the author Hans W. A. Hanley.