REPORT: Europe’s Strategic Defense Investment: A $535 Billion Imperative for the Next Decade

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The European Union (EU) is on the cusp of a significant transformation in its defense strategy, driven by a pressing need to bolster its military capabilities in the face of rising global threats. European Commission President Ursula von der Leyen has emphasized the necessity for a substantial investment in defense, amounting to 500 billion euros ($535 billion) over the next decade. This unprecedented financial commitment underscores the EU’s determination to enhance its defense infrastructure, which has lagged behind other global powers like China and Russia.

The Strategic Context

The geopolitical landscape has shifted dramatically in recent years, marked by increasing tensions and conflicts, most notably the ongoing war in Ukraine. The invasion of Ukraine by Russia has served as a stark reminder of the volatility in Europe’s eastern borders and has accelerated the urgency for a robust defense strategy within the EU. The European Council has responded by calling for a ramp-up in military support to Ukraine, including critical supplies of air defense systems, ammunition, and missiles.

Von der Leyen’s call to action is rooted in the recognition that Europe must not rely solely on external allies for its security. Historically, European nations have depended heavily on the United States for military support and equipment. However, the EU now aims to develop a more self-sufficient defense capability, reducing its dependence on non-EU suppliers and fostering greater intra-European defense cooperation.

Financial Framework and Implementation

The proposed 500 billion euros investment will be sourced from a combination of national contributions from EU member states and the bloc’s own funds. This financial infusion is intended to support a variety of defense initiatives, including the development and procurement of advanced military technologies, enhancement of cyber defense capabilities, and strengthening of integrated European air and missile defense systems.

To ensure efficient allocation of these funds, the EU plans to implement several strategic measures:

  • Joint Defense Procurement: Encouraging member states to engage in collaborative defense projects to fill capability gaps and ensure a unified defense posture.
  • European Military Sales Mechanism: Inspired by the U.S. foreign military sales model, this mechanism aims to streamline defense contracts and ensure timely delivery of critical defense equipment.
  • Stockpiling and Supply Chain Management: Establishing reserves of essential defense components and materials, and mapping out key suppliers within the EU to prevent shortages during crises.
  • Research and Development: Continued funding for defense innovation through the European Defence Fund, with a focus on commercializing successful prototypes and maintaining operational superiority.

The European Investment Bank (EIB) has also expressed readiness to support these defense projects, particularly those involving small and medium enterprises (SMEs), which are pivotal for innovation in the defense sector.

Political and Industrial Challenges

Despite the clear strategic need, the implementation of this ambitious defense investment plan is fraught with political and industrial challenges. The EU member states have historically shown reluctance to cede control over national defense policies to a central authority. The new strategy, which proposes significant EU involvement in defense industrial policy, has sparked debates about the extent of the EU’s role and the potential for overreach.

Moreover, the strategy’s emphasis on prioritizing EU-based defense firms has raised concerns about protectionism and its impact on existing international defense partnerships. The exclusion of non-EU suppliers, except for strategic partners like Ukraine, has been a contentious issue, potentially hindering the swift implementation of the proposed measures.

Long-term Strategic Goals

The long-term success of the EU’s defense strategy hinges on several key factors:

  • Sustained Funding: Ensuring consistent financial support to maintain and enhance defense capabilities over the next decade.
  • Political Cohesion: Achieving consensus among EU member states on the strategic priorities and governance of defense policies.
  • Technological Innovation: Investing in cutting-edge technologies, such as artificial intelligence and quantum computing, which have dual-use potential and are critical for future defense capabilities.
  • Collaboration with Academia: Engaging universities and research institutions in defense-related projects to foster innovation and ensure the civilian sector’s involvement in defense advancements.

The EU’s 500 billion euros defense investment plan is a bold and necessary step towards strengthening Europe’s defense capabilities in an increasingly uncertain world. By fostering greater collaboration among member states, prioritizing innovation, and ensuring a reliable supply of critical defense equipment, the EU aims to build a more secure and self-reliant Europe. However, the success of this strategy will depend on overcoming political hurdles, securing sustained funding, and maintaining a delicate balance between national sovereignty and collective security interests.


NATO Cost Share Arrangements for 2024

Based on the latest data, NATO’s civil and military budgets for 2024 have been agreed upon. The civil budget is set at €438.1 million, while the military budget is €2.03 billion. Additionally, the NATO Security Investment Programme (NSIP) ceiling is €1.3 billion for 2024​ .

Image : Defence expenditure as a share of GDP and equipment expenditure as a share of defence expenditure 2024e

TABLE – Defence expenditure as a share of GDP and annual real change – Based on 2015 prices

 2014201520162017201820192020202120222023e2024e
Share of real GDP (%)           
 Albania1.351.161.101.111.161.281.301.241.211.752.03 
 Belgium0.970.910.890.880.890.891.011.041.181.211.30 
 Bulgaria1.311.251.241.221.453.131.591.521.591.962.18 
 Canada1.011.201.161.441.301.291.411.271.201.311.37 
 Croatia1.811.751.591.631.541.591.691.951.781.741.81 
 Czechia*0.941.020.951.031.101.181.301.391.341.372.10 
 Denmark1.151.111.151.141.281.301.381.301.372.012.37 
 Estonia*1.932.032.072.012.012.042.302.032.163.043.43 
 Finland1.451.451.421.381.391.451.531.401.682.092.41 
 France1.821.781.791.781.811.812.001.911.881.962.06 
 Germany1.191.191.201.231.251.351.511.451.511.642.12 
 Greece2.222.312.402.382.542.452.913.703.882.803.08 
 Hungary0.860.901.001.191.011.341.761.321.842.052.11 
 Italy1.141.071.181.201.231.171.591.541.521.501.49 
 Latvia*0.941.031.441.592.062.022.162.092.122.873.15 
 Lithuania*0.881.141.481.711.972.002.071.962.452.782.85 
 Luxembourg0.370.410.380.490.500.550.580.470.561.121.29 
 Montenegro1.501.401.421.341.371.331.731.551.381.542.02 
 Netherlands1.151.131.161.151.221.321.411.361.441.662.05 
 North Macedonia1.091.050.970.890.941.161.241.451.611.812.22 
 Norway1.541.581.731.711.721.841.971.681.461.812.20 
 Poland*1.882.232.001.892.021.992.232.222.233.264.12 
 Portugal1.311.331.271.241.341.371.431.521.401.481.55 
 Romania*1.351.451.431.731.791.842.011.851.741.602.25 
 Slovak Republic0.981.111.121.101.221.701.921.741.811.842.00 
 Slovenia0.970.931.000.981.011.051.061.231.291.341.29 
 Spain0.920.930.810.910.930.911.001.031.161.191.28 
 Sweden1.061.010.970.970.971.041.091.421.451.662.14 
 Türkiye1.451.381.451.511.821.851.861.611.361.502.09 
 United Kingdom2.142.032.092.082.102.082.352.292.292.302.33 
 United States3.713.513.503.283.263.473.583.533.313.233.38 
 NATO Europe and Canada1.431.421.441.481.511.541.721.661.661.782.02 
 NATO Total2.582.482.482.392.402.522.692.632.512.532.71 

Annual real change (%)

Albania-2.74-11.76-1.904.328.8412.67-2.174.471.9649.2719.76
Belgium-2.25-4.44-0.360.362.691.907.969.6417.253.708.89
Bulgaria-9.08-1.562.800.9621.79124.94-51.162.499.0725.3713.29
Canada4.9520.09-2.4827.76-7.181.613.37-5.08-2.0810.335.46
Croatia25.92-1.03-5.966.15-2.817.19-3.0230.82-2.400.737.11
Czechia*-4.9114.14-4.6114.3210.3310.144.1110.60-1.252.0154.65
Denmark-4.84-1.036.621.9814.472.883.760.878.0750.0420.66
Estonia*3.747.425.242.683.735.3412.05-5.015.7536.1212.56
Finland-6.030.420.680.551.395.982.87-6.0721.5023.2815.24
France-1.21-1.001.381.733.612.111.222.200.935.026.05
Germany-1.391.423.365.502.579.097.48-0.965.568.8429.45
Greece0.443.723.470.158.55-1.948.2537.7010.92-26.3211.85
Hungary-5.229.3813.1924.20-11.1939.1725.85-19.4645.3210.574.99
Italy-9.81-5.8312.053.752.77-3.9423.334.913.07-0.560.12
Latvia*2.3914.6642.2914.6134.54-1.253.093.104.4835.2911.56
Lithuania*19.3831.9633.1320.8419.386.243.510.6728.0313.354.25
Luxembourg4.9215.30-3.8232.042.5912.374.72-12.6221.0631.1717.86
Montenegro4.49-3.504.33-1.347.291.3610.021.48-5.9818.8134.97
Netherlands0.190.264.432.178.4110.902.182.5910.3315.7424.25
North Macedonia-3.58-0.09-4.71-6.758.4027.732.0122.4612.9413.7426.16
Norway5.384.7210.840.781.438.705.27-11.40-10.0224.4022.24
Poland*11.3823.75-7.30-0.3412.622.8710.056.136.3346.6130.07
Portugal-8.523.25-2.511.0311.405.32-4.6012.76-1.857.796.52
Romania*8.6111.051.2331.389.576.405.42-2.52-2.49-5.9845.63
Slovak Republic3.2518.612.511.8015.1842.978.97-5.035.693.4710.36
Slovenia-4.42-2.3711.422.457.318.03-3.6726.107.385.21-1.41
Spain0.364.60-10.1515.304.81-0.47-1.498.7319.475.549.32
Sweden4.28-1.04-1.761.952.499.352.7337.535.0414.2329.87
Türkiye0.781.448.6411.6123.872.852.28-3.83-10.7915.4544.09
United Kingdom-1.11-3.054.752.112.520.761.275.764.180.871.73
United States-5.19-2.841.56-3.812.189.210.774.31-4.270.087.21
NATO Europe and Canada0.881.632.975.894.253.624.712.543.739.2617.95
NATO Total4.041.611.961.032.827.471.953.761.833.0310.88
Notes: Figures for 2023 and 2024 are estimates. The NATO Europe and Canada and NATO Total aggregates from 2017 onwards include Montenegro, which became an Ally on 5 June 2017, from 2020 onwards include North Macedonia, which became an Ally on 27 March 2020, from 2023 onwards include Finland, which became an Ally on 4 April 2023 and from 2024 onwards include Sweden, which became an Ally on 7 March 2024.
* These Allies have national laws or political agreements which call for 2% of GDP or more to be spent on defence annually, consequently future estimates are expected to change accordingly. For past years Allies defence spending was based on the then available GDP data and Allies may, therefore, have met the 2% guideline when using those figures. (In 2018 and 2021, Lithuania met 2% using November 2018 and June 2021 OECD figures respectively).

The table below provides the cost share percentages for each NATO member, alongside their contributions in euros across the three principal common-funded budgets.

NationCost Share (%)Total Contribution (EUR)Civil Budget (EUR)Military Budget (EUR)NSIP (EUR)
Albania0.0882€3,003,360€386,403€1,789,860€827,097
Belgium2.0447€69,600,510€8,960,421€41,494,310€19,145,779
Bulgaria0.3552€12,104,160€1,557,334€7,217,760€3,329,066
Canada6.6840€227,672,200€29,305,210€135,629,200€62,737,790
Croatia0.2910€9,920,700€1,276,111€5,904,300€2,740,289
Czechia1.0259€34,935,300€4,495,436€20,800,700€9,639,164
Denmark1.2744€43,389,200€5,585,766€25,816,200€11,987,234
Estonia0.1213€4,130,890€532,193€2,461,900€1,136,797
Finland0.9057€30,826,400€3,970,222€18,369,100€8,487,078
France10.1940€346,402,200€44,590,809€206,420,200€95,391,191
Germany15.8813€539,073,000€69,319,292€321,484,300€148,269,408
Greece1.0273€34,862,100€4,485,418€20,758,700€9,618,018
Hungary0.7380€25,048,200€3,222,628€14,916,000€6,909,572
Iceland0.0624€2,116,320€272,118€1,259,520€584,682
Italy8.5324€290,003,400€37,285,506€172,536,200€80,181,694
Latvia0.1550€5,269,500€677,094€3,135,000€1,457,406
Lithuania0.2493€8,474,250€1,088,301€5,036,400€2,349,549
Luxembourg0.1645€5,591,850€718,018€3,320,600€1,553,232
Montenegro0.0283€962,700€123,648€571,100€267,952
Netherlands3.3528€113,989,600€14,648,144€67,660,400€31,681,056
North Macedonia0.0756€2,569,800€330,924€1,528,800€710,076
Norway1.7267€58,733,100€7,561,069€34,892,100€16,279,931
Poland2.9015€98,719,500€12,704,205€58,632,500€27,382,795
Portugal1.0194€34,698,600€4,463,376€20,598,200€9,637,024
Romania1.1931€40,602,300€5,220,278€24,086,300€11,295,722
Slovakia0.5014€17,073,000€2,195,243€10,130,600€4,747,157
Slovenia0.2212€7,537,200€969,876€4,474,400€2,092,924
Spain5.8211€198,280,200€25,526,690€117,688,300€55,065,210
Sweden1.9277€65,656,100€8,459,951€39,010,100€18,186,049
Türkiye4.5927€156,397,100€20,132,894€92,209,100€44,055,106
United Kingdom10.9626€373,756,800€48,085,822€220,308,000€105,362,978
United States15.8813€540,670,900€69,583,943€322,596,200€148,490,757
TOTAL NATO100.0000€3,400,000,000€438,100,000€2,030,000,000€1,300,000,000

The 2024-2028 Common Funding Resource Plan (CFRP) Overview

The 2024-2028 Common Funding Resource Plan (CFRP) is a comprehensive five-year financial strategy designed by the Resource Policy and Planning Board (RPPB) for NATO’s Council consideration. It integrates the Medium Term Resource Plan (for the Military Budget and the NATO Security Investment Programme (NSIP)) and the Medium Term Financial Plan (for the Civil Budget) to provide a unified resource allocation framework for NATO.

The CFRP aims to outline the common-funded resource needs over the next five years, assessing the feasibility and affordability of ongoing and future common-funded programs. It proposes budget ceilings for the upcoming year and offers planning figures for the following years, extending into 2029 and 2030.

In the 2022 Madrid Summit, NATO leaders endorsed a new Strategic Concept to ensure the Alliance remains equipped to handle future challenges. The Summit highlighted the necessity of increased national defense expenditures and common NATO funding to meet the demands of a more contested global environment. This decision built on the 2021 Brussels Summit’s commitment to adjust and expand common funding usage, emphasizing affordability, accountability, and sustainability.

Key Strategic Initiatives:

  • Deterrence and Defense of the Euro-Atlantic Area (DDA): This includes new political priorities and military requirements crucial for implementing NATO’s Strategic Concept and NATO 2030 agenda.
  • NATO Warfighting Capstone Concept (NWCC): Essential for developing military concepts and plans.
  • NSIP and Military Budget Allocations: Necessary for supporting NATO’s deterrence and defense posture.

NATO Security Investment Programme (NSIP):
The NSIP is pivotal in developing and delivering capabilities, particularly in areas like air, land, and naval facilities, bulk fuel systems, core communications, IT networks, and satellite communications. For 2024, a ceiling of EUR 1,324.4 million is recommended, with future projections reaching EUR 5,786.4 million by 2030.

Military Budget:

The Military Budget supports strengthening NATO’s deterrence and defense posture, core military capabilities, Alliance Operations and Missions, and interoperability of forces. For 2024, a ceiling of EUR 2,128.3 million is proposed, with projections increasing to EUR 4,390.6 million by 2030.

Budget Breakdown:

NATO Command Structure Entities and Programs:

    • Supports the backbone of NATO’s military structure and enables operations and crisis response.
    • 2024 ceiling: EUR 1,217.4 million.
    • 2030 projection: EUR 3,201.9 million.

    Alliance Operations and Missions:

      • Includes missions in Iraq, the Balkans, and support to the African Union.
      • 2024 ceiling: EUR 61.0 million.
      • 2030 projection: EUR 104.6 million.

      NATO Alliance Ground Surveillance Force:

        • Provides Joint Intelligence, Surveillance, and Reconnaissance (JISR).
        • 2024 ceiling: EUR 264.1 million.
        • 2030 projection: EUR 390.5 million.

        NATO Airborne Early Warning and Control Force:

          • Significant JISR capability contributing to NATO’s deterrence posture.
          • 2024 ceiling: EUR 420.2 million.
          • 2030 projection: EUR 456.6 million.

          Defined Benefits Pension Scheme:

            • Covers projected liabilities with retirees.
            • 2024 ceiling: EUR 165.6 million.
            • 2030 projection: EUR 237.0 million.

            Civil Budget:

            The Civil Budget facilitates NATO’s decision-making process, policy development, and implementation. It supports interoperability standards, AI capabilities, training, situational awareness, cyber defense, counter-terrorism, hybrid threats, and climate change cooperation. For 2024, a ceiling of EUR 417.7 million is recommended, with projections rising to EUR 739.8 million by 2030.

            Inflation Framework:

            To address global economic conditions and inflation, a Common Funding Inflation Framework was developed. This framework will inform future planning by evaluating affordability based on projected cost evolution due to inflation.

            Transparency and Accountability:

            The CFRP includes measures to enhance transparency, accountability, and management performance, as endorsed at the 2023 Vilnius Summit. This ensures efficient resource allocation and integration of long-term efficiencies into the planning process.

            The 2024-2028 CFRP outlines a strategic approach to resource allocation, supporting NATO’s core tasks and strategic objectives. By addressing the evolving security environment and incorporating lessons learned from previous cycles, the CFRP ensures NATO remains prepared and well-resourced to meet future challenges. The detailed resource planning and budget ceilings proposed aim to enhance NATO’s deterrence and defense capabilities while maintaining financial sustainability and accountability.

            Technical Data Sheet and Capabilities Overview:

            Category2024202520282030
            NSIP Ceiling (EUR million)1,324.41,710.63,565.35,786.4
            Military Budget Ceiling (EUR million)2,128.33,097.64,390.6
            NATO Command Structure (EUR million)1,217.41,969.73,201.9
            Alliance Operations & Missions (EUR million)61.094.1104.6
            NATO Ground Surveillance (EUR million)264.1371.5390.5
            NATO Airborne Early Warning (EUR million)420.2451.2456.6
            Pension Scheme (EUR million)165.6211.1237.0
            Civil Budget Ceiling (EUR million)417.7600.7739.8

            Capabilities and Focus Areas:

            • Air, Land, and Naval Facilities: Infrastructure development and enhancement.
            • Bulk Fuel Systems: Storage and pipeline systems.
            • Communications and IT Networks: Core communication infrastructure and satellite communication.
            • Surveillance and Reconnaissance: JISR capabilities for strategic information gathering.
            • Cyber and Digital Capabilities: Enhancing NATO’s digital and cybersecurity posture.
            • Interoperability Standards: Ensuring seamless operation among Alliance forces.
            • Artificial Intelligence: Investment in AI for strategic advantages.
            • Climate Change Cooperation: Addressing climate-related security challenges.

            Implementation Strategies:

            • Prioritization and Efficiency: Focused resource allocation to meet strategic priorities.
            • Operational Requirements Submission: Expedite operational requirements for timely decision-making.
            • Inflation Consideration: Integrating inflation impacts into resource planning.
            • Transparency and Accountability: Enhancing management performance and accountability measures.

            This detailed report aims to provide a thorough understanding of the CFRP, ensuring NATO’s strategic objectives are met with the necessary resources and financial planning.


            NATO’s Resource Management and Financial Contributions: An In-Depth Analysis

            NATO is resourced through the direct and indirect contributions of its members. NATO’s common funds are composed of direct contributions to collective budgets and programs, which equate to only 0.3% of total Allied defense spending (around EUR 3.3 billion for 2023). These funds enable NATO to deliver capabilities and run the entirety of the Organization and its military commands.

            National (or indirect) contributions are the largest component of NATO funding and are borne by individual member countries. These include the forces and capabilities held by each member country, which can be provided to NATO for deterrence and defense activities and military operations. Direct contributions finance NATO’s budgets, programs, and capabilities in support of objectives, priorities, and activities that serve the interests of the Alliance as a whole – and cannot reasonably be borne by any single member – such as Alliance operations and missions or NATO-wide air defense or command and control systems.

            All Allies contribute to funding NATO using an agreed cost share formula derived from the Gross National Income of member countries. This is the principle of common funding, and it demonstrates burden-sharing in action. NATO has three principal common-funded budgets: the civil budget (funding NATO Headquarters), the military budget (funding the NATO Command Structure), and the NATO Security Investment Programme (funding military infrastructure and capabilities). Programs and initiatives can also be jointly funded, which means that the participating countries can identify the priorities and the funding arrangements, while NATO provides political oversight.

            NATO common funding is underpinned by strong governance mechanisms, with Allies collectively deciding what is eligible for common funding and how much can be spent each year. They also collectively decide on the resource planning figures for the medium term. The North Atlantic Council oversees the common funding processes, which are governed by the Resource Policy and Planning Board, the Budget Committee, and the Investment Committee.

            Indirect Funding of NATO

            When the North Atlantic Council – NATO’s top political decision-making body – unanimously decides to engage in an operation or mission, there is no obligation for each and every member to contribute unless it is an Article 5 collective defense operation, in which case expectations are different. In all cases, NATO (as an organization) does not have its own armed forces, so Allies commit troops and equipment on a voluntary basis. Contributions vary in form and scale. For example, Allies can choose to contribute a few soldiers or thousands of troops to a NATO operation or mission. Contributions can also include any kind of materiel, from armored vehicles, naval vessels, or helicopters to all forms of equipment or support, medical or other. These contributions are offered by individual Allies and are taken from their overall defense capability to form a combined Alliance capability, with each covering the costs associated with their deployments.

            The 2% Defense Investment Guideline

            In 2006, NATO Defense Ministers agreed to commit a minimum of 2% of their Gross Domestic Product (GDP) to defense spending to continue to ensure the Alliance’s military readiness. This guideline also serves as an indicator of a country’s political will to contribute to NATO’s common defense efforts, since the defense capacity of each member has an impact on the overall perception of the Alliance’s credibility as a politico-military organization.

            The combined wealth of the non-US Allies, measured in GDP, is almost equal to that of the United States. However, non-US Allies together spend less than half of what the United States spends on defense. This imbalance has been a constant, with variations, throughout the history of the Alliance and has grown more pronounced since the tragic events of 11 September 2001, after which the United States significantly increased its defense spending. The volume of US defense expenditure represents approximately two-thirds of the defense spending of the Alliance as a whole. However, this is not the amount that the United States contributes to the operational running of NATO, which is shared with all Allies according to the principle of common funding. Moreover, US defense spending also covers commitments outside the Euro-Atlantic area. It should be noted, nonetheless, that the Alliance relies on the United States for the provision of some essential capabilities, regarding, for instance, intelligence, surveillance, and reconnaissance; air-to-air refueling; ballistic missile defense; and airborne electromagnetic warfare.

            The effects of the 2007-2008 financial crisis and the declining share of resources devoted to defense in many Allied countries, up to 2014, have exacerbated this imbalance and also revealed growing asymmetries in capability among European Allies. France, Germany, and the United Kingdom together represent approximately 50% of defense spending by the non-US Allies. At the Wales Summit in 2014, in response to Russia’s illegal annexation of Crimea, and amid broader instability in the Middle East, NATO Leaders agreed to a Defense Investment Pledge to reverse the trend of declining defense budgets and decided:

            • Allies currently meeting the 2% guideline on defense spending will aim to continue to do so.
            • Allies whose current proportion of GDP spent on defense is below this level will: halt any decline; aim to increase defense expenditure in real terms as GDP grows; and aim to move towards the 2% guideline within a decade with a view to meeting their NATO Capability Targets and filling NATO’s capability shortfalls.

            In order to ensure that these funds are spent in the most effective and efficient way to acquire and deploy modern capabilities, NATO Allies have also agreed that at least 20% of defense expenditure should be devoted to major new equipment. This includes associated research and development, perceived as a crucial indicator for the scale and pace of modernization.

            The Defense Investment Pledge endorsed in 2014 called for Allies to meet the 2% of GDP guideline for defense spending and the 20% of annual defense expenditure guideline on major new equipment by 2024. Since Russia’s full-scale invasion of Ukraine in February 2022, a majority of Allies have committed to investing more, and more quickly, in defense.

            At the 2023 Vilnius Summit, NATO Leaders agreed to a new Defense Investment Pledge, making an enduring commitment to investing at least 2% of GDP annually on defense. They also affirmed that in many cases, expenditure beyond 2% of GDP will be needed in order to remedy existing shortfalls and meet the requirements across all domains arising from a more contested security order. The new Defense Investment Pledge also calls for Allies to meet the 20% of annual defense expenditure guideline on major new equipment, including research and development.

            In 2024, 23 Allies are expected to meet or exceed the target of investing at least 2% of GDP in defense, compared to only three Allies in 2014. Over the past decade, European Allies and Canada have steadily increased their collective investment in defense – from 1.43% of their combined GDP in 2014, to 2.02% in 2024, when they are investing a combined total of more than USD 430 billion in defense.

            The Major Equipment Spending Guideline

            National defense budgets cover essentially three categories of expenditures: personnel expenses including pensions; research, development, and procurement of defense equipment; and, lastly, operations, exercises, and maintenance. Budget allocation is a national, sovereign decision, but NATO Allies have agreed that at least 20% of defense expenditures should be devoted to major equipment spending, including the associated research and development, perceived as a crucial indicator for the scale and pace of modernization. Where expenditures fail to meet the 20% guideline, there is an increasing risk of equipment becoming obsolete, growing capability and interoperability gaps among Allies, and a weakening of Europe’s defense industrial and technological base.

            At the Wales Summit in 2014, NATO Leaders agreed that, within a decade, Allies who are spending less than 20% of their annual defense spending on major equipment will aim to increase their annual investments to 20% or more of total defense expenditures.

            At the 2023 Vilnius Summit, Allied Leaders pledged to invest at least 20% of their defense budgets on major equipment and related research and development.

            Allies will also ensure that their forces meet NATO-agreed guidelines for deployability and sustainability and other agreed output metrics; and they will see to it that their armed forces can operate together effectively, including through the implementation of agreed NATO standards and doctrines.

            Direct Funding of NATO

            NATO has annual budgets and programs worth around EUR 3.3 billion, which inter alia support its permanent military command structure, enable its current operations and missions, and provide essential military infrastructure (including air and naval basing facilities, satellite communications, fuel pipelines, and command and control systems). This represents 0.3% of total Allied defense spending. This direct funding comes principally in two forms: common funding and joint funding. It can also come in the form of trust funds, contributions in kind, ad hoc sharing arrangements, and donations.

            The Principle of Common Funding

            Since NATO was founded, common funding has played a strategic role in supporting the Alliance’s objectives, priorities, and core tasks. Allies pool their collective resources in order to provide and deliver key NATO programs and capabilities.

            When a certain priority or initiative has been identified, the Resource Policy and Planning Board (RPPB) assesses whether the principle of common funding applies – in other words, whether the provision of a capability or conduct of an activity serves the interests of the Alliance as a whole and should therefore be resourced from common funding.

            Common funding arrangements apply to the NATO civil and military budgets and the NATO Security Investment Programme (NSIP). Together, these common-funded budgets reinforce the Alliance, providing major capabilities, enabling deterrence, defense, and interoperability, and supporting consultation and decision-making at the highest levels. These are the only funds for which NATO authorities identify their funding needs in accordance with the Alliance’s overarching objectives and priorities. Allied common funding contributions to NATO are established using an agreed cost-sharing formula derived from the Gross National Income of NATO member countries. Where military common funding is concerned – the military budget and the NSIP – the ‘over and above’ principle guides Allies’ decisions. In essence, it focuses on the provision of requirements that would not be reasonable for an Ally to bear individually.

            The criteria for common funding are reviewed regularly and adjusted to keep up with NATO’s evolving political-military objectives and needs. At the 2021 Brussels Summit, NATO Leaders agreed to increase NATO resourcing, including, as necessary, NATO common funding, taking into account sustainability, affordability, and accountability. At the 2022 Madrid Summit, NATO Leaders committed to a concrete financial trajectory for all three NATO budgets starting in 2023. As a result, increased national defense expenditures and NATO common funding will be commensurate with the challenges of a more contested security order. Investments in collective defense and key capabilities are essential.

            The Civil Budget

            The civil budget supports Allies’ consultation and decision-making. It provides funds for personnel expenses, operating costs, and capital and program expenditure of the International Staff at NATO Headquarters in Belgium. It is financed from national foreign ministry budgets (in most countries); its implementation is overseen by the Budget Committee. The civil budget for 2023 is EUR 370.8 million. The NATO Secretary General is the budget holder of the civil budget.

            The civil budget is formulated in line with an objectives-based framework, which establishes clear links between NATO’s strategic objectives and the resources required to achieve them. There are five frontline objectives which encompass support for crisis management and operations, collective defense, cooperative security, public relations, and the consultation process among Allies. There are also three enabling objectives, which consist of: supporting the operational environment of the NATO Headquarters; governance and regulation through the monitoring of business policies, processes, and procedures; and NATO Headquarters’ security.

            The Military Budget

            The military budget supports and contributes to strengthening NATO’s deterrence and defense posture and to fostering interoperability across the Alliance. It funds the operating of selected common-funded capabilities, the integrated command structure, Alliance operations and missions, and to some extent, training and exercises. It is composed of separate sub-budgets, which are financed with contributions from Allies’ national defense budgets (in most countries) according to agreed cost shares. Its implementation is overseen by the Budget Committee. The primary military budget holders are the Supreme Allied Commander Europe (SACEUR), the Supreme Allied Commander Transformation (SACT), and the Director General of the International Military Staff (DGIMS).

            Inter alia, the military budget provides funds for the integrated command structure, the International Military Staff, the NATO Strategic Commands, the NATO Airborne Early Warning and Control (NAEW&C) Force, and Alliance operations and missions. However, in all cases, the provision of military staff to the integrated command structure or to operations and missions remains a nationally funded responsibility. The military budget for 2023 is EUR 1.96 billion.

            The NATO Security Investment Programme

            The NATO Security Investment Programme (NSIP) supports and contributes to deterrence, defense, and security. It funds major construction and command and control systems under the ‘over and above’ principle described above. It provides installations and facilities such as air defense communication and information systems, military headquarters for the integrated command structure and for deployed operations, as well as critical airfield, fuel systems, and maritime infrastructure.

            The NSIP is financed by the ministries of defense of each NATO member. Its implementation is overseen by the Investment Committee. Capabilities are delivered either by individual host nations or user nations, by NATO agencies or Strategic Commands. The 2023 ceiling for the NSIP is EUR 1 billion.

            Joint Funding

            Joint funding arrangements are established within the terms of an agreed NATO charter. The participating countries identify the priorities and the funding arrangements, while NATO has visibility and provides political oversight. Jointly funded programs vary in the number of participating countries, cost share arrangements, and management structures.

            Joint funding is appropriate when there is a need for a long-term, subject-specific framework to implement large-scale requirements or specific initiatives. The most recent joint funding initiative is the establishment of the Defense Innovation Accelerator for the North Atlantic (DIANA). Joint funding arrangements can lead to the set-up of a management organization or agency within NATO.

            Jointly funded activities range from the development and production of fighter aircraft or helicopters to the provision of logistics support or air defense communication and information systems. These include agencies for NATO’s Airborne Early Warning and Control capability (NAPMA), the NH90 Helicopter program (NAHEMA), and the Eurofighter-Typhoon and Tornado fighter jet programs (NETMA). NATO agencies also coordinate research and development activities or are active in the fields of standardization and intelligence-sharing.

            Other Forms of Funding

            In addition to common funding and joint funding, some projects can take the form of contributions in kind or trust fund arrangements.

            Financial Management, Accountability, and Transparency

            There is a strong governance structure through which Allies decide what is eligible for common funding, how much can be spent each year, and what it may be spent on. Decision-making by consensus and well-established governance frameworks are fundamental to the way that common funding is managed at NATO. One of NATO’s main objectives is to be an effective and efficient steward of public resources.

            Financial Management of NATO’s Common-Funded Budgets

            The civil and military budgets and the NSIP contribution ceilings are annual, coinciding with the calendar year. Each budget is prepared under the authority of the head of the respective NATO body. The funding ceilings are set by the Resource Policy and Planning Board and agreed by the North Atlantic Council. When the annual budget has been approved, the heads of the relevant NATO bodies have discretion to execute it through the expenditure of funds for the purposes authorized. The administrative support for this task is largely entrusted to the financial controller of the relevant NATO body. The financial controller is charged with ensuring that all aspects of the execution of the budget conform to expenditure authorizations, to any special controls imposed by the Budget Committee, and to the financial regulations and their associated implementing rules and procedures. They may also, in response to internal auditing, institute such additional controls and procedures as they deem necessary for maintaining accountability.

            Financial Management and Reform

            In September 2014, NATO Leaders decided, inter alia, to reform governance, transparency, and accountability, especially in the management of NATO’s financial resources. This drive for transparency and accountability strove to improve insight into how NATO manages, spends, and reports on the use of taxpayer funds.

            As part of these measures, the NATO Financial Regulations (NFRs) became publicly available. They govern the financial administration of all NATO bodies and provide key policy guidance for ensuring effective and economical budgetary and financial administration. In 2015, a major review of these NFRs was conducted to strengthen financial management and accountability, and to reflect best practices in public finance.

            Additional transparency steps were taken to declassify International Board of Auditors for NATO (IBAN) reports and make them available to the public. These IBAN reports include financial audits and statements, performance audits, or other special reports. NATO Allies’ agreement of the civil and military budgets is also published on the NATO website every year.

            Reform of NATO’s Common-Funded Capabilities Delivery Process

            A reform was introduced in 2018 to accelerate the delivery of common-funded capabilities across NATO. Founded on the key principles of accountability and separating the governance and management of projects, a standardized model covering the entire capability life cycle has been established. It reduces the number of times consensus decision-making is required throughout implementation; it introduces a single project-level authorization; and it holds the management authorities accountable for handling the delivery of programs and projects, within agreed tolerances, making the need for governance decisions an exception. It also introduces the incremental delivery of complex capabilities that are highly dependent on technology by delivering individual components within months.

            Bodies and Stakeholders Involved

            North Atlantic Council

            The North Atlantic Council approves NATO budgets and investments and exercises oversight over NATO’s financial management. The Resource Policy and Planning Board (RPPB) advises the Council on resource policy and allocation. The Council seeks resource advice from the RPPB when deciding on new initiatives, activities, operations, or missions.

            Resource Policy and Planning Board

            The Resource Policy and Planning Board (RPPB) is the senior advisory body to the Council on NATO resources. It has responsibility for the overall governance of NATO’s civil and military budgets, as well as the NATO Security Investment Programme (NSIP) and the budgetary implications of common-funded personnel. Both the Budget Committee and the Investment Committee report to the RPPB.

            Budget Committee and Investment Committee

            The Budget Committee is responsible to the RPPB for the implementation of NATO’s civil and military budgets. The Investment Committee is responsible to the RPPB for the implementation of the NSIP.

            NATO Office of Resources

            The NATO Office of Resources (NOR) provides independent and integrated expert advice to the Secretary General, NATO resource committees, Allies, and other stakeholders on the planning, allocation, and utilization of military common funding made available to achieve NATO’s goals and objectives. Advice from the NOR is based on sound judgment underpinned by facts, figures, expertise, and knowledge. It follows NATO policies, procedures, and standards, and is independent of external stakeholders’ viewpoints. It supports the efficient and effective use of public funds by assessing the policy compliance, eligibility, affordability, technical viability, and lifecycle implications of military requirements and proposed solutions. Furthermore, the NOR facilitates resource-informed political decision-making.

            Budget Holders

            The Secretary General, the Supreme Commanders, and the other heads of NATO bodies are responsible and accountable for sound financial management, as well as for providing the requirements for common funding. This includes the establishment and maintenance of financial governance, resource management practices, internal controls, and financial information systems to achieve the efficient and effective use of resources.

            International Board of Auditors for NATO

            The International Board of Auditors for NATO (IBAN) is the independent, external audit body for NATO. Through its audits, it provides the North Atlantic Council and the governments of member states with assurance that financial reporting is true and fair and funds have been

            properly used for the settlement of authorized expenditure. In addition, the IBAN reviews the operations of NATO bodies to determine if they are being carried out effectively and economically.

            The IBAN conducts three types of audits: financial statements audits of NATO Reporting Entities, performance audits of NATO, and audits of the NATO Security Investment Programme. As such, it contributes to the strengthening of accountability and corporate governance within NATO.


            APPENDIX 1 – GDP 2014 – 2024E

            Table 5 : GDP
            Million US dollars
             2014201520162017201820192020202120222023e2024e
            Current prices and exchange rates           
            Albania13,24611,38911,86213,05315,15615,39915,19217,98419,08322,74325,431
            Belgium535,528462,383475,931502,587543,545535,925525,843601,147583,895630,704655,744
            Bulgaria57,08050,76653,92659,28866,39868,88970,31184,10090,422101,611106,721
            Canada1,805,7481,556,5111,527,9961,649,2711,725,2971,743,7301,655,6852,007,4722,161,4832,140,0862,233,829
            Croatia58,71150,48152,74956,85662,82962,83858,17469,65172,05782,71089,895
            Czechia209,305188,114196,193218,891249,261252,654246,046281,711290,498331,224326,130
            Denmark352,982302,679313,100332,112356,839346,506354,761405,687400,161404,183418,584
            Estonia26,62522,88124,05626,88130,59231,25931,29136,83637,92340,75641,886
            Finland274,934234,558240,705255,558275,833268,545271,668296,663282,105300,274302,719
            France2,860,0312,440,7692,470,9772,596,9652,794,0382,732,0712,644,2422,958,2952,780,4333,035,4673,120,348
            Germany3,896,2033,355,0153,462,9623,694,2273,982,0193,896,5343,876,6124,270,5224,078,6944,458,6114,610,035
            Greece235,519195,704193,095199,774212,146205,167188,684216,384218,698240,073249,811
            Hungary141,034125,174128,610143,113160,566164,010157,289182,110177,788212,464231,612
            Iceland17,86817,51720,79324,72826,26124,68221,63025,79828,70231,02032,894
            Italy2,164,1731,835,5211,877,7091,963,7942,092,7082,011,2951,894,1272,153,5922,069,1492,258,3022,311,170
            Latvia31,39527,26628,07630,47334,44534,22934,36339,46940,45443,64045,152
            Lithuania48,61141,44043,03547,74253,77654,81556,91966,84371,07077,85980,717
            Luxembourg68,79260,20262,16265,81970,96569,65273,62585,53881,96957,52960,689
            Montenegro4,5954,0554,3764,8555,5095,5434,7775,8656,2437,4068,022
            Netherlands892,368765,823783,668834,413914,612909,682908,4411,029,7621,010,5541,119,5081,162,883
            North Macedonia11,37810,06710,68611,33612,69412,60912,38514,00813,73514,76915,873
            Norway501,737388,160370,956401,746439,789408,742367,633503,368593,727485,513482,584
            Poland538,944475,855469,766524,602588,270595,256598,914681,423689,253812,104848,857
            Portugal229,961199,415206,369221,280242,423240,013228,849255,705255,397287,163298,976
            Romania199,714177,884185,288210,147243,316251,018251,699286,015299,470350,919383,921
            Slovak Republic101,46388,91089,92895,616106,186105,723106,652118,642115,676132,832142,812
            Slovenia50,01043,11244,75448,57254,20354,39353,69261,87360,11168,23673,517
            Spain1,372,1761,196,2801,233,2161,312,7811,422,3491,394,4741,277,1061,446,6131,418,9161,581,1511,658,360
            Sweden582,981504,993514,607540,922555,712534,208546,657638,245589,306593,447626,536
            Türkiye938,511864,071869,280858,933780,189760,521720,159818,337905,8411,108,4531,090,290
            United Kingdom3,066,3032,928,5572,699,0862,682,3852,875,0242,853,0722,699,7343,142,2623,100,1093,341,2773,520,496
            United States17,608,13818,295,01918,804,91319,612,10320,656,51621,521,39521,322,95023,594,03125,744,10827,360,93528,719,942
            NATO Europe and Canada20,414,04017,871,87617,895,54218,820,90120,148,71019,828,09119,134,83621,867,01421,671,51123,778,58625,256,495
            NATO Total38,022,17936,166,89536,700,45538,433,00440,805,22541,349,48640,457,78545,461,04547,415,62051,139,52153,976,437
            Constant 2015 prices and exchange rates           
            Albania11,14211,38911,76712,21412,70512,97012,54213,65914,32114,79315,249
            Belgium453,133462,383468,239475,822484,354495,209469,155501,297516,386523,929530,709
            Bulgaria49,09850,76652,30253,73855,18757,41355,13659,36161,69162,83164,043
            Canada1,546,4591,556,5111,572,6761,620,3881,664,8351,696,6071,611,1281,696,3081,761,1051,779,8781,798,435
            Croatia49,22650,48152,32354,08455,69757,61552,70659,57963,76665,71867,886
            Czechia178,374188,114192,724203,027209,536215,750203,845210,971215,929215,545217,937
            Denmark295,734302,679312,509321,319327,715332,591324,533346,763356,232362,958371,436
            Estonia22,36922,88123,58624,87425,83226,84926,66628,63128,49527,60427,497
            Finland233,287234,558241,153248,855251,689254,769248,767255,824259,241256,559255,591
            France2,415,4272,440,7692,464,7322,525,3832,571,2902,619,8452,418,6772,572,6072,637,5942,660,5102,679,691
            Germany3,313,8813,355,0153,426,8733,529,1213,564,5463,603,9173,452,6453,560,5173,627,5063,623,5613,631,139
            Greece196,088195,704194,750196,877200,162203,772185,394200,848212,362216,576220,819
            Hungary120,699125,174127,929133,394140,547147,384140,770150,711157,618156,188159,420
            Iceland16,77317,51718,62119,40220,35120,73019,29120,28422,08622,98323,420
            Italy1,823,9871,835,5211,861,7301,894,2531,909,0101,918,1761,744,5881,889,0111,967,3141,987,3272,000,487
            Latvia26,24627,26627,91228,83629,98730,16329,10331,06231,98031,89032,479
            Lithuania40,61741,44042,48444,30346,07248,22248,21051,24052,49052,31453,222
            Luxembourg58,86060,20263,20664,04564,84666,74366,15770,89071,88447,53448,366
            Montenegro3,9224,0554,1754,3724,5944,7804,0494,5774,8565,1465,319
            Netherlands751,122765,823782,226805,703824,376840,033807,400857,352894,962896,434902,784
            North Macedonia9,69310,06710,35410,46610,76711,18810,66411,14511,39211,50911,820
            Norway381,082388,160392,681402,355405,691410,249405,006420,836433,485435,714439,238
            Poland456,283475,855490,650516,210546,499570,467558,924597,321632,444632,909651,390
            Portugal195,904199,415203,442210,575216,575222,385203,926215,626230,348235,557239,442
            Romania172,434177,884182,967197,964209,899217,987209,971221,958231,074236,038243,831
            Slovak Republic84,54288,91090,63893,30197,06299,49996,186100,775102,660104,299106,498
            Slovenia42,18043,11244,48846,63048,70750,42348,28552,25853,54454,39455,621
            Spain1,152,0581,196,2801,232,6201,269,2991,298,2961,324,0541,176,1921,251,5071,323,7281,356,8641,380,612
            Sweden484,476504,993514,253528,755539,501550,420537,580569,532585,190585,237588,499
            Türkiye814,513864,071892,785959,762988,681996,7741,015,3131,131,4581,194,0671,248,0011,290,190
            United Kingdom2,864,9482,928,5572,984,8163,064,0653,107,0783,158,0842,830,9103,076,4893,210,1693,213,5083,227,637
            United States17,771,54918,295,01918,627,88819,085,69219,651,86820,136,68819,690,96920,833,08621,236,30821,776,28522,334,404
            NATO Europe and Canada17,533,17617,871,87618,211,67718,771,31819,130,13019,448,69318,227,37119,405,04120,121,48920,539,06821,340,707
            NATO Total35,304,72636,166,89536,839,56537,857,00938,781,99839,585,38137,918,34040,238,12741,357,79842,315,35343,675,111
            Notes: Figures for 2023 and 2024 are estimates. The NATO Europe and Canada and NATO Total aggregates from 2017 onwards includ
            e Montenegro, which became an Ally on 5 June 2017, from 2020 onwards include North Macedonia, which became an Ally on 27 March 2020, from 2023 onwards include Finland, which became an Ally on 4 April 2023 and from 2024 onwards include Sweden, which became an Ally on 7 March 2024.

            APPENDIX 2 – GDP per capita and defence expenditure per capita

            2015 prices and exchange rates

             2014201520162017201820192020202120222023e2024e
            GDP per capita (thousand US dollars)
            Albania3,944,14,34,44,54,44,95,25,45,6
            Belgium40,44141,341,842,443,140,643,244,244,645
            Bulgaria6,87,17,37,67,98,288,69,59,810
            Canada43,643,643,644,344,945,142,444,445,244,944,6
            Croatia11,61212,513,113,614,21315,116,316,817,4
            Czechia16,917,818,219,219,720,219,119,720,22020,3
            Denmark52,453,354,555,756,657,255,759,260,361,162,3
            Estonia1717,417,918,919,620,320,121,521,420,220,1
            Finland42,742,843,945,245,646,14546,246,74645,7
            France36,436,736,937,638,138,735,637,738,538,738,9
            Germany40,941,141,642,74343,441,542,843,34343
            Greece1818,118,118,318,61917,318,920,120,621,1
            Hungary12,212,71313,614,415,114,415,516,316,216,5
            Iceland51,25355,556,557,757,552,654,557,858,959
            Italy30,230,53131,631,932,129,431,933,333,733,9
            Latvia13,213,814,214,915,615,815,316,51716,817,1
            Lithuania13,914,314,815,716,417,317,218,218,518,518,9
            Luxembourg105,4105,7108,2107,3106,5107,4104,8110,6109,771,171,2
            Montenegro6,36,56,777,47,76,57,47,98,28,4
            Netherlands44,545,245,94747,848,446,348,950,650,250,3
            North Macedonia4,74,9555,25,45,15,75,95,65,7
            Norway74,274,87576,276,476,775,377,879,479,579,8
            Poland11,912,412,813,414,214,914,615,716,716,717,3
            Portugal18,819,319,720,421,121,619,820,922,422,923,3
            Romania8,799,310,110,811,210,911,612,112,412,8
            Slovak Republic15,616,416,717,217,818,217,618,518,71919,4
            Slovenia20,520,921,522,623,524,12324,825,425,726,2
            Spain24,825,826,527,327,828,124,826,427,828,328,6
            Sweden5051,551,852,65353,551,954,755,855,455,3
            Türkiye10,61111,31212,112,112,213,414,114,514,8
            United Kingdom44,44545,546,446,847,342,245,947,447,147
            United States55,656,857,458,459,860,959,362,763,76566,3
            NATO Europe and Canada29,329,730,130,931,431,729,631,432,532,633,2
            NATO Total38,439,139,740,541,3424042,443,443,944,6
            Defence expenditure per capita (US dollars)
            Albania52464547515857606294114
            Belgium393373370370378383411449523539585
            Bulgaria89889193114258127131152191218
            Canada439523505637583584597564542587609
            Croatia211210199213209226220294291293315
            Czechia160182173198218239248274271274426
            Denmark6025926266347237407677708251,2311,479
            Estonia328353371381394413461438462614690
            Finland6206216236256336706886457829591,103
            France663653660668689700706720724758801
            Germany485488500526537585628622652705911
            Greece400418434435474465504698780577648
            Hungary105115131163145201254205299332349
            Italy345325365379391376466492508505505
            Latvia123142204237321319331344359483539
            Lithuania122162219268323344356357453514538
            Luxembourg388438411531534588606521618794921
            Montenegro95929594101102113115108126170
            Netherlands5135125325405826416526657278341,03
            North Macedonia515148454962648395101127
            Norway1,1421,1831,31,31,311,4141,481,3041,1631,4411,754
            Poland222275255255287295325347372545711
            Portugal246255250253282297283319313338360
            Romania117130133175193206219215210198289
            Slovak Republic154182186189218311338323338350387
            Slovenia199194216222237254243306328344339
            Spain228239215247258255249271322337366
            Sweden5325215055085155575687778119191,185
            Türkiye153153164180221224226216191217310
            United Kingdom9509149499649829849931,0511,0821,0841,097
            United States2,0651,9912,0061,9161,9472,1152,1232,2112,1082,12,239
            NATO Europe and Canada418423433457474489509521538579669
            NATO Total9919709839679901,0591,0731,1131,0881,1081,21
            Notes: Figures for 2023 and 2024 are estimates. The NATO Europe and Canada and NATO Total aggregates from 2017 onwards include Montenegro, which became an Ally on 5 June 2017, from 2020 onwards include North Macedonia, which 
            became an Ally on 27 March 2020, from 2023 onwards include Finland, which became an Ally on 4 April 2023 and from 2024 onwards include Sweden, which became an Ally on 7 March 2024.

            All data was processed based on official NATO documents -https://www.nato.int/

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