NATO's 5% Spending Target: 3.5% Core Defense by 2035

The Hague Deal in Brief

The 2025 NATO Summit, held in The Hague on 24-25 June 2025, produced one principal outcome: a commitment by allies to invest 5% of GDP annually on core defense requirements and broader defense- and security-related spending by 2035. It was the largest upward revision of the alliance's spending benchmark in its history.

The Hague Summit Declaration framed the increase as necessary to resource NATO's agreed Capability Targets and to deter a Russia that has demonstrated both the will and the industrial mobilization to wage a prolonged war. Allies agreed to submit annual plans setting out a credible, incremental path toward the goal, and to review progress in 2029.

All 32 members endorsed the declaration, though Spain secured an exemption from the full 5% figure, arguing it could meet its capability commitments at a lower level. The remaining 31 allies signed up to the full pathway.

⚠ Source: NATO, The Hague Summit Declaration (as of 25 June 2025).

The 3.5% / 1.5% Split

The two-component structure is the most consequential detail of the Hague deal. Under the declaration, allies will allocate at least 3.5% of GDP annually — based on the agreed NATO definition of defense expenditure — to resource core defense requirements and meet the alliance's Capability Targets. This is the hard-power figure: troops, equipment, ammunition, maintenance and the platforms that defense primes build.

Separately, allies will count up to 1.5% of GDP annually toward a broader basket: protecting critical infrastructure, defending networks, ensuring civil preparedness and resilience, unleashing innovation, and strengthening the defense industrial base. This category is looser and gives national treasuries flexibility to count spending they were likely to make in any case.

For analysts tracking procurement, the 3.5% core figure is the meaningful one. It roughly doubles the old 2% guideline in capability terms and, crucially, is tied to NATO Capability Targets that specify what each ally must field — ammunition stocks, air defense, enablers — rather than a vague spending share.

From Wales 2% to Hague 5%

NATO's previous benchmark dates to the 2014 Wales Summit, held months after Russia annexed Crimea and backed separatists in eastern Ukraine. There, allies pledged to move toward spending 2% of GDP on defense within a decade and to direct at least 20% of that to major equipment. For years most European members fell short, and the 2% guideline became a recurring point of transatlantic friction.

The Hague 3.5% core-defense figure represents roughly a 75% increase on the Wales 2% guideline, while the full 5% commitment is two and a half times the old target. The jump reflects how far the threat assessment shifted between Crimea in 2014 and the full-scale invasion of 2022, which turned a deterrence debate into a question of sustaining an active war economy on Europe's border.

⚠ Source: NATO, Defence expenditures and NATO's 5% commitment (as of 2025).

Why the Target Rose Now

Two forces converged. First, the war in Ukraine exposed how shallow Western stockpiles and how thin defense-industrial capacity had become after decades of post-Cold-War drawdown. Artillery ammunition, air-defense interceptors and basic spares ran short within months of high-intensity combat, and replenishing them at scale required sustained, predictable spending rather than one-off supplements.

Second, political pressure from Washington intensified. President Trump's administration made clear that continued US commitment to European security was contingent on allies carrying far more of the load. The 5% headline figure, which Trump had publicly demanded, gave European governments a number around which to build domestic consensus while keeping the United States invested in the alliance.

The result was a low-drama summit that nonetheless produced a step-change in ambition. Whether the money materializes on the 3.5% core line — not just the softer 1.5% category — is the question the 2029 review is designed to test.

What It Means for Defense Companies

For the defense industry, a binding decade-long spending pathway is more valuable than any single contract. It gives primes the forward visibility needed to invest in new ammunition lines, shipyards and missile-production capacity without fearing that budgets will be cut the moment the headlines fade. The 3.5% core-defense floor is, in effect, a demand signal that runs to 2035.

That signal flows unevenly. European primes such as Rheinmetall, BAE Systems and Saab are positioned to capture the surge in continental procurement, while US contractors continue to supply high-end systems and benefit from allied buys of American platforms. The companies with capacity in artillery ammunition, air defense and munitions — the consumables of the Ukraine war — have the clearest line of sight to recurring revenue.

The same logic explains elevated defense valuations. Markets are pricing not a temporary spike but a structural, treaty-backed expansion of the addressable market, with the 2029 review serving as the next checkpoint investors will watch.

Caveats and the 2029 Review

The headline 5% should be read with care. Because up to 1.5% of GDP can be counted as loosely defined security-related spending, the figure can overstate the real increase in hard military capability. Some governments will reclassify infrastructure, cyber and resilience budgets into the new category, narrowing the gap between rhetoric and procurement.

Affordability is a further constraint. Reaching 3.5% of GDP on core defense implies large, sustained budget increases at a time when several allies face strained public finances and competing demands. National plans, debt rules and electoral cycles will all shape whether the pathway holds.

The 2029 review is the alliance's safety valve. It allows leaders to reassess the threat picture, check whether allies are on a credible incremental track, and adjust the definitions or trajectory without reopening the headline commitment annually. For now, the direction is unambiguous: the floor under European defense spending has been raised, and the industry is building to meet it.