News & views | 19 December 2016 | by Wilbert van der Zeijden


NATO’s 2% target

NATO states should aim to spend 2% of their GDP on defence, says NATO. But percentage of GDP is not a fair, nor a useful way of judging adequacy of defence spending.

It used to be running gag among NATO allies. Over dinner, Bulgaria would ask Germany to pass the gravy and Spain would laughingly shout out ‘first pay up. 2%!’ But the 2% target is back and this time, it’s no joke. In Wales in June, the NATO ministers of foreign affairs concluded that allies spending less than 2% should ‘aim to move towards the 2% guideline within a decade.’ And the election victory of Donald Trump is expected to add to the pressure. Countries left and right are responding to that pressure.

As a 2015 briefing for the UK Parliament assessed, ‘there is no intrinsic significance to the level of 2% of GDP for defence spending figure […] however the target is both symbolically and politically important.’ The figure originally comes from NATO discussions in the 90’s when the US disagreed with European allies about the appropriate level of spending in a Post-Cold War world. European states were adjusting to the end of the Soviet threat, downsizing their defence forces and saving money in the process. Some of them had already fallen below 2% of GDP, most were about to. The U.S. suggestion at the time to reserve 2% of GDP for military spending was not followed by most of the European NATO allies, who felt that the end of the Cold War allowed for lower, peace time defence budgets.

By the mid-90s though, defence budgets stabilised for the most part, on what European states felt was an appropriate level of defence spending. The 2% target was all but forgotten, except for a brief attempt in the early years of the George W. Bush administration when the neoconservative logic of ‘with us or against us’ included an attempt to push European states into supporting the U.S. agenda through increased defence spending. Defence expenditures rose gradually, but the economies grew faster, resulting in a further drop in percentage of GDP spending. Recently though, the destabilisation of the MENA region, has caused a myriad of security problems that according to NATO, need to be addressed by increasing defence expenditures.

There are several reasons why percentage of GDP is a uniquely inadequate way of assessing defence expenditures. It’s measuring the wrong thing, with the wrong method and leading to meaningless conclusions.

GDP hikes
Take the Dutch case. After 9/11, Dutch defence expenditures started to rise, slowly, in response to growing involvement in NATO and coalition interventions in Iraq and Afghanistan. Expenditures as percentage of GDP continued to drop though because of the incredible growth in GDP in the same period. Dutch GDP more than doubled between the mid-90s and 2008, when growth came to a crashing halt. Net expenditures rising only slowly, logically expenditures as percentage of GDP dropped far below 2%.

Development of Dutch GDP 1960-2015. Source: Trading Economics online

Development of Dutch GDP 1960-2015. Source: Trading Economics online

Champions of 2%

Source: SIPRI defence expenditures 2015

Source: SIPRI defence expenditures 2015

Or take Greece. Today, Greece is one of only four European countries hitting the 2% mark, together with Estonia, Poland and Turkey.

Greece has always had one of the highest percentage GDP defence budgets in Europe. Not because Greece is scared of Russia or terrorists so much, Greece’s role in coalition or NATO missions is usually very limited. No, the high defence spending of Greece is to balance the threat posed by is historical nemesis – and NATO ally – Turkey.

The GDP of Greece tripled after the Cold War until the country went bankrupt in 2008 after which the Greek GDP fell by more than 40%.

Yet, the defence expenditures of Greece dropped even harder, from $10.4 billion in 2008 to $5.5 billion in 2014, or 47%. So in the Greek case, meeting the 2% target masks a sliced in half defence budget in real expenditure.

Development of Greek GDP 1960-2015. Source: Trading Economics online

Development of Greek GDP 1960-2015. Source: Trading Economics online

In addition, the 2% figure says very little about the effectiveness of the Greek military forces. Greece spends 70 percent of its budget on salaries and benefits. The result is a bloated and ineffective force.

Read more at NATO’s European Members Should Increase Defense Spending

Another champion of defence spending is Estonia. It just makes the 2% mark setting an example for other NATO member states in the region. ‘When Estonia is able to spend or invest 2% of GDP on defence, then, of course, it should also be possible for all other NATO Allies to do the same’, according to a hopeful Jens Stoltenberg. By comparison, the two other Baltic States, Latvia and Lithuania spend 1.0% and 1.1% respectively. Latvia, in order to reach the 2% target would have to increase its defence spending by something in the order of $350 million.

Comparing this to Germany, who’s GDP is 175 times the size of Estonia, shows this whole discussion is purely symbolic. A $350 million rise in the German defence budget would result in a rise in percentage of GDP spending for Germany from 1.2% to about 1.21%. For Germany to make the 2% of GDP mark, it would need to raise its budget with over $31 billion.

Source: SIPRI Military expenditure by country, 2006-2015

Source: SIPRI Military expenditure by country, 2006-2015

This discussion is not really about whether all NATO allies spend 2% GDP. This discussion is about whether a handful of European countries is taking responsibility for the defence of Europe. Germany, France, the UK, Italy, those are states with enough economic clout to have a significant effect on the spending level of Europe as a whole. Countries like Spain, Turkey, Poland and the Netherlands can play a small part as well. The contributions of states like Croatia, Estonia and Iceland is purely symbolic.

What this shows, is how inappropriate a measure percentage of GDP is. If another major financial crisis hit the European continent, resulting in a 30% GDP drop, many would suddenly meet the 2% target. But it would be meaningless for the debate about the question if European defence capabilities suffice to meet current and anticipated security challenges. The allocation of funds to security and defence needs to be informed by assessments of necessity, feasibility and availability of resources, not by a figure that has no objective basis. 2% may have been a figure with some basis in reality in the early 90s. In today’s context, it has none.


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