Overview
This week’s Hague Summit ended in relative success, with NATO allies committing to a “quantum leap” in defense spending to 5% of GDP, split between 3.5% for core defense requirements (related to NATO’s Capability Targets) and 1.5% for security-related investments, like civil preparedness. While consequential, the “skinny” summit was also choreographed to sidestep potentially thorny issues: the final declaration was only five paragraphs, omitting any language on shared threat perceptions, defense planning, or Ukraine’s future. Several strategic questions remain unanswered—including a potential shift in US force posture, what a future European pillar of NATO would look like, and how to manage a rapid increase in defense investment. While European rearmament will yield positive economic spillovers for European economies, burden-shifting introduces transition risks that must be managed to maintain credible deterrence.
The Consequential “Skinny” Summit
The NATO Summit, rather than adopting an expansive agenda of transatlantic security, honed in on one major issue in its brief five-point declaration: raising the allied defense spending target from 2% of member state GDP (the 2014 Wales Summit commitment) to an unprecedented 5% by 2035, split between 3.5% in “core defense requirements” related to Capability Targets and 1.5% in indirect “critical infrastructure”, such as in civil preparedness, cybersecurity, R&D, and dual-use defense industrial investments. This aligns with the EU’s ReArm plan, which aims to raise €650 billion ($743 billion) by exempting member state defense spending from the bloc’s statutory debt limits for up to 3.5% of GDP. In a victory for Kyiv, allied contributions to Ukraine’s defense will count toward this new defense spending target, creating an institutional incentive for continued engagement. By the end, the US reaffirmed its “ironclad” commitment to the alliance’s collective defense spelled out in Article 5.
Taken alone, the 5% commitment is by itself a consequential accomplishment and a victory for the Trump administration, which desires an increased European stake in their own defense. The commitment kept the tone of the summit constructive, and, with perhaps the exception of Spain (which, mired by debt and focused on social spending, successfully negotiated a vague carve-out to the 5% target), the NATO alliance demonstrated an impressive display of continuity and cohesion. However, the narrow focus of the summit deliberately sidestepped several strategic questions that remain unresolved. This is likely tactical on Secretary-General Mark Rutte’s part—iterative diplomatic engagement may be required to steer NATO allies toward rearmament as they navigate differing priorities—but this limited the summit’s ability to clarify a shared vision for a transforming European security architecture.
The most glaring question and the elephant in the room—mobilizing a unified response to the Russia-Ukraine war—was relegated to the sidelines. The 2024 Washington Summit affirmed Ukraine’s “irreversible path to full Euro-Atlantic integration” and, through institutionalizing defense industrial coordination and military training exchanges, sought to “bridge” Ukraine into NATO, albeit stopping short of a full embrace of future membership and a security guarantee. The 2024 declaration also tasked the alliance with forging a cohesive Russia strategy that would prevent a return to the pre-war status quo. The quiet divisions in the Hague Summit did not touch upon previous decisions—keeping Ukraine’s future status in limbo and a cohesive Russia strategy likely postponed.
Indecisiveness extended to sanctions. US Secretary of State Marco Rubio, although reportedly skeptical of Russia’s willingness to end its war in private, publicly indicated that the US will continue a strategy of diplomacy to achieve a ceasefire and refrain from using any sticks at this time. This may blunt the impact of the EU’s upcoming 18thsanctions package, which includes a vague threat for secondary sanctions on entities that help Russian banks circumvent a SWIFT ban.
Burden-Shifting: Is Europe Ready for a New Transatlantic Bargain?
Core to the uncertainty of the NATO alliance is the long-planned US pivot to Asia, which predated the Trump administration and will outlast it as strategic competition with China escalates. A leaked Pentagon memo in April revealed that the US is considering a limited troop withdrawal from Europe—the size of which remains undetermined—and a full withdrawal had been reportedly discussed (although perhaps not seriously considered) in the context of ceasefire negotiations with Russia, increasing European fears of insecurity. The new 3.5% commitment is a product of a clear realization: Europeans must prepare not just for increased responsibility, but also agency within the NATO alliance—whether that be labeled a European pillar, strategic autonomy, or NATO-Europe. At best, this will make the transatlantic alliance more sustainable and keep the US engaged, even as it focuses on other strategic priorities. At worst, European unity could be thrown in disarray and a credible deterrent to Russia will be lost. Managing this burden-shifting will transform the European security architecture, introducing the remaining unanswered questions from the Hague Summit.
One question is what a transition to a European pillar of NATO would look like. Beyond the US’ lion-share of about two-thirds of NATO’s defense spending, the US provides the “strategic enablers” that give NATO a credible deterrent. These include intelligence, surveillance, and reconnaissance technology; enhanced military capabilities, such as precision strikes and air defense systems; the infrastructure for command, control, and communications to coordinate military operations; and a leading innovation ecosystem for integrating disruptive technology, such as AI, into defense systems. The International Institute for Strategic Studies estimated in early May that achieving parity in these enablers and replacing up to 84,000 US troops (albeit, an extreme scenario) could cost the Europeans about $1 trillion. For reference, ratcheting up the total spending of non-US NATO allies to 3.5% in 2024 would have yielded only an additional $373 billion—so this transition would take time to materialize, and significant political will.
Another question is what it would take for Europe alone to deter a Russian attack on NATO territory, if the US seeks to transfer management of a forward posture in the eastern flank to European forces. While spending 3.5% of GDP is certainly a step in the right direction, how it is spent—and whether it truly scales Europe’s defense industrial base—will be crucial. Russia is predicted to spend $170 billion on military expenditure in 2025, corresponding to roughly 8% of its GDP. However, its war economy has achieved an economy of scale that, according to Secretary-General Rutte, can produce four times as many artillery shells in three months as all NATO allies, including the US, produce combined in one year. Russia also doubled the production of Iran-designed Shahed drones and tripled Iksander short-range ballistic missiles in 2024, among other things, reflecting its ability to scale defense production at speed. The future of the European peace project will, ironically, depend on closing this productive gap. But as it stands, the EU remains skeptical of a true defense union, allowing fragmented national markets to guide procurements instead of ambitious measures like joint borrowing.
How defense industrial resources are mobilized could shift the center of NATO’s strategic leadership—another key question. Germany, with a debt-to-GDP ratio of 62.5%, remains the only EU member with the fiscal leeway to borrow on international bond markets to finance a “quantum leap” in defense industrial investments, potentially becoming a regional leading power that tacitly guides future capability targets. According to a budget released in late June, Germany plans to reach an annual 3.5% of GDP in defense spending by 2029 (an annual €152.8 billion in today’s terms). Meanwhile, the UK is sprinting to reach 3.5% by 2035, and France, although supportive of increased spending, is constrained by large public debts and deficits. A potentially resurgent German power ironically twists the unofficial mantra at the foundation of the NATO alliance on European security: instead of keeping the Russians out, the Americans in, and the Germans down, the Russians would be creeping, the Americans vacant, and the Germans up.
The Global Risks
In sum, there are three unknowns at the heart of European security: to what extent the US force posture shifts, whether the European defense investment remains primarily in the hands of national governments, and if European states will possess the political will and sustainability to rapidly mobilize public spending in defense and erect a credible European pillar of NATO. The 5% commitment is a welcome step in ambition and will stave off the worst fears of a “dormant NATO,” but a lack of strategic clarity could still nonetheless be exploited by Russia—who, according to the German Intelligence Service, is stockpiling defense articles to sustain a potential attack on a NATO ally within four years.
A pivot to massive defense spending carries both upside and downside risks for the NATO alliance. On the upside, scaling defense industrial capacity will likely have positive effects on the economy—both for industrials that rely on revenue streams based on government defense contracts, and also as a driver of R&D and innovative spillover to civilian sectors. On the downside, a rapid increase in defense spending—particularly for Europe—may necessitate diversions from other sources of spending, such as social spending, fueling political resentment and support for sovereigntist movements that are skeptical of NATO and the EU. Fiscal pressures may reopen the distributive politics over the design of the EU and its competitiveness—including the potential need for joint borrowing, fiscal harmonization, loosening debt rules, and integrating capital markets. If the NATO alliance remains divided, Russia could become unconvinced in the credibility of Article 5 and may gradually, and then suddenly, test the boundaries of NATO’s cohesion to establish its own sphere of influence.
On a positive note, the policy movement on the European side, in large part due to the pressure generated by the Trump administration, has been remarkable. In 2021, only six NATO allies met the 2% target, and in 2024, that number was 23. Europe and Canada has delivered nearly as much bilateral aid to Ukraine ($111 billion) as the US ($123 billion). The EU has overridden its debt taboos and embraced joint borrowing for defense for the first time in its history through the €150 billion Security Action for Europe (SAFE) instrument, which will loan money to member states, and has suspended deficit rules for defense spending. Germany, once the prime laggard, has exempted defense spending from its debt brake and is leading European rearmament. This is to say that while the hard work begins after the Hague summit, the direction of travel is pointed in the right direction.
