Redefining Security: Spain’s Answer to NATO’s 5% Imperative 

Spain pushes back on NATO’s 5% Defence Spending Increase

The world faces an ongoing geopolitical instability and dangerous tensions among certain powers. Consequently, NATO has proposed a drastic change regarding defence commitments for its member states. At the 2025 NATO Summit in The Hague, member countries agreed on a new investment objective, aiming to reach 5% of Gross Domestic Product (GDP) for general defence and security expenditure annually by 2035. This 5% will be strategically distributed, with 3.5% destined to core defence needs and 1.5% for broader resilience, including infrastructure and innovation. This agreement responds to political events such as Russia’s aggression against Ukraine and escalating conflicts in the Middle East, lifting the previous 2% requirement established in 2014. However, Spain has rejected the new measure and expressed its will to keep defence spending at 2% of GDP, currently investing only 1.28%, the lowest among NATO members. 

In a letter to NATO Secretary-General Mark Rutte, Spanish Prime Minister Pedro Sánchez described the 5% goal as “unreasonable” and “counterproductive,” warning that a sudden reallocation of public funds could affect Spain’s welfare state and EU defence autonomy objective. Sánchez reiterated that the target should be voluntary or to grant an exception for Spain. He highlighted that increasing military expenditure could threaten funding for education, healthcare, pensions, and green initiatives. Coalition partners such as Sumar and Podemos also oppose this measure, complicating the government’s ability to secure domestic support. Spain’s reluctance and the heterogeneity among the members’ commitments threaten NATO’s agenda, which requires unanimous agreement among all 32 member states

This paper analyses the Spanish opposition to the rise in NATO defence expenditure, discussing the economic trade-offs, political controversy, and strategic alternatives, and evaluating the impact of the increase in GDP on European autonomous defence.

EU Defence Spending and Its Macroeconomic Effects

In a complex geopolitical landscape, with less US involvement in global security, the European Union (EU) is encouraging a higher increase in defence expenditure to foster its autonomy. This initiative includes programmes like the European Defence Fund and the ReaArm Europe Plan/Readiness 2030, supported by fiscal adaptability and new financial means. 

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Currently, 16 EU countries have formally requested enforcement of the national escape clause to raise defence spending, while others, such as France and Italy, remain uncertain, and Spain has not decided. Nevertheless, Spain has launched an Industrial and Technological Plan for Security and Defence, allocating resources equivalent to approximately 0.6% of its GDP, to reach 2% defence spending by 2025. The plan prioritises modernisation of equipment, financing, better utilisation of productive capacity, and European coordination for current missions. Juan Antolin-Diaz and Paolo Surico (2025) suggest that defence expenditure can have a positive impact, with limited inflationary effects, especially if directed towards public investment and R&D. However, those benefits depend on the timing, source and objective of the money, and if the products are domestic or imported.

The economy profits more if they have available facilities or labour force, if the spending is paid with debt, and if the money goes to research and development. In the case of the EU and Spanish defence, budgets are directed towards personnel costs rather than research, limiting the economic development and benefit. 

Spain’s Defence Spending and NATO Commitments 

Between 2014 and 2024, Spain doubled its defence spending from €9.5 billion to €19.7 billion. This increase was considered a fair amount due to the strong economic growth over that period, from 0.92% to 1.28% of the GDP. After 2022, Spain’s budget committed to reaching an expenditure of 2% of GDP by 2029. Although it remains far from that target, Spain stands out for investing heavily in equipment (30.3% of its defence budget) and owning a fair amount of military capabilities, which shows effectiveness over quantity.

However, the pressures from Brussels to reach the 2% goal in advance have sped up the process. In April, Sanchez announced that Spain would meet NATO’s defence spending target of 2% by 2025 through an increase in its budget by €10.5 billion.

Managing Public Spending: Welfare and Stability

The Spanish Government presented the 2023 General State Budget Bill, allocating €267 billion to social expenditure, aiming to protect vulnerable groups while promoting growth and job creation (rising to €274.5 billion including EU funds). The budget focuses on social justice and economic efficiency to strengthen the country and reinforce its welfare state.

In 2023, Spain closed the fiscal year with a public deficit of 3.64% of GDP, successfully meeting its commitment to the European Commission and continuing a four-year streak of compliance with EU fiscal targets. This achievement was made possible by strong economic growth (2.5% compared to the eurozone average of 0.5%) and record employment levels, with over 21 million people affiliated with Social Security. Moreover, Spain managed to reduce its deficit by more than €60 billion since the pandemic in 2020, without cutting public services. On the contrary, it expanded its welfare state by investing in pensions, healthcare, and regional support, demonstrating that fiscal responsibility can coexist with social protection. Early data from 2024 suggests this path is continuing, with the state deficit already falling compared to the same period of the previous year.

In 2024, Spain’s public debt fell to 101.8 per cent of its economy’s total size, continuing the downward trend after the pandemic. Despite high debt levels, long-term debt made up to 94.4%, with an average repayment period of eight years, easing refinancing pressures. Interest payments added 2.4% points to the debt, which is a relevant figure for assessing spending capacity for defence. The debt fell mainly because the economy grew, not because the government spent less. Nearly 45% of the debt is held by foreign investors, reflecting steady confidence. Although Spain’s debt is high compared to the euro area average, stable financing conditions suggest there’s some scope to expand the defence budget cautiously.

The Cost of Rearmament: Spain’s Challenge Between Security and Welfare

Spain has considerably increased its military expenditure compared to other EU countries. This rise shows Spain’s commitment to NATO objectives and growing political debates about reaching the target of 5% of GDP, a goal promoted by U.S. leadership but far above NATO’s minimum of 2%. However, in 2024, Spain allocated only 1.28% of its GDP to defence and faces resistance to further increases. The left-wing coalition partners of the current government oppose higher military budgets at the expense of social programmes. Public opinion remains ambivalent, with just 20% supporting the shift in priorities. 

Economically, the trade-offs are significant. Spain’s national debt ratio stands at 104%, and raising defence expenditure to 5% could require an additional €60-70 billion annually—roughly equivalent to the entire education budget or nearly a quarter of social protection spending. Economic analyses further reveal that military investment is less effective at creating jobs and economic output than investments in education, health, or the environment. For every €1 billion spent on arms, Spain generates €1.28 billion in output and 6,500 jobs, compared to up to €1.83 billion and 16,000 jobs in civilian sectors. 

These figures indicate that prioritising military budgets over social investment could entail high opportunity costs and undermine Spain’s welfare system, posing a significant dilemma for Sánchez and the broader European rearmament agenda.

Beyond Numbers: NATO’s 5% Target and Strategic Efficiency

At the recent NATO summit in The Hague, European allies committed to increasing defence and related infrastructure spending to 5% of GDP by 2035. This target was initially demanded by U.S. President Trump. While the proposition was viewed as a diplomatic success, critics argue that focusing only on a numerical figure rather than actual defence capabilities and coordination is counterproductive. The 5% target leads to uneven outcomes across countries due to differing economic sizes and may encourage creative accounting. Furthermore, emphasising a budget over strategic efficiency risks diverting resources from better, cost-effective investments like auxiliary forces or coordinated EU procurement. Without reforming Europe’s fragmented defence industry and encouraging private investment alongside public funds, a gradual increase in spending alone may do little to improve actual European security or strategic autonomy. 

A study conducted by the Laboratory of Economics and Management (LEM) at the Sant’Anna School of Advanced Studies explains through input-output analysis how state expenditure on arms production opposed to investments in environmental protection, education, and health, has an effect on the economy and job creation. It measures both the direct and indirect economic impacts of each expenditure type through an analysis of the flow of money within interconnected industries using detailed OECD data. Additionally, the study incorporates U.S. data due to the limited data on European defence. Thus, the goal is to identify sectors supporting arms manufacturing and adjust for imports to accurately portray domestic economic benefits. The findings reveal remarkable differences: spending on education, health, and environmental protection creates significantly more jobs and economic output per euro invested compared to arms production. Specifically, investments in social and environmental sectors create a spillover effect across the economy, supporting diverse suppliers and services, whereas arms spending tends to be more narrowly concentrated and reliant on imports. These societal benefits also foster stronger, more inclusive economic growth and employment. 

Conclusion

The debate generated by Spain on resisting the 5% GDP expenditure promoted by NATO reflects the complexity of meeting both national security and domestic socioeconomic needs. Additionally, shows a dissonance between the international scenario and the political dynamics and public opinion in the country. Spain’s Prime Minister Pedro Sánchez demonstrated commitment towards the past 2% GDP goal, but openly stated the potential threat to the fiscal capacity to sustain public resources through that shift in the state funds. Empirical studies sustain these concerns, showing that investments in social and environmental sectors yield better returns in economic output and employment, especially due to the need of the EU to allocate the funds to military capacity. Furthermore, the effectiveness of the spending depends not only on quantity but also on strategic efficiency, coordination, and domestic production. The current NATO focus on emphasising the need to meet the percentage risks fosters inequitable burdens among member states. Therefore, Spain’s position invited a broader reflection on the future of the European defence and security: how to ensure spending on defence that produces real security gains instead of quick benchmarks?