Donald Trump lobbed a financial hand grenade into NATO, and now the alliance’s members are scrambling to figure out how to respond.
NATO spent a decade trying to reach its target of spending at least 2 percent of GDP on defense — a goal that 24 out of 32 members currently meet — but the U.S. president now wants that increased to 5 percent.
Thursday’s meeting of NATO defense ministers and this weekend’s Munich Security Conference — which gathers top defense officials from both sides of the Atlantic — will be focused on that demand. Allies are weighing the need to deter Russia and keep Trump interested in Europe against their strained budgets.
However, most European countries along with Canada cannot dramatically boost defense budgets in the short term — even if that’s what Trump wants.
“I don’t think many nations will commit up-front to 5 percent because so much of the pace at which you can go depends so much on how your economies do,” said Karen Pierce, the U.K.’s outgoing ambassador to the U.S.
Decades of post-Cold War budget cuts have left Europeans scrambling to find extra money to retool their militaries. It’s all the more urgent with a belligerent Moscow adopting its most hostile posture since the collapse of the Soviet Union, and Washington threatening to dial back on its security commitments to Europe.
This week, Pete Hegseth, the new U.S. defense secretary, came to Europe with that stark warning.
“We’re also here today to directly and unambiguously express that stark strategic realities prevent the United States of America from being primarily focused on the security of Europe,” he said Wednesday, speaking from NATO’s Brussels headquarters, adding that Europeans would have to “take ownership of conventional security.”
“The U.S. is prioritizing deterring war with China in the Pacific,” he added.
NATO split
Trump’s demand is splitting the alliance’s European nations into three groupings, said Camille Grand, a former NATO assistant secretary-general who’s now a distinguished policy fellow at the European Council on Foreign Relations.
A “relatively small group” that includes the Baltic nations and Poland is already spending nearly 5 percent of GDP on defense to deter Russian leader Vladimir Putin and is ready to “pay the price” to keep Trump onside, Grand said.
According to Giedrimas Jeglinskas, another former NATO assistant secretary-general who now heads the Lithuanian parliament’s Committee on National Security and Defense, the 5 percent figure is not “that wild.”
“In the eastern frontier of NATO, I think that makes sense,” he said.
A second group encompasses countries such as the Nordic nations and the U.K.
Their defense budgets are already above 2 percent of GDP and they are “willing to look at targets of 2.5, 3 or even 3.5 percent, because it’s consistent with their analysis of the geopolitical situation,” said Grand. However, he added, “they are not going to blindly say yes to 5 percent.”
A third group — “the largest,” Grand said — is more reluctant to dramatically boost spending for budgetary reasons or because of their perception of the threat environment.
Spending laggards are still feeling some pressure.
Belgium, currently at 1.3 percent of GDP, pledged to reach 2.5 percent by 2034. Italian Prime Minister Giorgia Meloni — a close Trump ally whose country only spends 1.57 of GDP on defense — has floated plans to reach NATO’s target in 2027 instead of 2028.
But deep divisions over spending could eventually lead to resentment by big spenders toward perceived free-riders, several EU diplomats warned.
All the more so if the Trump administration decides to divide and conquer, notably by linking defense spending to tariffs, said Ivars Ījabs, a Latvian member of the European Parliament from the liberal Renew Europe group. “What happens when our American partners come with sweet deals with certain friendly countries like Hungary or Italy? The same applies also to defense spending.”
Spending is going up
It’s clear that the direction of travel is for higher levels of defense spending.
NATO Secretary-General Mark Rutte said the new spending target decided at June’s summit in The Hague would likely be “north of 3 percent.”
But meeting Trump’s 5 percent demand would raise huge problems for defense contractors unable to churn out enough tanks, fighter jets and artillery shells.
“If we spent 5 percent on defense today, the European industry wouldn’t be able to absorb this money. We have to think about it,” Italy’s Defense Minister Guido Crosetto told reporters in Warsaw last month.
That worry goes beyond Europe.
“We talk a lot about the 2 percent [but] I am much more concerned about the industrial capacity to absorb the type of investment that needs to be done,” Canada’s minister of innovation, science and industry, François-Philippe Champagne, told POLITICO during a visit to Washington earlier this month.
During the visit, Champagne and Canadian Defense Minister Bill Blair urged the United States to try to put higher defense spending into the more limited context of what the allies can do right now.
“Let’s look at our industrial capacity today,” Champagne said. “How many submarines can we produce? How many destroyers can we produce? How many planes can we produce? How many propellants can we produce? That is really the thing.”
Although Trump isn’t mentioning it, the U.S. faces similar issues. It spends about 3.4 percent of GDP on defense, or about $850 billion. Its arms-makers are already facing capacity constraints meeting demands from the Pentagon as well as U.S. allies.
Reaching 5 percent would require annual budgets of $1.5 trillion, according to the Center for Strategic and Budgetary Assessments.
No welfare cuts
Many NATO countries are facing budgetary limits. Even Estonia and Lithuania have said they won’t be able to boost spending to 5 percent of GDP without EU funds, while Poland, Italy and others want a change in the EU’s rules so they can increase defense budgets without violating the bloc’s deficit and debt limits.
Even a 3 percent target would require a lot of extra cash.
For France — which currently has a defense budget of €50.5 billion, slightly above 2 percent of GDP — adding 1 percentage point of GDP would amount to an additional €30 billion annually for the military. And the country’s government is already on the brink of collapse with a deficit of up to 6.6 percent of GDP in 2025, more than double the EU’s standard.
According to Rutte, European welfare states need to redirect “a small fraction” of spending on pensions, health and social security to the military.
The argument is that war would cost much more and would upend Europe’s lifestyle much more dramatically than slightly reducing social spending now. So far, few countries have taken Rutte’s bait.
Pumping up defense spending to 4 percent of GDP, still short of Trump’s threshold, would mean up to a 6 percent reallocation of public spending, credit agency Moody’s calculated in a review of Europe’s big six countries last spring.
“Because tax rates are already high in Europe, sustainable budget adjustments will likely need to be made to spending. However, electorates are unlikely to support these kinds of adjustments,” the agency wrote.
Reducing social spending is expected to be a hard sell. “I’m in favor of spending 2 percent, but you must not force me to cut health care,” Italy’s Foreign Minister Antonio Tajani said. “First we get to 2, then we talk about 3.”
Even countries on Russia’s border are reluctant.
According to Lithuanian Defense Minister Dovilė Šakalienė: “Taking certain austerity measures to cut our education, health care, social affairs to fund defense is not a sustainable solution.”
With Trump’s target out of reach for most allies, European militaries are quietly messaging the Pentagon to focus on the journey toward higher defense spending, not the destination of 5 percent.
“Whether the number is 2 or 2.5 or 3 or 3.5, in a way, that is not the point,” said a European military official. “The point is that the direction is correct. Nobody’s changing that direction.”
Robbie Gramer and Gregor Schwung contributed to this report from Washington.
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