The Russian invasion of Ukraine and Trump’s demands that other NATO countries allocate more resources to defense should have led to a substantial increase in military expenditure among European nations.
In response to Trump’s demands during his first presidency, several NATO countries began planning increases in defense spending to reach 2% of GDP. The starting point was in 2014, when NATO members were confronted with the Russian invasion and occupation of Crimea. NATO countries then committed to a steady upward trajectory in military spending until it reached 2% of Gross Domestic Product (GDP) by 2024. By that year, the average NATO defense expenditure is expected to have risen to 2%, but this goal was not achieved in many countries, including Portugal. According to NATO itself, in Portugal, in recent years, the share of GDP spent on defense has been around 1.6%.
Unfortunately, the actual situation may be even worse. NATO’s criteria for measuring national defense spending are relatively unrestrictive, as they allow expenditures to be counted as defense spending even when they are only loosely related to defense functions. Two Portuguese examples are the inclusion of pensions paid to retired military personnel and part of the expenditures on the National Republican Guard. An assessment of actual defense spending points to lower values. One example of how NATO’s estimates may be overstated can be found by comparing them with EU statistics. Eurostat data, which are more specific, indicate lower estimates of national defense expenditure. In 2023, according to Eurostat, Portugal spent only 0.8% of GDP on defense, about half the amount reported by NATO.
In the meantime, the targets have changed. Trump has demanded that defense spending as a percentage of GDP rise to 5%. Why 5%? Apparently, there is no explanation based on careful analyses of NATO’s defense needs or those of its member countries. No mention is made of the opportunity costs of losing state services and benefits that would be left unfunded. It is entirely plausible that the 5% is merely a “spontaneous” idea from Trump, lacking empirical or analytical justification. The 5% is a round number, chosen for its impact in international media coverage. It is reasonable to assume that the 5% target did not result from a serious assessment of needs or the correction of potential shortcomings in the armed forces of various countries.
The reaction of NATO countries has been to accommodate Trump and reach the 5% target within ten years. In practice, countries will adopt various subterfuges and extensive accounting creativity to reach 5%. In June, the official statement from the NATO summit in The Hague initiated this process. By 2035, NATO countries will spend 3.5% of GDP annually on defense, with the remaining 1.5% of GDP allocated to defense-related expenditures. With some skepticism, these figures can be interpreted as a redefinition of the original defense spending target, from 2% to 3.5% of GDP.
One initial problem arises from Trump himself, since his negotiation strategy typically involves starting with exaggerated demands and then accepting lower figures, albeit still higher than the starting point. There is no guarantee that Trump will not alter the targets again in the near future. Even the United States itself spends less. Estimates for 2024 indicate that U.S. defense spending would be around 3.3% of GDP. In this context, NATO countries may publicly agree with Trump while in practice increasing actual defense expenditure by less than announced.
Creative accounting and similar strategies, such as the reclassification of civilian public expenditures as defense spending, will complicate sound management of defense budgets. The process of reallocating public resources under the label of defense is a complex and time-consuming one that can be captured by interest groups. For example, it is well known that if defense budgets increase, there will be corporate efforts to capture those resources and raise salaries, without this necessarily contributing to improved defense capabilities.
These difficulties should not distract us from the real issues. Even if the 5% target is excessive, there is a strong case for increasing the resources dedicated to national defense. Portugal has undergone a process of degradation in equipment stocks and military capabilities due to a long-standing accumulation of deficits in defensive capacity, infrastructure, and human resources. To ensure that the additional resources allocated to national defense in the coming years are effectively used, it is important to define clear and transparent intervention strategies and to prioritize them with some consideration of their cost-effectiveness.