The NATO summit in The Hague has formalised one of the largest changes in Western defence policy since the end of the Cold War. Alliance members have committed themselves to a new target under which they will aim to spend 5% of GDP on defence and defence-related security investment by 2035, divided broadly between 3.5% for core military expenditure and another 1.5% for areas such as infrastructure, resilience and security-related investment. The commitment is extraordinary when compared with the 2% benchmark that NATO struggled for years to persuade many European governments to meet. Donald Trump has understandably presented the shift as vindication of his argument that European allies spent too little while relying on American taxpayers for their security. His pressure almost certainly accelerated the change. Yet Europe’s decision should not be interpreted simply as countries finally agreeing to pay America more for protection. Something more structural is occurring. European governments are beginning to understand that American protection is a political asset whose future availability cannot be assumed indefinitely, and the rational response to uncertainty about an ally is acquiring more capacity of your own.
This is the basic economics of alliance burden-sharing. Security provided by a military alliance resembles a public good. If American nuclear weapons, intelligence systems, aircraft and troops deter an attack on Europe, many NATO countries receive protection simultaneously. Individual members therefore have an incentive to underinvest in defence and allow larger allies to bear more of the cost. Economists call this free-riding, although the political reality is more complicated because European states also provide bases, forces and strategic geography useful to America. Still, the imbalance became substantial. For much of the post-Cold War period, the United States spent a far larger share of GDP on defence than many European NATO members while Europe expanded welfare states and other domestic expenditure. That arrangement was politically sustainable while Washington viewed European security as a core American strategic interest and Russia appeared relatively weak.
Russia’s invasion of Ukraine destroyed the second assumption. Trump has weakened confidence in the first.
That combination changes the equilibrium.
European defence expenditure had already risen substantially after February 2022, with Poland and the Baltic states moving especially rapidly and Germany announcing its Zeitenwende. Trump’s return then increased the perceived probability that American military support might become more conditional. A rational European government therefore no longer calculates defence spending solely according to the probability of Russian aggression. It also includes the probability that American assistance during a future crisis is smaller or slower than expected.
This is a form of insurance against alliance uncertainty.
The paradox is that a less reassuring America can produce a more capable Europe.
For decades, strongly Atlanticist American presidents repeatedly asked Europeans to spend more while simultaneously reassuring them that American commitments were absolute.
Those messages partially undermined one another.
If Washington guarantees protection regardless of European expenditure, the marginal security benefit of another European defence euro falls.
Trump changes that incentive by making protection feel more conditional.
This is the credibility-burden-sharing paradox: weakening confidence in the guarantor can strengthen the recipient’s incentive to provide for itself.
But this should not automatically be celebrated.
Deterrence depends on the sum of American and European capability during the transition. Europe cannot create new armies, factories and missile-defence systems instantly. If American credibility declines faster than European capability rises, NATO can become temporarily weaker even while European defence budgets increase.
The time dimension therefore matters enormously.
A 2035 spending target does not defend Estonia in 2027.
Governments need intermediate capability milestones.
Ammunition production.
Air-defence inventories.
Readiness.
Logistics.
Military mobility.
Personnel.
Drone capacity.
Intelligence.
These are the variables determining whether higher spending becomes actual deterrence.
The 5% figure itself should therefore be treated cautiously. Spending targets are politically useful because they are simple. They allow allies to compare effort and make underinvestment visible. Economically, however, defence expenditure is an input rather than an output. A government can spend enormous amounts inefficiently through fragmented procurement, cost overruns or equipment that is unavailable when required. Another country can spend less while generating more usable military capability.
The relevant question is not:
how much money entered the defence ministry?
It is:
how much additional military capability came out?
Europe has historically performed poorly on this conversion because national defence markets remain fragmented. Different states purchase different tanks, aircraft, artillery systems and communications equipment, reducing economies of scale and complicating logistics. Europe collectively spends hundreds of billions of euros on defence but receives less integrated capability than the aggregate number suggests.
Increasing budgets without reforming procurement risks making the same inefficiency larger.
This is why the 1.5% category covering infrastructure and resilience could be strategically valuable if defined carefully. Modern warfare depends on civilian systems.
Railways move military equipment.
Ports receive allied forces.
Electricity grids power defence production.
Telecommunications carry military and civilian information.
Cybersecurity protects government and industry.
Roads and bridges determine whether heavy vehicles can move rapidly across Europe.
The distinction between civilian infrastructure and defence therefore is increasingly artificial.
Russia’s war against Ukraine has demonstrated that national resilience is part of military power.
An army can possess excellent equipment while a vulnerable electricity grid or transport network limits its ability to operate.
This makes infrastructure spending potentially dual-purpose rather than simply a way for governments to relabel ordinary expenditure as defence.
The risk of relabelling remains real.
Governments facing an extremely demanding 5% target will have incentives to classify existing spending as security-related rather than generate genuinely additional capability.
A railway project already planned for commercial reasons can suddenly become “military mobility”.
A cybersecurity programme already inside another ministry can move into NATO accounting.
This creates the same additionality problem seen in climate finance.
Headline commitments matter less than how much spending actually changes because the target exists.
NATO therefore needs transparent accounting.
What expenditure is new?
What capability does it generate?
When will it become operational?
Without those answers, 5% can become an impressive statistic disconnected from readiness.
The fiscal implications are enormous. For a country currently spending around 2% of GDP on defence and related security, moving towards 5% implies redirecting roughly three additional percentage points of national output. In a $1 trillion economy, that is around $30 billion every year. Across Europe, the total could eventually reach hundreds of billions annually.
That money must come from somewhere.
Higher taxes.
More borrowing.
Lower spending elsewhere.
Or additional economic growth.
There is no fiscal mechanism through which defence becomes free simply because Russia is threatening.
This will create a major guns-versus-butter debate inside European democracies.
Pensions.
Healthcare.
Education.
Climate investment.
Defence.
All compete for real labour, capital and government revenue.
Political leaders can avoid stating the trade-off initially by borrowing, particularly countries such as Germany with greater fiscal space.
Over time, the opportunity cost becomes visible.
This is where Trump’s criticism becomes politically uncomfortable for European governments. American voters can reasonably ask why the United States should devote a larger share of national income to defence while wealthy European societies spend more heavily on domestic welfare. Europeans can respond that American defence spending supports global commitments far beyond Europe and that European countries contribute in other ways.
Both are true.
The imbalance still existed.
The stronger European argument is therefore not that Trump is wrong about burden-sharing.
It is that European rearmament should create greater European strategic agency rather than simply purchasing continued American approval.
If Europe spends dramatically more while remaining completely dependent on American intelligence, command systems, airlift and nuclear deterrence, it has increased the price of dependence without eliminating much of the dependence.
The objective should be a stronger European pillar inside NATO capable of operating much more effectively even when American resources are concentrated elsewhere.
This does not require replacing NATO with an EU army.
It requires capabilities Europeans currently lack at sufficient scale.
Long-range strike.
Integrated air defence.
Satellite intelligence.
Strategic transport.
Ammunition stockpiles.
Electronic warfare.
Defence-industrial capacity.
Command integration.
America can remain the alliance’s most powerful member while becoming less indispensable to every operation.
That would actually make NATO more durable politically in the United States because American voters would see allies carrying more of the burden.
This is alliance resilience through reduced asymmetry.
A partnership survives better when one member does not feel permanently exploited and the others do not feel permanently dependent.
Poland illustrates the direction Europe may be heading. Warsaw already spends well above the old NATO target and is building one of Europe’s largest land forces because Polish leaders perceive Russian power much more directly than governments farther west. Geography changes threat perception.
Spain or Portugal can rationally view Russia as less immediate.
Estonia cannot.
A uniform spending target therefore treats heterogeneous security environments as though they were identical.
The political advantage is solidarity.
The economic weakness is that equal percentages do not necessarily reflect equal marginal security needs.
NATO therefore needs both burden-sharing and specialisation.
Not every country needs to produce every capability.
Smaller countries can specialise in particular systems while relying on alliance integration.
Larger countries can provide expensive strategic assets.
This resembles comparative advantage in trade.
An alliance becomes more efficient when members specialise while remaining interoperable.
The difference is that excessive specialisation creates security dependence if one partner fails to appear during war.
Again, efficiency and resilience trade against one another.
Europe needs enough duplication that the system can survive disruption without creating twenty-seven entirely separate militaries.
Germany will be central because its recent decision to loosen fiscal constraints creates the possibility of enormous defence and infrastructure investment. France contributes nuclear deterrence and a relatively autonomous defence industry. Britain, outside the EU but inside NATO, remains one of Europe’s strongest military powers. Poland provides scale and geographic urgency in the east.
The strategic challenge is connecting these assets.
European defence historically suffers not from a complete absence of resources but from coordination failure.
National procurement.
National industrial policy.
National political calendars.
Different threat perceptions.
Trump’s pressure may finally provide enough common external incentive to overcome some of that fragmentation.
This is one reason Russia may have committed an enormous strategic error through its invasion of Ukraine. Moscow sought to prevent NATO expansion and reduce Western military influence near Russia. The result has included Finland and Sweden joining NATO, dramatically higher European defence spending and renewed Western military planning.
A policy can therefore produce the opposite of its stated strategic objective.
This is counter-balancing.
States threatened by one power seek alliances and armaments, increasing the military environment the original power claimed to fear.
Security dilemmas can become self-confirming.
Russia says NATO expansion proves Western hostility.
NATO members say Russian aggression proves expansion was necessary.
Each side interprets the other’s response as evidence supporting its original fear.
This does not make responsibility symmetrical. Russia chose to invade Ukraine.
It explains why security competition can persist even when each side describes its behaviour as defensive.
Ukraine remains central to NATO’s new spending commitment because the war has become a laboratory for modern military requirements. Drones, electronic warfare, artillery, air defence and distributed command systems have evolved at extraordinary speed.
European governments therefore should be cautious about spending hundreds of billions rebuilding militaries designed primarily for the conflicts of twenty years ago.
More money can purchase yesterday’s force structure very efficiently.
That would still be strategic failure.
Ukraine’s experience should be integrated directly into European procurement and doctrine.
Cheap drones can destroy expensive vehicles.
Electronic warfare can disable sophisticated systems.
Mass matters alongside quality.
A military possessing a small number of exquisite platforms can struggle during a prolonged attritional conflict if replacements take years to manufacture.
Defence-industrial policy therefore needs to optimise for wartime replacement rates, not simply peacetime procurement.
How quickly can a missile factory increase production?
How many drones can be manufactured monthly?
How much ammunition exists after six months of high-intensity war?
These questions matter more than ceremonial inventory totals.
Trump’s 5% pressure could generate enormous industrial opportunity if Europe handles it well. Defence orders lasting ten years give firms confidence to build factories and train workers. Technologies developed for drones, sensors, aerospace, cybersecurity and artificial intelligence can generate civilian spillovers.
This is one reason defence spending can have a different economic effect from simple government consumption.
It can support dual-use technological ecosystems.
But governments should not assume every military euro automatically increases productivity.
Protected contractors can become inefficient.
Cost-plus procurement can reward overruns.
National-security secrecy can reduce competitive scrutiny.
Again, state capacity determines whether spending becomes capability.
The American defence industry itself demonstrates both sides: extraordinary technological innovation alongside programmes famous for delays and escalating costs.
Europe needs to expand production without importing every inefficiency.
The new target also changes the debate about the European welfare state. Critics will argue that Europe can no longer afford generous social programmes while spending 5% on security. That conclusion is too strong. Wealthy countries can finance both substantial welfare systems and defence if productivity and taxation support them.
The real constraint is demographic.
Europe is ageing.
Pension and healthcare costs will rise.
The working-age population grows slowly or declines in several countries.
Defence simultaneously needs more personnel and revenue.
This makes productivity growth and immigration economically connected to national security.
A larger productive workforce expands the tax base financing both welfare and defence.
European debates often treat migration, economic growth and military power as separate issues.
They increasingly are not.
Demography is defence policy over long horizons.
A country with fewer workers has fewer taxpayers, engineers, soldiers and industrial employees.
Automation can compensate partly.
Immigration can compensate partly.
Higher labour-force participation can compensate partly.
None is politically easy.
The 5% target therefore cannot be understood simply as a defence-ministry commitment.
It forces Europe to reconsider the entire economic model supporting state power.
Trump’s own motivations are narrower. He wants allies to pay more and America to carry less. If Europe reaches the target, he can legitimately claim that years of pressure changed behaviour.
The irony is that successful burden-sharing may eventually reduce American influence.
Dependence creates leverage.
A Europe capable of defending itself more independently can disagree with Washington more confidently over China, trade, the Middle East or other issues.
This is the autonomy consequence of burden-sharing.
America cannot simultaneously demand that allies become less dependent and assume they will remain equally compliant after doing so.
Greater capability creates greater bargaining power.
That may still benefit the United States overall because a stronger Europe is a more useful partner.
But the alliance could become more balanced and therefore less hierarchical.
This is probably healthier over the long term.
The post-1945 transatlantic relationship was built under conditions of extraordinary American economic and military dominance.
Europe has since become wealthy enough that permanent strategic dependency is increasingly difficult to justify.
Trump’s style is confrontational, but the structural question would eventually have emerged regardless of who occupied the White House.
How long should 330 million Americans remain the ultimate security guarantor for a European continent containing roughly half a billion people and enormous economic resources?
The answer does not need to be “America leaves”.
It can be:
Europe becomes capable enough that America’s guarantee becomes reinforcement rather than substitution.
That is a much more sustainable alliance model.
The Hague commitment is therefore potentially historic.
But the 5% number itself is almost meaningless until translated into actual capability.
The important indicators over the next decade will be physical.
Factories.
Missiles.
Drones.
Rail capacity.
Air-defence batteries.
Stockpiles.
Trained personnel.
Integrated command.
European procurement.
Those determine whether Europe became stronger.
A percentage on a communiqué determines only whether governments agreed to say they would spend more.
Trump has succeeded in changing the political price of European dependence.
Russia has succeeded unintentionally in changing the perceived benefit of European rearmament.
Europe now needs to decide what it wants to purchase with the resulting money.
If the answer is simply more national defence budgets operating through the same fragmented structures, the continent will become more expensive to defend without becoming proportionately safer.
If the answer is a genuinely integrated European defence-industrial and logistical base inside NATO, the transformation could be much larger.
For seventy-five years, Western Europe relied heavily on an extraordinary strategic bargain:
America would remain powerful enough, willing enough and predictable enough to guarantee European security.
The first condition remains.
The second and third now feel less automatic.
Europe is finally responding.
That response should not be understood as the end of the Atlantic alliance.
It may be what makes the alliance sustainable after the era in which one side could afford to take the other for granted.
