On June 24, NATO Secretary General Mark Rutte took centre stage to commence the 76th annual NATO summit hosted at The Hague with a specific goal: secure commitments from all 32 member countries to increase defence spending from 2% of GDP to 5% by 2035. Rutte, along with many European leaders, viewed the moment as crucial for rallying increased defence spending to deter future Russian military aggression against NATO countries. For Rutte, the former prime minister of the Netherlands (2010-2024), paramount to the task at hand was the job of placating President Trump, who has previously described the military alliance as ‘obsolete’ and cast doubt on the willingness of the U.S. to defend NATO countries should they not take on a greater share of military spending.
Nearly every effort was made to limit the damage President Trump’s most NATO-sceptic impulses could inflict on the alliance. The summit was deliberately confined to a day and a half and the communiqué, a joint statement agreed upon by all member states, would be limited to only five paragraphs – a sharp reduction from previous years. Even Rutte’s demeanour throughout the proceedings – unflinchingly affable, slapping shoulders and grinning tightly – seemed designed to project an air of everything is fine, let’s just make it to the end.
Rutte’s approach proved largely successful. By June 25, nearly all NATO member states had agreed to pledge 3.5% of their GDP on ‘core defence requirements’ and 1.5% on ‘defence-related spending.’ Should all countries meet the 5% target by 2035 – though by no means an inevitability – this increase would generate additional trillions of dollars towards military investment and raise defence spending in Europe to levels not seen since the Cold War.
Following the tightly choreographed affair and mad dash by NATO leaders to appease President Trump’s demand for greater burden sharing, I left the summit with the impression of just how little the events and discussions reckoned with the potential wider implications of this massive hike in defence spending. In particular, there appeared a general lack of coordination and consideration for the political and economic consequences of this dramatic military build-up across European societies.
I surveyed a handful of Oxford scholars from a range of disciplines on what they viewed as the most consequential potential effects of the NATO summit’s outcome should the new defence spending target actually translate into the military build-up. Nearly all agreed that for many NATO countries, in particular those in Europe with already deeply constrained balance sheets, the increase in defence spending could lead to painful policy trade-offs, with widespread economic, political, and social ramifications. In the longer run, some speculated that surges in militarization could yield wealth disparity, social instability, and climate degradation.
Public services would likely be the first to suffer. ‘The most obvious consequence of this is the immediate impact on already very stretched public finances in Europe – the money for this one way or another will come out of budgets that support the wider life-sustaining public services such as health care for older people, education, sanitation, and so forth,’ said Meera Sabaratnam, Associate Professor of International Relations.
Speaking from an international macroeconomic perspective, Sergio de Ferra, Associate Professor of Economics, does not foresee that the higher military spending quota could necessarily trigger a fiscal crisis in Europe. Rather, he anticipates that European countries will be forced to meet the higher military expenditure targets through an amalgam of higher taxation, lower spending, and more borrowing.
The composition of this recipe – according to Federica Genovese, Professor of Political Science and International Relations – will vary by country depending on their fiscal space and capacity to borrow. ‘Some countries will have more financial leeway and could find ways to do both types of spending to some extent, but many countries simply have no credible leverage in international markets and will need to make tough decisions,’ Professor Genovese said.
The fiscal terrain of Germany and the United Kingdom offer examples on opposite ends of the spectrum. Germany has considerably more room to borrow than its European counterparts following Chancellor Friedrich Mertz’s recent decision to relax constitutional debt limits to help finance rearmament efforts. By contrast, the United Kingdom, under Labour Party leadership, has announced over $6 billion in welfare cuts over the next several years amidst dwindling public finances and high debt levels. In February, Prime Minister Keir Starmer unveiled plans for the country’s largest sustained increase in military spending since the Cold War.
Another possible scenario follows that countries will look for ways to meet the spending commitment while facing as few of the difficult trade-offs as possible, such as through creative national accounting, postponing spending, and seeking exemptions. Last month, Italian politicians, for instance, proposed classifying the construction of a $16 billion bridge to Sicily as military expenditure. Similarly, Spain reached a contentious deal with NATO following The Hague summit to be exempted from the 5% spending commitment. Both Italy and Spain are two of NATO’s lowest defence spending members.
Nonetheless, Richard Caplan, Professor of International Relations, noted that such tough decisions – if implemented – could extend beyond the domestic realm as resources are diverted from overseas aid and development programs to underwrite a large military build-up. He pointed to the recent decision by the UK government to reduce the country’s foreign aid budget to record low levels in part to meet its military spending pledge as evidence of this trend. Such cuts are occurring against the backdrop of the shuttering of USAID, which a recent study forecasted could result in the death of an additional 14 million people by 2030.
For Professor de Ferra, a concern equally important to the difficult policy trade-offs within NATO countries is how the distributional burden should be shared among those countries. This question is increasingly central as the U.S. begins weighing its security commitments to Europe, and as European countries contend with vastly different capacities and incentives to bolster defence spending. ‘There seems to be very little coordination across countries on how to share the costs,’ Professor de Ferra said.
NATO members’ physical proximity to Russia’s border strongly correlates with their defence spending as a share of GDP. Poland, which shares a 144-mile border with Russia, is the military alliance’s leading spender as a percentage of its economic weight (4.12%), followed by many of the Nordic and Baltic countries. Of the eight NATO countries that have yet to reach the 2% spending quota, five are located in Western Europe and another is Canada.
Prognosticating further into the future, Professor Sabaratnam noted that the agreed-upon rise in defence spending could not only lead to immediate budget cuts to public services but also exacerbate long term inequality and threaten public stability. ‘The political effects of deeper and deeper austerity will be more decline in public trust, greater anti-immigrant rhetoric and violence, more economic inequality, leading to more crime, and, if this follows patterns in the wider world, increasingly islands of prosperity amongst areas of significant poverty. These archipelagos of wealth will lead to a decrease in the general public safety that has been enjoyed in Europe for many decades,’ she said.
Concerns over cuts to social spending or foreign assistance, however, may ring hollow for member states most acutely confronted with the Russian threat. When posed at a panel discussion the question of how to convince European publics of the need for greater defence spending, Lithuania’s Foreign Minister Kęstutis Budrys, whose country is one of five NATO member states that share a border with Russia, replied, ‘Life as you know it will cease to exist. We need credible deterrence.’