NATO’s latest annual report says European allies and Canada increased defence spending by 20 per cent in real terms in 2025, with all 32 allies now at or above the alliance’s long-standing 2 per cent benchmark.

European allies and Canada increased defence spending by 20 per cent in real terms in 2025, according to NATO Secretary General Mark Rutte’s annual report, in what the alliance is presenting as another step in a broader shift towards higher and more sustained military investment.

The report says all NATO members met or exceeded the alliance’s 2 per cent of GDP guideline in 2025. That marks a significant change from the position a decade earlier. NATO states on its funding page that in 2025 all allies are expected to meet or exceed the 2 per cent level, compared with only three in 2014.

Three allies — Poland, Lithuania and Latvia — were already above the alliance’s newer 3.5 per cent benchmark for core defence spending in 2025, while countries including Spain, Canada and Belgium were at 2 per cent. The same report said total defence expenditure across NATO’s 32 members amounted to 2.77 per cent of GDP in 2025, with the United States still accounting for around 60 per cent of the alliance’s total defence spending.

Those figures matter because NATO’s spending debate has moved on from the older Wales-era benchmark. Reuters noted that allies agreed last year to move towards a broader 5 per cent objective by 2035. Under that formula, 3.5 per cent of GDP is to be devoted to core defence, including personnel, weapons and military capabilities, while a further 1.5 per cent is to cover wider security-related measures such as cyber security, protection of critical infrastructure and adaptation of transport networks for military use. Reuters’ earlier explainer on the new target set out the same structure and the 2035 timetable.

In the annual report, Rutte said he expected allies at the next NATO summit in Ankara to demonstrate that they are on what he described as a “clear and credible path” towards that 5 per cent objective. NATO’s own 2025 annual report places defence investment at the centre of the alliance’s current agenda and states that allies are investing more in response to what it calls an increasingly dangerous security environment.

For a defence readership, the significance is less the headline that spending is rising than the degree to which higher expenditure is becoming structural rather than reactive. NATO’s funding page notes that the 2014 pledge called for allies to meet the 2 per cent threshold and to direct at least 20 per cent of annual defence expenditure towards major equipment. The alliance says the 2023 Vilnius summit then turned the 2 per cent level into an enduring floor rather than an aspirational target, while the 2025 framework pushes the discussion further towards capability generation, resilience and industrial output.

That does not mean the burden-sharing argument has been resolved. President Donald Trump again criticised NATO allies on Thursday, saying they had done “absolutely nothing” to help with Iran, while continuing to press European states to take primary responsibility for the continent’s conventional defence. The political pressure from Washington therefore remains a central part of the spending story, even as European budgets rise.

The operational question now is whether the increase in spending will translate into usable military effect at the pace NATO says is required. Defence outlays can rise without producing equivalent gains in readiness, stockpiles or deployable capability if procurement remains fragmented or industrial capacity cannot keep up. That is why the alliance’s recent language has tied spending more closely to production, capability delivery and resilience measures rather than treating the GDP percentage alone as the main test. NATO’s 2025 annual report explicitly links investment to the capabilities the alliance needs, while its public material on defence funding notes that higher spending is being driven by capability targets and shortfalls across multiple domains.

For European governments, the headline number offers political cover as well as pressure. The fact that all allies are now at or above 2 per cent makes it harder for laggards to argue exceptional circumstances. At the same time, the emerging 5 per cent framework will expose new divisions over how quickly national budgets, procurement systems and defence industries can adjust. Thursday’s data show that the direction of travel is now clear. The more difficult question, likely to dominate the run-up to Ankara, is whether allied spending growth can be converted into the force structure, munitions output and infrastructure resilience that NATO’s planners say deterrence now requires.