Luxembourg strikes special deal on NATO defence spending target

Luxembourg will be exempt from reaching NATO’s 2% GDP defence spending target to take into account national specificities in assessing its commitments, EURACTIV has learnt.

Despite their spending commitment and increased defence budgets, in 2022, a majority of NATO members are still short of the alliance’s spending pledge, with only seven meeting NATO’s 2% of GDP defence spending target that was agreed upon in 2014.

Almost 10 years later, in a new security environment prompted by Russia’s war on Ukraine, NATO has started to reconsider the commitment “as a floor, and not a ceiling”. As such, members will commit to a minimum spend of 2% of their GDP on defence, instead of striving towards that goal.

NATO allies are expected to endorse the new pledge and promise more spending at their landmark summit next week in Vilnius.

GNI, not GDP

However, the new criteria would apply to all but Luxembourg, three NATO diplomats told EURACTIV.

According to the agreement struck between NATO members, Luxembourg would not have to spend 2% of its GDP, but rather, 2% of its Gross National Income (GNI).

The GNI measures the total domestic and foreign value added claimed by residents.

In Luxembourg’s case, 2% GNI would amount to around 1.7% GDP, according to one source close to the negotiations.

“They will never reach the target: their army is too small and they are too rich,” a second NATO diplomat said in relation to the deal.

Luxembourg spent only 0.62% GDP on defence in 2022, the lowest figure across the alliance, according to current NATO data.

Lodged between France, Belgium and Germany, the country has an army of around 900 personnel, while over 40% of its permanent residents are foreigners.

The small size of its army does not require large numbers of equipment, the buying of which usually increases NATO members’ defence spending.

Its GDP per capita, however, has always been the highest by far across the alliance, reaching $108,000, which means it spends $764 per person living in the country for defence, according to official NATO data. Very few members such as Norway, the United States and the United Kingdom, Denmark or the Netherlands spend more.

With a high GDP for a small population size, Luxembourg has been arguing that the percentage target doesn’t reflect the true value of its contribution, calling to recalibrate the commitment to its GNI.

As part of the deal, Luxembourg will increase its overall contribution to the collective defence of NATO in some other way than through general defence spending.

This could include making use of its space assets, sending a small number of troops to contribute on the Eastern Flank or pledging money to the different NATO funds to support alliance partners such as Ukraine and Moldova.

By the time of publication of the article, Luxembourg’s delegation to NATO did not respond to EURACTIV’s request for comments.

[Edited by Alexandra Brzozowski/Nathalie Weatherald]


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