Chapter 1 of 8Defence1 min read · 1 exhibits

Executive Summary: The €2.7T Transformation

How much more will Europe spend on defence, and how fast?

Chapter summary

NATO agreed in June 2025 to a 5% of GDP target by 2035, split into 3.5% core defence and 1.5% security-related spending. ReArm Europe adds €800B for 2026–2030. Fiscal room varies sharply by country.

Key takeaways

1
NATO spending is projected at $4.2T a year by 2035, up from $1.5T in 2024.
2
EU NATO members spent €343B in 2024; Europe needs €254B more a year to reach 3.5% core.
3
The average rose from 1.43% of GDP in 2014 to 2.02%; France carries debt of 112% of GDP, Italy 135%.

At a glance

1 · Situation

NATO agreed in June 2025 to spend 5% of GDP on defence by 2035, and ReArm Europe adds €800B for 2026–2030.

2 · Complication

Europe averages 2.02% of GDP today and needs €254B more a year to reach 3.5% core, while France and Italy carry public debt of 112% and 135% of GDP.

3 · Resolution

Spending is funded through national budgets, about €200B of common EU funds and joint procurement, reaching €635B+ a year by 2035 in the base case.

Exhibit 1.1

Germany, France and Italy must each more than triple defence spending to reach 5% of GDP

Spending needed to reach 5% of GDP

Italy: 100 today becomes 479 after 11 years

SelectedEnd of the source forecastIndex, today = 100 · midpoint of each range

Source: European Defence Spending Surge: €800B ReArm Europe by 2030, Setcoin Research (October 2026)

The chapter · 124 words · 1 exhibits

The Historic Commitment:

NATO 5% GDP target by 2035 (agreed June 2025, The Hague Summit)
3.5% core defense + 1.5% security-related spending
€800B ReArm Europe/Readiness 2030 (2026-2030, 4 years)
Total NATO spending 2035. $4.2T annually (from $1.5T in 2024)
Additional European spending required. €254B annually to reach 3.5% core

Current Baseline (2024):

EU NATO members. €343B total defense spending
23 EU/NATO countries: ~€300B combined
At 5% GDP. Would reach ~€800B annually
Current average. 2.02% GDP (up from 1.43% in 2014)

The Challenge:

Germany. €90B (2.1% GDP) → ~€215B needed (5% of 2024 GDP)
France. €62B (2.06% GDP) → ~€150B needed (5% of 2024 GDP)
Italy. €33B (1.5% GDP) → ~€110B needed (5% of 2024 GDP)
Fiscal reality. France debt 112% GDP, Italy 135% GDP

Part I: Strategic Framework

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