NATO Members Agree to Increase Defense Spending to 5% of GDP

At the NATO summit held in The Hague on June 24–25, 2025, the alliance's 32 member states agreed to increase their defense spending target to 5% of Gross Domestic Product (GDP) by 2035. This commitment includes allocating at least 3.5% of GDP to core defense requirements and an additional 1.5% to defense- and security-related expenditures, such as infrastructure and cybersecurity.

The decision was influenced by heightened security concerns, particularly the perceived long-term threat from Russia, and was strongly advocated by U.S. President Donald Trump. While the agreement was reached by consensus, some member states, notably Spain, expressed reservations about meeting the new target due to domestic budget constraints.

This significant policy shift aims to enhance NATO's collective defense capabilities and address emerging security challenges. The commitment will be reviewed in 2029 to assess progress and address any challenges in implementation.

NATO Secretary-General Mark Rutte described the agreement as a "transformational leap" for collective defense, while U.S. President Donald Trump called it a "historic achievement," noting it represented a doubling of the previous 2% target and saying it would cement NATO's relevance.

Spain formally requested to be exempt from the 5% target. Prime Minister Pedro Sánchez, in a letter to NATO Secretary-General Mark Rutte, described the 5% goal as "unreasonable and counterproductive." Sánchez explained that a 5% of GDP expenditure on defense would be "disproportionate and unnecessary." He also favored advancing in "strategic autonomy" rather than depending excessively on the military industry of other countries, arguing that "it is not about spending more, but spending better, and doing it in a coordinated way. Rushing to get to 5% would only reinforce our dependence [from foreign suppliers] and harm national economic growth," and, finally, he argued that the aforementioned percentage was incompatible with a state providing welfare to its nationals. He also stated that, in order for Spain to reach the capabilities targets agreed on June 5, 2025, the Spanish Armed Forces had estimated a 2.1% GDP spending.

Spain subsequently agreed to be excluded from the 5% requirement in the final summit text, although the declaration still stipulates the 2035 timeline and 2029 review date.

The decision to significantly increase defense spending has several implications:

• Economic Impact: The substantial rise in defense budgets may lead to increased demand for military equipment and technology, potentially benefiting defense contractors and related industries. For instance, companies like RTX Corp (formerly Raytheon Technologies) and Boeing Co. may experience heightened demand for their products and services.

• Social Considerations: Allocating a larger portion of national budgets to defense could impact funding for social programs, leading to domestic debates over budget priorities. Countries like Spain have already expressed concerns about balancing defense spending with social welfare commitments.

This policy shift marks a significant departure from previous NATO spending targets. The 2% GDP benchmark, established in 2014, was met by a record number of member nations in recent years, driven by security concerns stemming from the war in Ukraine. The new 5% target reflects a heightened sense of urgency in addressing emerging security challenges.

NATO's decision to increase defense spending to 5% of GDP by 2035 marks a significant policy shift aimed at enhancing collective defense capabilities in response to emerging security challenges. However, the varied responses from member states underscore the complexities of balancing collective security commitments with national economic and social priorities. As the alliance moves forward, the effectiveness of this commitment will depend on the ability of member states to navigate these challenges and fulfill their pledges.