A view from London

Perceptions of the threat tend to diminish the further west and south one goes. Eight out of NATO’s 29 European members, including Italy, Spain, Belgium and Portugal, spend below the 2.0% NATO target. Germany, Europe’s largest economy, only reached the 2.0% threshold last year after years of low spending. The failure of many countries to live up to their NATO commitments has been a source of frustration for successive US presidents. Donald Trump is the first to suggest that America could walk away from a military commitment to Europe.

In terms of dollar spending, the US dwarfs its allies and its rivals. In 2023, the US spent more than $900bn on defence, 65% of all NATO spending, and equivalent to the total of the next nine highest spending nations combined. In dollar terms, the US spends more than twice as much as China and Russia combined.

A more accurate way of looking at defence spending is to measure what money will buy in terms of manpower and materiel ($1m, for instance, goes further in terms of pay, rations and equipment in China than in the US). The US dominates on this measure too, though its lead narrows. A recent report from the International Institute for Strategic Studies found that on a purchasing power parity (PPP) basis, American defence spending was at roughly the same level as China and Russia combined.

Although the US accounts for the majority of NATO defence spending, much of that spending relates to commitments outside Europe, mainly in the Pacific and the US. One 2019 study found that US direct military spending on Europe was equivalent to less than 15% of military spending by European NATO members. This estimate, however, comes with the hefty caveat that it excludes US nuclear weapons and America’s capacity to reinforce its position in Europe in the event of a conflict.

What is clear is that a US withdrawal would leave a large gap in Europe’s defences. It is not just US leadership and the 90,000 personnel stationed in Europe, but communications and electronic warfare support, tanker and heavy transport aircraft, and ammunition resupply as well.

So how does Europe, without America, measure up against Russia in terms of scale? Estimates vary, but most point to a significant mismatch. The Economist thinks that in the long term European defence expenditure needs to more than double to deal with Russia. Figures cited recently by Fenella McGerty, senior fellow for defence economics at the International Institute for Strategic Studies, suggest that on a PPP basis, Europe would need to almost triple its spending to match Russia.

Yet Europe does not necessarily need to match Russian capacity 1:1 to deter aggression. A widely cited rule of thumb is that an attacking force needs three times the number of troops as the defending force to ensure success. This can be seen in Ukraine, a country with just 7% of Europe’s population and a fraction of its GDP, which has held back Russian forces for more than three years. The Economist’s defence editor, Shashank Joshi, cites the example of Israel which, although a small country with fewer than 10m people, has sustained investment in defence and built up its resources and capabilities to world-class standards.

NATO’s European members make up one of the most economically developed and wealthiest areas of the world, with a population and combined GDP (measured in PPP) approximately five times that of Russia. In terms of economic heft and population, Europe far outstrips Russia.

Conflicts, however, are not always won by the richer or most populous power. Political will and public support matter enormously. The next test of Europe’s resolve will be whether it can raise the money to rearm. Countries with low levels of public debt including Germany, the Netherlands and Sweden could finance increased defence spending through borrowing. Many European nations, including France, Italy, Spain and the UK, are more indebted and might need to raise taxes or cut other spending programmes. Without more borrowing, higher taxes or reducing spending elsewhere, Europe cannot increase defence spending. Germany has led the way with a plan to ease constitutional limits on public borrowing. Many others have yet to lay out a path to higher defence spending, let alone how it will be financed.

PS: Two weeks ago, we wrote about the soaring gold price. Since then, amid uncertainty about tariffs and America’s commitment to the defence of Europe, the gold price has risen by over 5% and ended last week at a new record high of $3,000 per troy ounce. In the last year, the gold price has risen by almost 40%.