What challenges EU members face after NATO's decision to increase defence spending

Across Europe, defense budgets have grown by roughly one-third in recent years, with most of NATO’s European members spending around 2% of their GDP or nearing that benchmark.

But even that is no longer enough.

Read more about the painful budgetary trade-offs European political leaders must now confront, having pledged to raise defenсe spending while continuing to support Ukraine in its war against Russia, in the column by former Swedish Prime Minister and Foreign Minister Carl Bild: Where to find funds to support Ukraine? A problem most European countries now face.

The author predicts that three urgent priorities are set to strain Europe’s public finances over the next few years: defence, supporting Ukraine in its fight against Russia, producing the European Union’s next multiyear budget, which will cover the period from 2028 to 2034. 

At the June NATO summit in The Hague, members pledged to spend 3.5% of GDP on defense by 2035, with an additional 1.5% earmarked for loosely defined defense– and security-related investments.

"The extra 1.5% appears designed to appease Trump, who has repeatedly called for European allies to boost military spending to 5% of GDP. Much of this additional spending is expected to rely on creative accounting rather than actual new funding," writes Carl Bildt.

In his view, Northern European countries will reach NATO’s 3.5%-of-GDP defense spending target well before 2035, while Southern European countries – with the exception of Greece – will likely fail to meet it. 

Bildt also warns of another risk: with France, Italy, and Spain all heading for elections by 2027, the political appetite for the spending cuts needed to increase defense budgets will likely remain limited.

"This trend is already evident in the distribution of aid to Ukraine. In the first four months of 2025, the Nordic countries contributed $6.8 billion, the UK provided $5.3 billion, and Germany put up $760 million, while Spain and Italy gave only a fraction of those amounts," he writes. 

The irony, Carl Bildt points out, is that the EU member states often labeled as "frugal" are the ones actually willing to provide funding to advance the bloc’s agreed-upon priorities. Meanwhile, the less frugal countries prefer to call for more borrowing, even though they have limited room to do so themselves.

"These tensions are now driving the intensifying battle over Europe’s finances. There is a stark contrast between NATO’s swift approval of large spending pledges and the EU’s wrangling over far smaller amounts," writes the former Swedish prime minister.

Whatever the outcome, the coming fiscal fight will test how able and willing Europe’s leaders are to confront the serious security challenges ahead.