Looking Past Percentages: Finding an Alternative to the 2% Threshold

NATO foreign ministers pose for a photo at a 2019 summit. Photo Credit: Reuters

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By: Christine Bang-Andersen, Columnist

In the past few years NATO has faced numerous challenges to its internal cohesion and its contemporary relevance has been repeatedly questioned. At the crux of these contentions is a ‘requirement’ that NATO countries spend a minimum of 2% of their GDP on defense by 2024. This quota has driven NATO to adopt an input-focused evaluation of members’ commitments that reveals little, if anything, about a nation’s real capacity to counter contemporary threats. If the 2% requirement remains in place, it has the potential to weaken the alliance militarily and politically. To prevent such an outcome, NATO must rethink its method of evaluating the commitments of member states.

Agreed upon at the 2014 Wales Summit, the 2% measurement first emerged in the early 2000s as an informal guiding quota for defense spending of potential alliance members. Seeing as most countries aspiring to accede into NATO were spending around 1.7% or above, settling on 2% as an ascension target seemed logical at the time.^[i] Years later, in 2014, in response to rising Russian aggression, the ongoing war in Afghanistan, and mounting US pressures, NATO declared that members under this threshold would “aim to move towards the 2% guideline within a decade with a view to meet their NATO Capability Targets and fill NATO’s capability shortfalls.”^[ii] However, this decision was foolish and short-sighted. The 2% quota erroneously cemented a measurement that was never meant to be an official guideline for allies, but rather a target for aspiring members.

One of the primary shortfalls of this metric is the fact that GDP is a poor denominator for the measure of effective contribution. Consider the case of Greece, which spends 2.27% of its GDP on defense, a higher percentage than any other NATO country except the United States.^[iii] While the nation exceeds the 2% requirement, Greece is far from being a major military power. The nation was able to surpass this metric because its economy shrank by more than 25% in real terms between 2007 and 2017.^[iv] In other words, when the denominator decreases, the ratio increases. Due to this fact, Greece has maintained its position as a top spender despite a 1.2% decrease in defense expenditure in real terms between 2011 and 2018. Oppositely, US expenditure as a percentage of GDP has fallen from an average of 7.4% during the Cold War to less than 4% today—despite greater expenditure in real terms—simply due to growth in the US economy.^[v] This discrepancy highlights the issue that some of the strongest contributors to NATO operations spend less than 2%. Denmark has consistently ranked in the top quartile of all NATO allies and partners regarding contributions to Afghanistan, despite spending only 1.21% of GDP on defense.^[vi] Likewise, from 2002 to 2011, Canada contributed a greater percentage of its active duty forces to Afghanistan than even the U.S., despite spending only 1.23% of GDP on defense.^[vii] Conversely, Greece has consistently been in the bottom quartile of troop contributions to Afghanistan.^[viii]

The 2% requirement does not express the numerous ways allies contribute to NATO objectives beyond traditional defense expenditure. The threshold only counts expenses within specific areas of defense, and fails to consider that not all of Europe’s security challenges can be mitigated militarily. For example, expenses from stabilization efforts and post-conflict rebuilding, foreign assistance and development are not included in the 2%, although they arguably play a central role in creating and maintaining peace in areas at risk. If contributions of this type are added to the current equation, Germany, the U.S., Norway, the Netherlands and Iceland become the largest contributors as a percentage of GDP.^[ix]

Another way in which the 2% benchmark does not accurately represent allies’ contributions, is its lacking consideration of the composition of expenditure. Almost 70% of Greece’s defense spending goes to personnel as wages and pensions, which is nearly 20 percentage points more than Germany, a nation that does not reach the 2% benchmark.^[x] Additionally, it does not take into account the second pledge allies made in 2014: to increase annual investments into equipment to 20% or more of total defense expenditure.^[xi] At current levels, 11 countries reach this goal, of which only two countries are above the 2% threshold – the UK and US.^[xii] Proponents of the 2% must determine what is more important to NATO, a mathematical baseline or real contribution towards the alliance’s goals.

Evaluating member contributions to NATO as a simple matter of dollars and cents is dangerous and risks undermining the legitimacy of the alliance among NATO’s civilian population. Likewise, the arbitrary benchmark does not incentivize allies to do what NATO needs from them: to build capable, well-trained and sizable militaries that are prepared to operate in coalitions when called upon to do so. Ultimately, NATO must shift its focus away from the purely quantitative, input-oriented evaluation currently used to measure allies’ commitment.

A potential solution exists in the NATO Defense Planning Process (NDPP). NDPP sets short and medium-term goals for member-state development through a capability-based approach informed by threat assessments. The process aims to ensure that each member state builds the capabilities needed for NATO to concurrently mount two major joint operations and six smaller joint operations.^[xiii] Using this tool, NATO should focus on building individual militaries with the capabilities, capacity, interoperability and resilience to sustain future threats. The 2% metric should be replaced by methods that measure commitment, not only in expenditure, but as investments into materiel, troop contributions, readiness levels and contributions to security beyond military defense. If this is not done, NATO and the U.S. will continue to push an agenda that rewards allies with high levels of expenditure, regardless of its destination, while alienating those that contribute more with less. Such a failing will weaken the alliance militarily as it pushes spending in non-essential categories. Politically, if nothing is done, internal tensions over burden-sharing will continue to rise and threaten the alliance’s cohesion. It is time to stop bickering about percentages, and rather focus on collaboratively building the most effective measures possible to counter the myriad threats to Atlantic security.