Diverging Investments in European Defence: Germany’s and Sweden’s Policies towards NATO’s 2% Commitment
By Noah Heinemann
Since the Russian invasion of Ukraine in February 2022, multiple NATO member states have returned to emphasizing the importance of strong military forces, sufficient military expenditure, and a coherent Atlantic alliance. To this effect, after years of funding shortages for military affairs and political debates in the West about effective and fair burden-sharing for European security, multiple NATO member states have pledged to expeditiously meet the alliance’s debated 2% commitment. Yet, after one and a half years, most NATO allies are punching below the weight of their promises and are struggling to spend the additional resources more efficiently within a short time frame. In that regard, as this article presents by analysing the cases of Sweden and Germany, states have selected different measures to move towards the 2% commitment, many of which come with various obstacles.
Although both countries have pledged to reach the commitment in the very near future, Stockholm and Berlin have chosen divergent paths to undergird their political and security promises with the necessary financial resources. Whereas Berlin has put into place a EUR 100 billion-strong “Sondervermögen Bundeswehr”, which aims at facilitating the procurement of major long-term armament projects bypassing its regular defence budget, Stockholm announced that it would increase its ordinary military expenditure by 28% to reach NATO’s 2% commitment in 2024—two years earlier than planned. By announcing its ambitions to reach the 2% commitment as an important, longstanding partner in the north of Europe even before becoming a full member of NATO, Sweden has asserted its commitment towards northern allied security and becoming a security provider and strong force within the Atlantic alliance. Both approaches pose distinct challenges and advantages for the countries’ security institutions and militaries.
NATO’S DEBATED COMMITMENT
More than 20 years after its inception, the 2% commitment for NATO member states continues to create political tension within the alliance. It was originally introduced in 2002 based on Article 3 of the North Atlantic Treaty describing the responsibility of each member state to “maintain and develop their individual and collective capacity to resist armed attack”[i] and aimed at reaching (inter)national resilience[ii] as well as fair burden-sharing between alliance members insofar as that all states agreed to invest two percent of their gross domestic product (GDP) annually in military affairs. Additionally, the agreement involved a further pledge to invest at least twenty percent of the defence budget in weapon systems as well as research and development. However, both commitments remained non-binding, since the numbers were unattached to specific NATO capability requirements, and rather artificial terms subjected to political signalling.[iii]
Yet, the years after the agreement were marked by continuously diminishing defence budgets, inter alia because of the economic aftermath of the 2008/2009 financial crisis. Following Russian aggression against Ukraine in 2014, including the illegal annexation of Crimea and start of the war in Donbas, NATO member states decided at the Warsaw Summit to reaffirm the 2% commitment by stating in the “Defence Investment Pledge” that “Allies will […] aim to move towards the 2% guideline within a decade”[iv]—an airy declaration of intent that most nations approved without concrete plans for achieving any real burden-sharing in the alliance. Nearly ten years later, the 2% commitment remains unreached by most NATO member states.
Rather than a technical objective related to specific military requirements, the goal turned out to be more of a political issue and increasingly a reminder to Europeans that the United States’ patience to shoulder the majority of the responsibility for European defence remains limited. While Washington continues to underline the necessity for European NATO partners to step up their defence spending and take over their fair share of security—although more diplomatically than under U.S. President Trump—the underlying dilemma remains the same: Faced with diminishing resources and China as an emerging adversary, the United States needs financial and military room for manoeuvring its pivot to Asia. However, as Washington’s preponderant efforts in supporting Ukraine against the Russian invasion show, its European allies are not ready yet to fill the gaps and take over most of the responsibility. Nevertheless, major changes have started to manifest since 24 February 2022.
GERMANY’S ZEITENWENDE
Three days after the Russian invasion of Ukraine, German Chancellor Olaf Scholz (SPD) announced a Zeitenwende, or turning point, in Berlin’s security and defence policy with wide-reaching implications. Marking a major turning point in Germany’s decades-long avail of the peace dividend after the end of the Cold War, Scholz simultaneously announced a EUR 100 billion-strong Sondervermögen Bundeswehr, or special defence fund, for the rearmament of the German Armed Forces and the willingness of the government to achieve its financial commitment within NATO:
It is clear that we must invest much more in the security of our country. […] But we should be under no illusions. Better equipment, modern technology, more personnel – all of this costs a lot of money. We will therefore set up a special fund for the Bundeswehr. […] The 2022 federal budget will provide a one-off sum of 100 billion euro for the fund. We will use this money for necessary investments and armament projects. We will now – year after year – invest more than two percent of our gross domestic product in our defence.[v]
Yet, one and a half years later, Berlin’s approach towards the 2% commitment has yet to show Germany’s ability to bring its economic horsepower onto the (allied) military road. Instead of adjusting its official defence budget to meet its promises and, additionally, using the special fund for the necessary long-term procurement of military equipment, Berlin has aimed at supplementing its defence budget through a special fund to reach its 2% commitment via a multiyear defence spending average.
However, this planned application of the new financial resources poses a specific problem: Once the special fund is emptied, Berlin’s defence budget will likely remain insufficient, well below the 2% commitment and further stressed by increasing operational costs due to new military systems, as shown by the calculations of the German Council on Foreign Relations (DGAP) in Figure 1.[vi]
Figure 1: German Defence Spending Based on the German Government’s Current Plans, by Christian Mölling, Torben Schütz and Sören Hellmonds, German Defence Spending. A Repeat of the Past Instead of a New Era, DGAP Policy Brief Nr. 19, 28.06.2023, https://dgap.org/en/research/publications/german-defense-spending, [29.09.2023].
Furthermore, even this short-term use of the special fund seems to be too ambitious: As the specific nature of the massive long-term procurement projects connected to the Sondervermögen (like F-35 fighter-jets, Arrow missile defence systems, or Puma infantry-fighting-vehicles) prevents massive spending applicable to reach the NATO commitment, Germany’s military expenditure for 2022 and 2023 remained below expectations and promises. The procurement of these new weapons systems takes multiple years, meaning that no major items have been purchased using the special fund and, thereby, there have been no major contributions to Germany’s defence budget so far—although two-thirds of the special fund is bound by contracts, according to the German procurement agency BAAINBw.[vii]
This has two major implications: While it was the right decision for the government to use the special fund exclusively for major procurement projects, which require long-term guaranteed funding, the special fund gets slowly but surely devoured by inflation and interest rates due to the demanding acquisition process[viii]—experts argue that just half of the EUR 100 billion can be spent definitely.[ix]
Hence, Berlin has started to think about readjusting and broadening the application area of the special fund from long-term procurement towards including infrastructure projects and covering additional operational costs.[x] While this would severely decrease the resources available for the necessary equipment for the Bundeswehr, it also seems to be one of the few possibilities to spend the special fund in the short term and thereby reach NATO’s 2% commitment. So far, even Germany’s declaration to reach 2% via the multi-year average over five years seems to be in danger.
Similarly, although Germany’s long-awaited National Security Strategy presents an overhaul of Berlin’s strategic threat perception and political ambitions in a changing security order, it fails to deliver tangible results in the form of realigned resource allocations. With neither an institutional change like a discussed national security council nor a rise in specific budgets following the strategies presentation, actual change seems to remain limited. As Christian Mölling, deputy research director of the DGAP, pointed out in the foreign affairs committee: “Politics is what gets funded”, emphasizing the current continuation of the status quo instead of an institutional and financial readjustment in Berlin’s strategic affairs.[xi]
With a pristine defence budget and hitherto inconvenient special fund, Germany’s Zeitenwende has yet to show tangible results apart from new declarations about Berlin’s strategic objectives. The Zeitenwende fails to connect the insufficient financial means and declared ambitious ends with effective ways of creative strategic thinking and efficient procurement. NATO Secretary General Jens Stoltenberg reminded Berlin of its financial commitment towards the Atlantic Alliance recently, referring to the security and defence policies of German elder statesmen: “During the Cold War, when Konrad Adenauer or Willy Brandt governed, defense expenditures consisted of three to four percent of economic output. We did it back then, and we must today also do it again.”[xii]
SWEDEN’S WAKE-UP CALL AND TURNING POINT
Germany was not the only European country to benefit from the peace dividend. After being a respectable yet neutral military power during the Cold War, Stockholm decided to join NATO’s Partnership for Peace (PfP) programme in 1994 and strengthen its interoperability with the Atlantic alliance. The Swedish Försvarsmakten even participated in NATO’s various out-of-area operations, engaged in multiple cooperation initiatives, and held a supplementary role in NATO’s Response Force.[xiii] Nevertheless, Stockholm decided to reduce its military capabilities and defence spending in the 2000s, leading to the demilitarization of the strategically important island of Gotland in the Baltic Sea in 2005[xiv] and the abolition of conscription in 2010.[xv] Yet, Stockholm’s first wake-up call occurred in 2013 and left a feeling of vulnerability as the starting point for Sweden’s prompt military realignment. On the night of 29 March 2013, on Easter weekend, two Russian TU-22M3 “Backfire” bombers flew close to Swedish airspace and simulated a nuclear attack on Stockholm while being escorted by four Su-27 “Flanker” fighter jets. Because the Swedish Air Force was not operationally ready for a quick response, two NATO F-16 fighter jets from Denmark intercepted and watched the Russian aircraft closely. The aftermath and analysis of the incident sent shockwaves throughout Stockholm: The Russian bombers would have been able to conduct a nuclear attack on the Swedish capital while the pilots of its own air force were enjoying the Easter holiday weekend.[xvi]
Further shocked by the Russian annexation of Crimea, Sweden re-introduced partial conscription for men and women in 2017. The morning of 24 February 2022 proved to be no less shocking and far-reaching for Stockholm than for Berlin and was followed by a similar, unprecedented realignment in the country’s security policy affairs. After two centuries of military non-alignment despite decades of close military cooperation with its Nordic neighbours and NATO, Sweden decided to apply for membership in the Atlantic alliance in lockstep with Finland. While this historic decision was discussed publicly but never seriously considered beforehand, Russian aggression against Ukraine quickly changed Swedish opinions and political considerations, leading to its application for NATO membership in May 2022. While Finland joined the alliance in April 2023 already, Sweden’s accession remains on the agenda due to Türkiye’s and Hungary’s pending ratification—in the meantime, Sweden seems determined to present itself as a northern security provider.
Since Stockholm’s wake-up call in 2013, the Nordic country has increased its defence spending massively and sustainably over multiple government coalitions. While the planning of the center-right Kristersson government originally aimed at achieving NATO’s 2% commitment in 2026, the Swedish Ministry of Defence announced on 11 September 2023 that the defence budget would rise tremendously in 2024 by 28 percent to USD 10.8 billion—thereby hitting the NATO target earlier than expected. Overall, Sweden’s pending NATO accession clearly has had a pre-emptive effect on Sweden’s defence budget and policy making, as the press release regarding the prospective budget plans illustrates:
Sweden is currently facing the most serious security situation since the Second World War. This places new demands on military defence. […] Sweden will be a credible, reliable and loyal member of NATO. The Government’s budget includes increased appropriations to the Swedish Armed Forces that will make it possible to plan for activities within NATO’s deterrence and defence measures.[xvii]
However, this sudden increase in defence spending is also a subject of structural imperatives: Because the Swedish Armed Forces must send officers to NATO structures and institutions once its accession is completed, the replenishment of the gaps caused by increased deployments needs to be taken into account with an increased budget (an additional USD 2.3 million)[xviii] for staff expenditures—added to the previous and independently planned recruitment increases due to officer retirements. Furthermore, although the scope of Sweden’s engagement in NATO is not clearly outlined yet, the press release shows Stockholm’s intent to join the alliance’s deterrence and defence measures like Air Policing, Enhanced Forward Presence, or Standing Naval Forces, which would impose further increases in operational costs.[xix]
Conclusively, whereas the German approach towards NATO’s 2% commitment aims at achieving financial reliability, allowing for the procurement of protracted military equipment at the expense of short-term spending and effectiveness, Sweden’s sudden increase of its defence budget signals its willingness to contribute, though it is simultaneously subjected to structural imperatives in preparation for NATO accession and subordinated to political volatility. However, both approaches move in the right direction toward increasing military spending and increasing European security actors’ responsibility for security and defence.
Figure 2: German-Swedish Defence Expenditure in constant 2021-U.S.-Dollars, author’s own diagram based on SIPRI, Military Expenditure Database, 2023, https://www.sipri.org/databases/milex, [02.10.2023].
Figure 3: German-Swedish Defence Expenditure in constant 2021-U.S.-Dollars, share of GDP in percent, author’s own diagram based on SIPRI, Military Expenditure Database, 2023, https://www.sipri.org/databases/milex, [02.10.2023].
SHORT- AND LONG-TERM IMPLICATIONS OF MILITARY-ECONOMIC IMBALANCES
Overall, the diverging ability of European governments to boost their military expenditures poses short- and long-term implications. In the short term, the significance of future defence budgets regained importance following the Russian Federation’s announcement of a 68% increase in its military expenditures for 2024, or USD 111.15 billion (6% of GDP) in total,[xx] implying Moscow’s willingness to continue and even reinforce its war against Ukraine in the near future. Despite all the losses and setbacks for the Kremlin’s brutal expansionist agenda in Ukraine, President Putin and his inner circle seem determined to continue the war and invest even more resources.
Furthermore, this worrying development comes at an inopportune time for Ukraine: Foreshadowing the elections in the United States in the coming year, congressional support for American economic and military aid packages for Kyiv seem to have vanished, limiting the political space available for President Biden to manoeuvre. Additionally, as the U.S. House of Representatives voted to oust its own speaker for the first time in recent American history,[xxi] taking weeks to find a replacement, we may see another scenario in which U.S. financial aid for Ukraine could potentially be blocked or linked with the political agenda of the new speaker, Trump-ally Mike Johnson. As the most important ally and supplier of weapons, the political turmoil in the United States affects Kyiv’s capabilities, as well. Now more than ever, it is crucial that European NATO allies step up their support for Ukraine to replace diminishing U.S. deliveries and remain steadfast against Russian threats of further escalation.
Regarding the long-term perspective, the fiscal imbalance between European capitals’ military contribution to the allied defence of Europe is likely to create further political divisions as well as strategic power shifts. Although the increased Swedish defence budget remains a fraction of the German defence pledge (see Figure 2), Stockholm’s willingness to induce quick political and financial changes towards matters of (inter)national security could push other partners to deliver explanations—even more so because Sweden acted pre-emptively before even being a full member of NATO. Given that the timing and scope of scarce resource allocations signal a country’s threat perception, political emphasis, and practical determination in the face of the most severe threat to the European security order in decades, the defence budget sends strong signals to a country’s society, allies, and adversaries. Elisabeth Braw, senior fellow at the American Enterprise Institute, put this willingness into fitting words:
A 28% rise in Swedish defense spending is clearly no match for whatever Russia and China might cook up. But what matters just as much as money is a country’s willingness to do its best to keep itself and its friends safe. And if a government doesn’t signal that it’s willing to do its part, why should the citizens do theirs?[xxii]
While Germany and many different NATO countries can look up to the Scandinavian countries’ concepts of “total defence”—incorporating the whole of society into defending national sovereignty and security—NATO allies must realize that these approaches start with difficult decisions for resource allocations. After multiple years of crises, including Covid-19, natural disasters, climate change, and the war against Ukraine, financial resources are limited, and economic realignments towards security and defence will therefore be hard and severe, yet indispensable.
About the Author
Noah Heinemann is studying for an MSc in War and Defence Studies at the Swedish Defence University in Stockholm. He holds a BA in Political Science and Economics from the University of Heidelberg in Germany, where he specialized in security and defence policy, including his thesis on “The Impact of NATO Enlargement on the Alliance’s Military Strategy”.
Notes
[i] NATO, “The North Atlantic Treaty,” 4 April 1949, accessed 3 November 2023, https://www.nato.int/cps/en/natolive/official_texts_17120.htm.
[ii] NATO, “Resilience, civil preparedness and Article 3,” last updated 2 August 2023, https://www.nato.int/cps/en/natohq/topics_132722.htm.
[iii] Ulf von Krause, “Zwei-Prozent-Ziel und Bundeswehr. Zur Diskussion um den Verteidigungshaushalt,” BAKS Arbeitspapier Sicherheitspolitik, Nr. 23/2018, accessed 5 October 2023, https://www.baks.bund.de/de/arbeitspapiere/2018/zwei-prozent-ziel-und-bundeswehr-zur-diskussion-um-den-verteidigungshaushalt.
[iv] NATO, “Funding NATO,” last updated 27 September 2023, https://www.nato.int/cps/en/natohq/topics_67655.htm.
[v] The Federal Government of Germany, “Policy statement by Olaf Scholz, Chancellor of the Federal Republic of Germany and Member of the German Bundestag, 27 February 2022 in Berlin,” accessed 3 October 2023, https://www.bundesregierung.de/breg-en/news/policy-statement-by-olaf-scholz-chancellor-of-the-federal-republic-of-germany-and-member-of-the-german-bundestag-27-february-2022-in-berlin-2008378.
[vi] Christian Mölling, Torben Schütz, and Sören Hellmonds, “German Defence Spending. A Repeat of the Past Instead of a New Era,” DGAP Policy Brief Nr. 19, 28 June 2023, accessed 29 September 2023, https://dgap.org/en/research/publications/german-defense-spending.
[vii]“Bundeswehr-Sondervermögen 2024 komplett verplant,” Tagesschau, 17 August 2023, accessed 3 October 2023, https://www.tagesschau.de/inland/sondervermoegen-bundeswehr-104.html.
[viii] Ben Knight, “What happened to the German military’s €100 billion fund?” Deutsche Welle, 2 March 2023, accessed 3 October 2023, https://www.dw.com/en/what-happened-to-the-german-militarys-100-billion-fund/a-64846571.
[ix] Ifo Institute, “Only Half of German Armed Forces Special Fund Usable – Two-Percent Target under Threat in the Medium Term,” 10 July 2023, https://www.ifo.de/en/press-release/2023-07-10/only-half-german-armed-forces-special-fund-usable.
[x] Lars Petersen, “Erinnerungslücken bei Scholz“: Kanzler will Sondervermögen der Bundeswehr aufweichen und gefährdet damit Kauf neuer moderner Waffen,” Business Insider, 19 August 2023, accessed 3 October 2023, https://www.businessinsider.de/politik/deutschland/kanzler-olaf-scholz-will-sondervermoegen-der-bundeswehr-aufweichen/.
[xi] Deutscher Bundestag, “Nationale Sicherheitsstrategie stößt auf geteiltes Echo,” 19 June 2023, accessed 3 October 2023, https://www.bundestag.de/dokumente/textarchiv/2023/kw25-pa-auswaertiges-sicherheitsstrategie-952500.
[xii] “NATO chief urges Germany to boost defense spending,” Deutsche Welle, 17 September 2023, accessed 29 September 2023, https://www.dw.com/en/nato-chief-urges-germany-to-boost-defense-spending/a-66835363.
[xiii] NATO, Relations with Sweden, last updated 12 April 2023, https://www.nato.int/cps/en/natohq/topics_52535.htm.
[xiv] Anna Wieslander and Eric Adamson, “A glimpse of Sweden in NATO: Gotland could be a game-changer for Baltic defense,” Atlantic Council, 26 April 2023, accessed 29 September 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/a-glimpse-of-sweden-in-nato-gotland-could-be-a-game-changer-for-baltic-defense/.
[xv] Minna Ålander, “No More Gray Areas,” Internationale Politik Quarterly, 6 July 2023, accessed 29 September 2023, https://ip-quarterly.com/en/no-more-gray-areas.
[xvi] Armin Rosen, “NATO report: A 2013 Russian aerial exercise was actually a ‘simulated nuclear attack’ on Sweden,” Business Insider, 3 February 2016, accessed 10 October 2023, https://www.businessinsider.com/nato-report-russia-sweden-nuclear-2016-2?r=US&IR=T.
[xvii] Ministry of Defence, “Ministry of Defence military budget initiatives for 2024,” Government Offices of Sweden, 22 September 2023, accessed 2 October 2023, https://www.government.se/articles/2023/09/ministry-of-defence-military-budget-initiatives-for-2024/.
[xviii] Swedish Ministry of Defence, “Major investments in military defence and NATO targets projected to be reached,” Government Offices of Sweden, 11 September 2023, accessed 10 October 2023, https://www.government.se/press-releases/2023/09/major-investments-in-military-defence-and-nato-targets-projected-to-be-reached/.
[xix] Ibid.
[xx] Benoît Vitkine, “Russia plans to increase its military budget by 70% in 2024,” Le Monde, 26 September 2023, accessed 3 October 2023, https://www.lemonde.fr/en/international/article/2023/09/26/russia-plans-to-increase-its-military-budget-by-70-in-2024_6139811_4.html.
[xxi] Kathryn Watson, “What does a change in House speaker mean for Ukraine aid?” CBS News, 7 October 2023, accessed 10 October 2023, https://www.cbsnews.com/news/ukraine-war-house-speaker/.
[xxii] Elisabeth Braw, “Sweden Awakes From Defense Slumber,” Center for European Policy Analysis, 24 September 2023, accessed 2 October 2023, https://cepa.org/article/sweden-awakes-from-defense-slumber/.
Image: https://www.nato.int/docu/review/articles/2018/04/04/resilience-planning-for-swedens-total-defence/index.html
