Europe's Defense Policy Turning Point: Record Increase in Military Spending and the Path to the NATO 5 Percent Goal

The European security architecture is currently undergoing the most profound transformation since the end of the Cold War. The figures from the NATO Annual Report published in March 2026 show an increase in defense spending by European allies and Canada of 20 percent in 2025 – the strongest annual increase among European NATO members since 1953. The total volume of the alliance reached 1.581 trillion US dollars, with the 29 European NATO states contributing a combined 559 billion US dollars. The latest data from the Stockholm International Peace Research Institute (SIPRI) as of April 27, 2026, confirms this trend: Global military spending rose by 2.9 percent to 2.887 trillion US dollars in 2025, with Europe being the main driver, increasing by 14 percent to 864 billion US dollars.

The political dynamics behind these figures are unprecedented. At the NATO summit in The Hague in June 2025, the allies committed to a new, historically ambitious spending target: 5 percent of gross domestic product (GDP) is to be spent on defense and defense-related expenditures by 2035 – divided into 3.5 percent for core defense spending and an additional 1.5 percent for security-related infrastructure. With the exception of Spain, all NATO members have pledged to meet this benchmark by 2035. The European Defence Agency (EDA) estimates the additional financial requirement to achieve the 3.5 percent core target at around 254 billion euros annually, which would raise the aggregated defense spending of member states to about 635 billion euros in 2025 and an estimated 807 billion euros by 2035.

Germany plays a key role in this development. According to SIPRI calculations, German defense spending rose by 24 percent to 114 billion US dollars in 2025, marking the first time since 1990 that the Federal Republic exceeded the two percent GDP mark, now standing at 2.3 percent. The 100 billion euro special fund for the Bundeswehr established in 2022 forms the financial foundation of this turnaround, but it is far from sufficient for the new NATO goals. Defense Minister Boris Pistorius outlined a phased plan whereby defense spending is to increase by 0.2 percentage points of GDP annually over a period of five to seven years to reach the 3.5 percent mark by 2032. The additional 1.5 percent for defense-related infrastructure could be partially financed through the concurrently established 500 billion euro infrastructure fund.

A look at the European map reveals a clear East-West divide in threat perception and willingness to spend. Poland leads European defense spending at 3.75 percent of GDP, followed by the Baltic states: Estonia at 3.3 percent, Latvia at 3.3 percent, and Lithuania at 3.1 percent. These countries bordering Russia and Belarus invest disproportionately and reflect the immediate geographical threat perception. Spain, on the other hand, whose defense spending, according to SIPRI, rose by 50 percent to 40.2 billion US dollars in 2025, thus exceeding the two percent mark for the first time since 1994, exemplifies the converging dynamics in Western and Southern Europe. A notable detail from the NATO report: Norway surpassed the US in per capita defense spending for the first time in the history of the alliance in 2025.

Brussels has simultaneously created a series of institutional instruments designed to flank and accelerate the national rearmament process. The program ReArm Europe / Readiness 2030, presented by Commission President Ursula von der Leyen on March 4, 2025, aims to mobilize a total of 800 billion euros in defense investments by 2029. The centerpiece is the SAFE instrument (Security Action for Europe), which promotes joint procurement projects with 150 billion euros in EU-backed loans and stipulates that at least two member states must be involved in each funded project. The first tranche of 300 million euros from the EDIRPA program is already financing five joint projects, including the Patria armored transport vehicle and the IRIS-T SLM air defense system. Additionally, the activation of the national escape clause of the Stability and Growth Pact allows member states to incur additional defense spending of up to 1.5 percent of GDP outside the regular budget rules.

The European defense industry is experiencing a historic boom in parallel. Defense investments by EU states exceeded the 100 billion euro threshold for the first time in 2024, reaching 106 billion euros – an increase of 42 percent compared to 2023. For 2025, the aggregated defense spending of the EU is estimated at 343 billion euros. The EU Commission is working on regulatory simplifications: A planned omnibus regulation aims to reduce administrative hurdles, improve mutual certification of defense goods, and facilitate access to financing. The SAFE instrument explicitly allows that up to 35 percent of the contract value can come from manufacturers outside the EU and Ukraine, seeking a balance between strategic autonomy and international cooperation.

The operational dimension of this rearmament is manifesting in intensified exercise activity. From late April to May 2026, US and allied forces are conducting a series of large maneuvers in the High North, the Baltic region, and in Poland. The GLOBSEC report on NATO's eastern flank readiness, published in April 2026, attests to real progress among the ten front states studied from the Baltic to the Black Sea, but identifies critical gaps in mobilization, logistics, and industrial capacity.

The overall strategic calculation remains complex. The Russian war of aggression against Ukraine, which entered its fifth year in February 2026, serves as the immediate catalyst for European rearmament. According to SIPRI, Russia increased its military spending by 5.9 percent to 190 billion US dollars in 2025, corresponding to a military burden of 7.5 percent of GDP. Ukraine raised its spending by 20 percent to 84.1 billion US dollars – 40 percent of GDP. At the same time, US military spending fell by 7.5 percent to 954 billion US dollars in 2025, primarily because no new financial aid for Ukraine was approved in the reporting year – a decline that SIPRI considers temporary, as the US Congress has already approved over one trillion US dollars for 2026.

Against this backdrop, the upcoming NATO summit in Ankara in July 2026 takes on special significance. Transatlantic tensions – from Greenland to Iran – are straining the alliance, but defense spending remains a common denominator and is expected to be at the center of the summit demonstration of allied unity. The question of whether and how Europe can achieve its self-imposed 5 percent targets will shape the security policy agenda of the coming decade. The direction is clear: After decades of the peace dividend, Europe is once again investing heavily in its defense capabilities. The critical variables remain the political endurance of the member states, the capacity of the defense industry, and the development of the strategic environment – particularly the course of the war in Ukraine and Washington's stance on European security.