What impact could the NATO defence spending renegotiation have on EU budgets, bonds and stocks?
- In 2006 NATO partners agreed to spend at least 2% of GDP on defence
- Germany’s defence spending shortfall since 2006 equals $281bln
- Retrospective adjustment is unlikely, but Europe needs to increase spending substantially
- A minimum of $64bln/annum is required from Germany, France, Italy and Spain alone
Given the mutual relationship of the NATO treaty it could be argued that, for many years the US has been footing the lion’s share of the bill for defending Europe. Under the new US administration this situation is very likely to change.
The July 2016 Defence Expenditures of NATO Countries (2009-2016) presents the situation in clear terms. At the Riga summit back in 2006 NATO members agreed to raise defence expenditure to 2% of GDP. In that year only six countries met the threshold - Bulgaria, France, Greece, Turkey, the UK, and the US. Eight years later, at the NATO meeting in Wales, members renewed their commitment to this target. Last year only five members achieved the threshold - Estonia, Greece, Poland, the UK, and, of course, the US.
The original NATO treaty was signed on 4th April 1949 by 12 countries, it was expanded in 1952 to include Turkey and Greece and in 1955 to incorporate Germany. In 1982, after reverting to a democracy, Spain also joined. Further expansion occurred in 1999, again in 2004 and most recently 2009.
Back in 1949 Europe was still recovering from the disastrous social and economic impact of WWII.
Today, in the post-Cold War era, things look very different and yet, whilst defence spending has waxed and waned over the intervening years, the US still spends substantially more on defence, both in absolute terms and as a percentage of GDP, than any of its treaty partners. The table below reveals the magnitude of the current situation:-
To read the entire report Please click on the pdf File Below