How European countries stand on 2% of GDP defence spending

What’s two per cent of GDP?

Ever since NATO defence ministers agreed to spend that quota on their military budgets annually, it’s been a stick with which the big spenders can beat their frugal partners.

It’s also become a lightning-rod issue every time there’s a new global crisis and the Russian war in Ukraine is no different.

Several European governments, notably Germany, have vowed to massively increase defence spending as a result of the first military invasion on the continent since World War II.

Across much of Central and Eastern Europe, politicians are now racing to make sure they meet the percentage target by at least next year.

Poland, which usually meets the target, recently passed a law to increase its spending to three per cent.

In a landmark speech in February, which purported to revolutionise Berlin’s approach to national security, German Chancellor Olaf Scholz announced a €100 billion injection in defence spending.

“It’s clear we need to invest significantly more in the security of our country, in order to protect our freedom and our democracy,” he said.

Scholz added: “We will from now on, year after year, invest more than two per cent of gross domestic product in our defence.”

Today, no European government wants to be considered a spendthrift. Whether they actually will be is another matter.

“Countries in Europe have really started to take the two-per cent spending target seriously,” says Calle Håkansson, an associate fellow at the Swedish Institute of International Affairs’ Europe Programme.

Although there has been a trend toward defence expenditure increases in recent years, the war in Ukraine “served as a clear catalyst for new defence spending,” Håkansson noted.

In any case, many governments will have to spend more in the coming years to replace and replenish weapons systems they have sent to Ukraine, he added.

Just this month the governments of Slovakia, Slovenia and Latvia said they intended to reach the spending mark by at least 2023, if not this year. Romania has increased defence spending by 14 per cent for 2022 and says it could meet the two per cent target next year.

Poland’s parliament passed the Homeland Defence Act in March that will increase defence spending to three per cent of GDP, which would make Warsaw the second-biggest European spender in NATO, after Greece.

Finland, which recently agreed to join NATO, spent around 1.5 per cent of GDP on defence in 2020. But its government announced an injection of €2 billion following Russia’s invasion of Ukraine, which could bring it above the two-per cent mark in 2022 or 2023.

In May, the Czech prime minister, Petr Fiala, said his country will reach this target by 2024. Defence officials from North Macedonia to the Netherlands have also said they expect to meet the goal by that year, which had been a deadline signed off by all members ten years ago.

When NATO members again agreed to meet the two per cent of GDP target at the summit in 2014, only the UK and Greece were keeping up the European side of the bargain. By 2018 it was up to five states, and by 2020 nine of the 28 European members of NATO were spending the agreed percentage, according to the defence alliance’s statistics.

According to NATO forecasts published last month, seven European members of NATO will hit the target this year — Croatia, Estonia, Greece, Latvia, Lithuania, Poland, Slovakia and the UK. Romania and France will be off by less than 0.1 per cent. All but Greece and the UK are from the former “Eastern bloc”.

But General Jens Stoltenberg, the NATO secretary general, said at a summit last month that he reckons 19 partners will exceed the target by 2024.

“Two per cent is increasingly considered a floor, not a ceiling,” he added.

Others are taking longer, however, according to statements made by their governments. Sweden, which also recently agreed to join NATO, has vowed to reach the two-per cent mark by 2028. Prime Minister Mario Draghi said in April that Italy will meet the target the same year. Spain’s government says by 2029. Denmark thinks by 2033.

Last week, Belgium’s parliament agreed to spend an additional €10 billion by 2030, taking it up to around 1.5 per cent of GDP. Alexander De Croo, the prime minister, reckons the two-per cent mark will be reached by 2035.

Russia’s invasion of Ukraine set off alarm bells, especially amongst governments in Central and Eastern Europe, but it also showed up problems in European defence planning that analysts had warned about for years.

Between 1999 and 2021, EU combined defence spending increased by 20 per cent, according to reports by the European Defence Agency. That compares with a 66 per cent increase by the US, and 292 per cent by Russia and 592 per cent by China, over the same period.

Liz Truss, the British foreign secretary, said earlier this year: “Geopolitics is back”.

Some are concerned that Europeans cannot rely on the US for defensive support. That was a panic during the Donald Trump presidency, and some fear Europe could be even more exposed if Trump or another “isolationist” takes the White House in 2024.

China is now spoken of as a rival. A possible Chinese invasion of Taiwan was a non-issue for many European governments only a few years ago; much of the region is decidedly pro-Taipei nowadays. Parliamentary committees and commentators debate whether Europeans would militarily support Taiwan if Beijing attempts “reunification” of the self-governed island.

Daniel Fiott, a professor at the Vrije Universiteit Brussel and Real Instituto Elcano, says the key test is whether the pledges materialise into actual defence spending. “We still do not really know how inflation will eat away at announced spending increases,” he added, referring to an all-time high of 8.6 per cent inflation across the eurozone in June.

Germany has recently come under criticism after new financial plans released this month appear to indicate that defence spending will only be around 1.5 per cent of GDP this year and 1.7 per cent in 2023. Only by 2026 will it fulfil its two-per cent pledge, according to some media reports.

Even if most European countries exceed the two-per cent target, the question will then be: why?

“Inevitably, the more NATO allies meet the two per cent target the more attention will turn to the value of the guideline,” said Fiott.

Exactly why two per cent was chosen has been a source of debate for years.

When it was agreed by NATO defence ministers in 2006, it was “largely intended as a political mechanism…to help defence ministries fend off budget cuts imposed by finance ministers,” wrote Kathleen J. McInnis and Daniel Fata, of the Center for Strategic and International Studies, a think-tank, in a Foreign Policy article last month.

According to some analysts, the arbitrary percentage doesn’t convey much information about defensive preparedness. A government could, after all, spend two per cent of GDP on outdated military hardware or one per cent on the latest technology. The latter might be better off.

“Inevitably, the more NATO allies meet the two per cent target the more attention will turn to the value of the guideline,” said Fiott.

But, he added, any revision of the two-per cent rule will be “an opportunity to think about the effectiveness of defence investments in Europe”.