NATO Raises Defense Spending Target to 5% of GDP by 2035

European markets opened cautiously on June 26, with investors closely monitoring multiple global developments. Among these, NATO’s decision to raise defense spending to 5% of GDP by 2035 garnered significant attention. This new target, more than double the previous 2% goal set in 2014, aims to bolster the alliance's collective security in response to evolving global threats. The current defense spending of NATO member states varies, with Poland leading at 4.1%, followed by Estonia and the U.S. at 3.4%, Latvia at 3.2%, and Greece at 3.1%. The new plan allocates at least 3.5% of GDP to core defense requirements and the remaining 1.5% to broader defense-related measures, including infrastructure developments like roads, ports, and energy.

NATO Secretary General Mark Rutte emphasized that this move was widely accepted due to the rising threat from Russia. The decision has sparked intense debate among analysts and policymakers, with some viewing it as a necessary step to enhance NATO's defensive capabilities, while others question its feasibility, especially for countries facing economic challenges. The leeway in defining defense spending could provide some flexibility, but achieving this target will require substantial budgetary adjustments and potential cuts in other areas.

The European market also kept an eye on geopolitical stability in the Middle East, with hopes for a lasting truce between Iran and Israel. Recent tensions had unsettled investors, but reports suggested stability was holding. The U.S. plans to hold nuclear talks with Tehran next week, which could further ease geopolitical risks. In this environment, defense stocks saw increased demand, with the European industrial miners sector showing a 1.1% rise and utilities advancing by 0.8%.

On the corporate front, H&M shares rose by 5.3% after reporting a stronger-than-expected second-quarter profit. The Swedish fashion retailer, under CEO Daniel Erver, is working to restore its brand image and financial performance. This recovery comes as a welcome signal for retail investors in the UK market. Additionally, markets awaited Germany’s GfK consumer confidence data to better understand economic sentiment in the Eurozone. Consumer data remains a critical indicator for predicting demand trends and retail strength. European market observers are particularly interested in these reports, as they help gauge the broader health of the European economy. Any uptick in confidence could fuel further investment in consumer-related sectors.

A blend of military, economic, and diplomatic news shaped investor behavior. NATO’s massive 5% defense target is expected to realign budgets and impact government spending. Middle East stability offers short-term relief, while H&M’s performance adds a positive corporate signal. Markets will now focus on how governments, including the UK, respond to NATO’s financial expectations. Future moves will depend on clarity from officials, especially concerning budget plans. Until then, the European market will stay watchful, balancing between opportunity and risk.