Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Family Offices
    5. Financial Advisors
    6. Financial Institutions
    7. Individuals & Families
    8. Insurance Companies
    9. Investment Managers
    10. Nonprofits
    11. Pension Funds
    12. Sovereign Entities
  1. Contact Us
  2. Search
Weekly Economic Commentary | June 27, 2025

NATO Puts A Price On Peace

NATO's new spending pledge eases security concerns but adds to fiscal pressures.

Download PDF

 

 

By Carl Tannenbaum

It is almost impossible to put a price on security.  But members of the North Atlantic Treaty Organization (NATO) are trying to do just that.  The group’s meeting this week highlighted the fiscal costs of geopolitical uncertainty.

NATO was formed shortly after the Second World War, as the Soviet Union brought much of Eastern Europe under its control.  Western European countries were still recovering from the significant damage done by the War; West Germany had been disarmed.  As a result, the United States took the lead in providing finance and personnel to buttress the alliance.

In the decades that followed, the disparity in defense spending between the U.S. and its major NATO allies grew, despite advancing economic prosperity.  When the Berlin Wall fell, European countries declared themselves a “peace dividend” that was much larger than the one enjoyed by the United States.

The proximate threat to Europe was already rising when Russia invaded Crimea shortly after hosting the 2014 Winter Olympics. To respond, NATO members were required to bring defense spending to 2% of gross domestic product (GDP) within ten years.  Most chinned that bar; there were a few notable exceptions.

 

exhibit1-comparison of annual u.s. stock market returns

 

The Trump Administration has been pressing Europe to take more financial responsibility for its own defense.  The change of tone has already prompted Germany to amend its constitution to make more room for military spending. The European Union created a €150 billion arms fund, backed by Eurobonds.  But that was only a start. 

At this week’s NATO summit in The Hague, members agreed to increase their annual defense outlays to 5% of GDP over the next ten years.  This will generate increments of economic growth and employment, but will require substantial amounts of additional spending at a time that quite a few member countries are facing fiscal challenges.  Slow economic growth, rising interest costs, and aging populations are combining to increase annual budget deficits and aggregate amounts of national debt.  Spain has already announced that it is unlikely to be compliant with the new standard.

Conflicts disrupt daily lives and economic activity, creating immeasurable costs.  The investment being asked by NATO is substantial, but so are the social and economic returns that will be earned. 

 

Related Articles

Read Past Articles

Meet Our Team

  • Check
    Navigate to Carl R. Tannenbaum

    Carl R. Tannenbaum

    Chief Economist

  • Check
    Navigate to Ryan James Boyle

    Ryan James Boyle

    Chief U.S. Economist

  • Check
    Navigate to Vaibhav Tandon

    Vaibhav Tandon

    Chief International Economist

    Follow Carl Tannenbaum
    Discover the latest economic insights from our chief economist on social media.

    Subscribe to Publications on Economic Trends & Insights

    Gain insight into economic developments and our latest forecasts for the United States.


    Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific legal or tax advice from your own professional legal or tax advisors. Information is subject to change based on market or other conditions and is not intended to influence your investment decisions.

    © 2025 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/terms-and-conditions.