The Nato military alliance is under more pressure than it has been since the Cold War as the prospect of conventional armed conflict with peer adversaries draws nearer.
Ahead of the Nato Summit in The Hague, between 24-25 June 2025, allies discussed implementing a new defence spending target of 5% of a nation’s gross domestic product (GDP) by at least 2035. However, this expenditure will depend on alliance approval across the board, with the target split between 3.5% on direct military capabilities and 1.5% allocated to undefined security-related commitments in the civilian sector.
Go deeper with GlobalData
Today (23 June), Rutte called for a five-fold increase in air defence capabilities, thousands more tanks and armoured vehicles and millions of rounds of artillery ammunition.
The push comes not only in response to the Russian threat perception but also to make up for the loss of military support from the United States as the administration, led by President Donald Trump, repositions assets to the Indo-Pacific. But also in the last few days, the US conducted preemptive strikes against Iran’s fledgling nuclear development sites as the administration risks stretching too thinly.
Mark Rutte, the Secretary General of the alliance, commented earlier this month during a defence ministers’ session that more spending “underpins everything”.
What does the split look like?
Most recently, Norway and Sweden have both committed to the 5% target that has been proposed among Nato members.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataWhile the Swedish government claims it has already secured cross-party support for the defence increase, the Norwegian government say that its legislative body, the Storting, will likely initiate plans for the spending growth in the autumn.
Norway also offered some clarity about the areas of focus that may constitute the additional 1.5% portion of the new security investment derived from the civilian sector:
“This could include expenditures relating to operational costs and investments in infrastructure, civil preparedness, security of energy supply, efforts to expand the capacity of the defence industry and measures to protect us from hybrid and cyber threats,” listed Norway’s prime Minister, Jonas Gahr Støre on 20 June.
Allies leading the way
Poland is ahead in Europe having reached 4.7%. The Central European country is a model for the rest of Europe, said the US Defense Secretary Pete Hegseth, who is eager for the continent to unburden the US from its enduring guarantees to safeguarding Europe.
The Polish model, it should be noted, hinges on a unique build-up of military equipment and platforms as fast as possible and from diverse sources, particularly America, South Korea, and the emerging use of European defence funds through the €150bn ($172bn) Security Action for Europe regulation.
This approach represents a procurement strategy in which conventional platforms and war materiel are acquired to fill gaps and stockpiles, while sidelining advanced concepts down the line.
Other nations are exploring this short-term approach to fill gaps as quickly as possible, including Denmark, which opted for unspecified short-range air defence systems from the European supplier MBDA as an interim to be delivered in 2026-27, while the country waits on a permanent, long-range air and missile defence solution.
Poland, the leading European spender secured 124.3bn złotys ($33bn) in the 2025 defence budget (including wage increases), an increase of $1.6bn compared to 2024.
Farther East, on the Russian border, the Baltic States have a shared intention to increase their defence spending to at least 5% of their respective GDP levels from 2026 – at least four years earlier than the proposed Nato target under discussion ahead of the Summit this week.
According to Nato estimates published last year, Estonia and Latvia have both already exceeded more than 3%, while Lithuania topped 3% before the end of 2024.
Breakdown of US defence spending
The Trump administration’s FY2026 budget proposal will see a significant increase in defence spending, according to the International Institute for Strategic Studies in London, with the discretionary base budget receiving a potential 13.4% uplift to $1.01trn.
This increase comes despite the cost-cutting efforts across the Department of Defense (DoD).
A notable US defence policy is the ‘Golden Dome’, a homeland missile defence shield, with Trump announcing plans to develop the system on 20 May. This policy covers a range of areas for investment including new space and terrestrial based capabilities to detect and interdict missiles.
Congressional Research Service analysis points out that the Golden Dome architecture could take years to develop and build at the scale that may be suggested. During that time, the initiative would compete for funding against other DoD funding priorities.
Another beneficiary of the FY2026 budget is naval shipbuilding, which has struggled to deliver projects on time and on budget.
The budget will explore funding the F-47 Next Generation Air Dominance (NGAD) platform, which the administration boasted would fly before the end of the Trump administration. To support this, the bill proposes an additional $7.2bn to boost current capabilities by acquiring additional and modernising existing aircraft.
Allies lagging behind
While not so far behind as Canada (which will reach 2% for the first time in the next fiscal year) or Spain (a nation that will not pursue the 5% benchmark at all according to Reuters), the UK will also remain a long way off the new target.
Britain’s Industrial Strategy, published today, has merely agreed to uplift defence spending to 2.6% (from an initial target of 2.5% recently) of GDP, with an ambition to reach 3% in the next Parliament (post-2029) when economic and fiscal conditions allow.
The recent increase is, however, deeply superficial. The UK government redefined ‘defence’ spending more broadly to amalgamate the funds allocated to the intelligence agencies.
Should the UK acquiesce to the 5% target, this would bring the country’s defence spending back up to levels last seen during the Cold War.
