NATO’s painful catch-up plan

As you read this, the North Atlantic Treaty Organization (NATO) summit is underway with heads of state from member-countries deliberating on the alliance’s path forward.

Although the formal communique of this year’s NATO Summit will only be released in the next few days, I can already foretell that among the centerpiece resolutions is a pledge to increase military spending to five percent of GDP. The need to increase military spending was already the center of conversation during the NATO foreign minister’s meeting in Turkey last May.

NATO’s increase in military spending is significant as it reflects a clear recognition of the immediate threats posed by Russia’s expansionist ambitions. It also responds to China’s persistent use of grey zone tactics – provocative measures designed to secure strategic advantages without triggering open conflict – as part of its effort to reshape the global order to its favor. Additionally, the instability in the Gulf, as exemplified by the escalating conflict between Israel and Iran, adds to the urgency. The push for greater defense spending underscores NATO’s shared understanding of the growing importance of military readiness, deterrence and rapid response capabilities.

NATO’s plan to increase military spending to five percent of GDP is unprecedented because it far exceeds the alliance’s long-standing defense spending benchmark of two percent. This level of spending has not been seen since the cold war. It represents a historic shift in NATO’s strategic posture, reflecting the scale of current global threats.

NATO has to play catch-up, plain and simple. Since the end of the cold war, European and Canadian NATO members have under-invested in defense, leaving the US to do the heavy lifting. To illustrate, NATO spent $910 billion in defense in 2014, of which $660 billion (72.5 percent) was the share of the US. Not only was this grossly unfair to the US, the under-investment made NATO grow weaker by each passing year. This allowed Russia and China to build up and catch up.

So in 2014, as the Ukraine was distracted by its own Euromaiden revolution, Russia took advantage of the Kiev’s distraction and annexed the Crimean Peninsula. This was a wake up call for NATO.

That year, US Secretary of Defense Chuck Hagel, championed what became known as the “Wales Pledge” (Wales was the site of the 25th NATO Summit). The pledge set each member’s military spending to two percent of GDP as this was seen as the right amount to deter Russia from pursuing subsequent invasions. At that time, only three countries spent above the two percent threshold – the US, UK and Greece. The plan called for a ten-year ramp-up to give member-countries the time to recover from the 2008-2010 financial crisis.

But a pledge is one thing, fulfillment is another. By 2021, only six countries complied with the Wales Pledge. The reaction of most NATO members was not commensurate to the Russian threat. This emboldened Russia to invade the Ukraine in 2022.

Following that invasion, NATO members scrambled to increase their defense spending, although on the backfoot. NATO’s overall defense spending increased by 9.3 percent in 2023 and by 17.9 percent in 2024. Still, as of 2024, eight of NATO’s 32 member-countries failed to comply with the two percent commitment. They are: Belgium, Canada, Croatia, Italy, Luxembourg, Portugal, Slovenia and Spain.

Fast forward, 2025

The problem is, two percent is no longer enough to deter Russia, China and other nations who threaten western doctrine. Russia and China have massively built up their military capabilities. Russia spent 7.1 percent of GDP on defense last year, while China, with its $18.7-trillion economy, spent 1.7 percent.

The idea of spending five percent of GDP on defense is no longer far fetched. Poland already spends 4.12 percent and Estonia 3.43 percent. The US spends about 3.38 percent. Germany, the Czech Republic, Latvia and Lithuania are expected to support the five-percent initiative.

In fact, NATO’s Secretary General Mark Rutte had already written NATO members, saying that an increase in spending will definitely be included in the Summit’s agenda.

Five percent is massive by any measure. But the definition of defense spending will also be expanded. Apart from arms and munitions, defense spending will now include cybersecurity and information warfare, space and satellite defense, biosecurity, climate security, international security cooperation, grey zone defense, military infrastructure and logistics.

No doubt, there will be blowback from the citizens of NATO members. Heads of state will be hard-pressed to “sell” the idea of increased military spending to their respective populations at a time when most countries are suffering a cost of living crisis. Something will have to give and most countries will have to cut back on social spending to afford the NATO commitment. It will be a hard-sell.

That said, expect the increase in defense spending to be “packaged” as an economic stimulus program meant to boost money in circulation, generate jobs and increase economic output. It will also be sold as an “existential necessity” to deter Russia from embarking on more territorial grabs and to preserve the European status quo.

Next important question is – how will NATO members pay for the increase in defense spending when most are struggling economically amid the global trade war and plummeting productivity resulting from ageing populations? The funds will have to come from either of three sources. Deep cutbacks on social spending, new or higher taxes or by amassing more debt. Either way, Europe, Canada and the US will have to pony up and suffer the fiscal pain.

NATO’s bold move to raise defense spending to five percent of GDP signals the dawn of a new security era. It reflects urgency, resolve and the painful recognition that freedom has a price. Considering the threats that NATO nations face, military strength is not a luxury, it is survival.

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Email: [email protected]. Follow him on Twitter @aj_masigan