European nations within Nato are facing a €56bn shortfall in meeting the alliance's defence spending pledge of 2% of GDP this year, the Financial Times reported on March 16.

Few members of Nato meet the non-binding expectation to spend at least 2% of GDP to maintain their military, with the most egregious deficits seen in countries like Italy, Spain, and Belgium.

European powers have been happy to rely on the US for security and have underspent on the military to free more money to meet the burden of high debt levels and budget deficits in recent years. However, following the outbreak of war in Ukraine and with a possible second military clash between the US and China on the table, that thinking is now changing.

Germany, Europe's largest economy, has the biggest financial gap, falling short by €14bn last year, although Berlin has been quickly increasing its spending in the same period.

Spain, Italy and Belgium trail closely behind, with shortfalls of €11bn, €10.8bn and €4.6bn respectively. These nations are among the six EU members whose debt exceeded 100% of their GDP last year, complicating their fiscal manoeuvrability. Italy, in particular, faces a steep challenge with a budget deficit of 7.2% and rising interest costs projected to surpass 9% of government revenue this year.

Countries with high debt levels and high interest costs do not have much room to raise more debt, so the only real way to do it is to cut spending in other areas. This is not easy, as seen when Germany tried to cut subsidies on agricultural diesel, sparking widespread farmers protests.

The US has acknowledged improvements in European defence spending efforts, with State Department spokesperson Matthew Miller noting that most European Nato members are now on track to increase spending up to the 2% GDP expenditure target. Europe has been accused by presidential candidate Donald Trump of freeloading on US security spending and he has vowed not to come to any country’s aid that was attacked if they haven’t been spending at least 2% of GDP on their own defence.

In 2023, the US accounted for two-thirds of Nato's total defence outlay of €1.2 trillion, starkly overshadowing the combined spending of EU members, the UK and Norway. The introduction of new EU fiscal rules next year is expected to enforce further budgetary discipline, complicating the path to higher defence funding.

Poland and several Baltic states, which already meet the 2% target, along with Italy, which doesn’t, successfully lobbied for a more favourable treatment of defence spending under the impending fiscal regulations, potentially easing the compliance burden for countries exceeding the defence expenditure thresholds.

Jens Stoltenberg, Nato's Secretary-General, optimistically reported that two-thirds of the alliance's members are on track to achieve the 2% spending goal this year, a significant improvement from just three members in 2014. This momentum is part of a broader European commitment to bolster defence capabilities in response to growing security challenges, exemplified by Norway's announcement that it will meet the 2% target a year ahead of schedule.

However, public sentiment towards increased military spending remains mixed across Europe, with notably low support in countries facing the largest funding shortfalls. For instance, only 28% of Italians advocate for higher defence budgets, reflecting broader concerns over prioritising military investments over welfare and social programmes.