Experts anticipate that NATO members will agree to a substantial ramp-up in their defense spending target in June 2025. Here’s what that means for geopolitics and European Union economic growth.
Impact of the June 2025 NATO Summit
Increase in Military Expenditure
Previous NATO defense spending targets were 2% of the member state’s gross domestic product (GDP). After the June 2025 summit in The Hague, member states agreed to a massive increase in military spending: 5% of GDP. 3.5% of the GDP will go towards traditional defense investments like military equipment whereas the remainder would go towards other security initiatives.
Why the Increase?
- Continued Russian aggression and expansion into Ukraine.
- Equalizing contributions to the defense and military budgets, as the United States asks for other member nations to contribute more.
- Meeting potential military threats from non-member states (e.g., China increasing its military investments).
Who is Spending the Most?
The United States has historically contributed the most to NATO’s defense budget, with other key contributors being EU member states Germany and the United Kingdom. Given recent aggression from Russia, nearby EU countries like Poland, Latvia, Lithuania, Finland, and Estonia have significantly increased their contributions in recent years.
NATO member states Canada, Portugal, Italy, Slovenia, Luxembourg, Belgium, Croatia, and Spain are currently below the previous 2% benchmark.
Who Will Meet These Targets?
Given current European military forces and defense expenditures, European countries like Finland, France, and Germany are expected to meet or exceed the 5% targets. Greece, the Netherlands, and Belgium could realistically meet or exceed a 3.5% target. It is unlikely for Italy, Portugal, and Spain to meet either of these targets.
Learn More
In our exclusive research note, we look at the potential economic ramifications of this increase in EU defense spending under various assumptions in four scenarios.
Some key highlights:
- Execution determines impact. Well-executed strategies can raise Euro Area GDP by up to 3.4% by 2045, while poorly executed approaches yield negligible returns.
- Seven conditions for successful implementation.
- Examining short-term fiscal costs weighted against long-term economic gains.
- Private investment may benefit from crowding-in effects
- Defense research and development (R&D) can act as a long-term growth lever.
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