Can Europe Ever Catch Up On Defense Spending: US Spent $8.4 Trillion In Past Decade… Rest Of NATO Just $3.8 Trillion

By Chris Marsh of Money: Inside and Out

Europe has to urgently find a solution to a depleted defence capability.

But how much should Europe be looking to spend on the military? It’s useful to begin by considering how much neglect there has been in recent years.

A decade of underspend

Consider NATO official figures on defense spending.

Since 2014, in the aggregate NATO countries have spent around 2.5% of GDP on defense. But this is largely because the US spends closer to 3.5% of GDP (and is the largest country in economic terms.) Europe and Canada combined spent only 1.5% of GDP for most of the past decade—only increasing to 2% of GDP in 2024.

Looking at the large European countries, the UK has spent more than 2% of GDP throughout whereas, until recently, Germany consistently spent below 1.5% of GDP and France just below 2% of GDP. Italy and Spain (not shown) typically spend less than Germany.

Stock versus flows

Much of the discussion about increasing defense spending in light of recent geopolitical developments fails to acknowledge that this protracted under-spend has left a stock problem — a depleted stock of weapons, other hardware, and technology; but also gaps in operational capacity, full spectrum battlefield capability, and personnel.

As such, while increasing defense spending today is welcome, it will only fill the “stock” gap slowly.

Consider the cumulative underspend by NATO countries over the past decade relative to the 2% target and relative to US spending in % of GDP. Data provided by NATO only begins in 2014. This is shown in the chart below.

• Germany’s shortfall to 2% is largest in absolute terms and adds up to above EUR200bn, Italy about EUR150bn, etc. The aggregate shortfall for Europe is EUR850bn.

• To reach further and “catch-up” with the US spending closer to 3.5% of GDP Germany would need to spend an additional EUR550bn (or EUR800bn in total), Italy and France would need to spend above EUR400bn in total, and so on. The aggregate shortfall for Europe since 2014 exceeds EUR2,650bn.

This same shortfall can be measured relative to the latest GDP as in the next chart.

With the exceptions of Poland, Greece and Estonia, European countries are typically at least 10% of GDP behind compared to if their spending had matched the US—and this is closer to 20% in many cases.

Time to act

Of course, it doesn’t quite work like this.

Perhaps it could be argued the US is preparing for possible military action on two fronts at the same time—Europe and the Pacific. As such, US spending has to go further.

In addition, a cumulative past spending shortfall might be made up without a one-for-one spending today—alternatively the hurdle to technological catch-up is so great that more may be needed. A military expert would need to break this down.

The point is, the discussion about increased defense spending appears to be focused on correcting the existing flow shortfall—rather than addressing the stock, or capability challenges due to past neglect.

Still, over the past decade the US has spent USD8.4 trillion on defense. The rest of NATO? USD3.8 trillion.

So the United States has spent more that double the rest of NATO since 2014. If the US has stepped out of the alliance, de facto or de jure, what spending need to fill the capability gap?