European NATO members are considering increasing the alliance’s defense spending target from 2% to 3% of GDP at next year’s annual summit in June. The move coincides with Donald Trump’s return to the U.S. presidency, adding urgency to the discussions.

According to sources familiar with the preliminary talks, the proposal would place significant pressure on already strained national budgets, raising concerns across several European capitals. The current target of 2 %has been met by 23 of NATO’s 32 member states this year, compared to just six members achieving the benchmark in 2018. However, seven European countries, including Italy and Spain, still fall short of the 2% goal adopted a decade ago.

Trump’s insistence on increased European contributions to NATO and the growing recognition that current spending levels are insufficient to support Ukraine or deter Russia have pushed European leaders to reassess their defense commitments. Talks that began last week during a meeting of alliance foreign ministers suggest an interim target of 2.5% in the short term and 3% by 2030, according to insiders.

Mark Rutte, NATO’s Secretary General, emphasized the need for higher spending targets. While declining to disclose specific figures, Rutte stated, “When you look at the capability targets and the existing gaps, it’s very clear that 2% is not sufficient.” He expressed hope that the new goals could be formalized at the upcoming summit in the Netherlands, despite financial challenges faced by European nations.

The alliance’s non-U.S. members have collectively increased their defense budgets by approximately $100 billion over the past two years. Nevertheless, raising spending to 3% will be a significant challenge for many European economies, including the UK, Germany, France, Italy, and Spain.

The UK’s current defense expenditure stands at £60 billion, or 2.3% of GDP, with a commitment to increase this to 2.5%. Prime Minister Keir Starmer has indicated that a strategic defense review will outline a roadmap for achieving this target. However, defense analysts caution that even this level of spending may be inadequate for modernizing the UK military and meeting NATO’s updated requirements.

Italy, spending 1.49%, faces scrutiny under the EU’s Excessive Deficit Procedure for exceeding budgetary rules. Prime Minister Giorgia Meloni’s government aims to reach the current 2% target by 2028. However, Defence Minister Guido Crosetto warned that Trump’s return to office could increase pressure to exceed this target, potentially reaching 2.5% or even 3%.

Spain remains at the bottom of NATO’s defense spending rankings, allocating just 1.28% of GDP to defense. Despite this, Prime Minister Pedro Sánchez highlighted Spain’s contributions to NATO missions and its focus on allocating 20% of defense spending to research and development, exceeding alliance benchmarks in this area.

The United States—currently spending 3.4% of its GDP on defense—views increased European contributions as essential to maintaining the alliance’s readiness and burden-sharing. A German official commented, “A commitment to 3% would send a strong signal to the U.S. and Trump, showcasing Europe’s dedication to collective security.” Germany, which met its 2% target for the first time this year, faces similar challenges in increasing spending further.

Germany’s conservative opposition leader, Friedrich Merz, has called for a unified European strategy to establish a “common vision” for peace in Ukraine. During his visit to Kyiv on Monday, Merz emphasized the need for European allies to collaborate independently of the United States, particularly in light of potential geopolitical shifts.

Merz, the frontrunner for Germany’s chancellorship in the upcoming federal elections on February 23, highlighted the importance of preparing for changes in global leadership. Referring to Donald Trump’s potential return to the White House, he stated, “With the change of power in the United States, we are likely to face a new situation, and we must be prepared for it. We need a common strategy within Europe.”

The CDU leader proposed forming a new contact group comprising France, the United Kingdom, Poland, and other key European allies. This group would develop and coordinate a peace plan for Ukraine, potentially acting independently of U.S. leadership if required.

Ukrainian President Volodymyr Zelensky, who met with Merz in Kyiv, expressed his support for the proposal. He suggested including Denmark, a strong military backer of Ukraine, in the contact group. Zelensky noted that such an alliance could work towards achieving “a just and lasting peace in Ukraine.”

The call for a European-led strategy arises amidst uncertainty over the future of the Ukraine Defense Contact Group, a coalition of over fifty allied nations that regularly convenes at Ramstein Air Base in Germany to discuss military support for Ukraine. The group is currently chaired by outgoing U.S. Secretary of Defense Lloyd Austin, whose tenure ends with the U.S. administration’s transition in January.

If elected chancellor, Merz could position himself as a stronger ally to Ukraine than current German Chancellor Olaf Scholz. Merz has pledged to increase military support for Kyiv, including providing long-range Taurus cruise missiles, a move Scholz has consistently opposed due to concerns about escalation risks.

Zelensky has also criticized Scholz’s November phone call with Russian President Vladimir Putin, arguing that such dialogues undermine efforts to isolate the Kremlin.

European Commission President Ursula von der Leyen took a significant step last Friday by signing a landmark trade agreement with the South American bloc Mercosur.

“Today is truly a historic milestone,” von der Leyen stated after summit talks with the leaders of Mercosur in Montevideo, Uruguay.

The agreement focuses on reducing trade barriers. Tariffs on 91% of products traded between the EU and Mercosur will be gradually eliminated. According to European Commission calculations, this will result in annual savings of approximately €4 billion for European exporters.

South America has a competitive edge in agricultural raw materials and resources critical for climate transformation, while Europe specializes in supplying cars, machinery, and chemical products.

The EU is Mercosur’s second-largest trading partner after China, accounting for 15% of the bloc’s trade volume, compared to China’s 24% share.

Recently, trade volume for goods between the EU and Mercosur reached approximately €110 billion, representing about 2% of the EU’s total foreign trade.

The agreement, negotiated over 25 years, would establish a free trade zone encompassing more than 750 million people. However, it faces strong opposition from France, which fears cheap poultry and beef imports could harm its farmers.

Mercosur imposes some of the world’s highest external tariffs 35% on cars, 14-18% on car parts, 14-20% on machinery, and 18% on chemicals.

Under the agreement, 91% of these tariffs will be abolished, while the EU will eliminate 92% of its own import duties.

The EU also anticipates significant benefits from enhanced access to state infrastructure tenders and expanded market access in sectors like postal and logistics services, telecommunications, and finance.

In contrast to France, Germany has welcomed the deal. The Federation of German Industries (BDI) President Siegfried Russwurm hailed the agreement as a much-needed boost for German and European economies.

As of 2023, German exports to Mercosur totaled approximately $16 billion, leading EU countries. Germany’s exports are followed by those of Italy, Belgium, the Netherlands, and France. Customs reductions could save German companies €400-500 million annually. According to the German Chamber of Industry and Commerce (DIHK), 12,500 German companies export to Mercosur, with 72% being small and medium-sized enterprises. These exports support 244,000 jobs in Germany.

This agreement, which von der Leyen failed to secure during her first term, represents a major geopolitical victory as she embarks on her second term.

The deal aims to deepen ties between the EU and Mercosur members Brazil, Argentina, Uruguay, Paraguay, and new member Bolivia, amid rising global trade tensions.

At a joint press conference, von der Leyen emphasized: “We are sending a clear and strong message. We are showing that democracies can trust each other in an increasingly confrontational world. This agreement is not only an economic opportunity; it is also a political necessity.”

The visit of von der Leyen and EU trade chief Maroš Šefčovič to Uruguay to finalize the deal sparked unrest in France, where the government had fallen just hours earlier.

France is expected to intensify its opposition but will need to expand its coalition, which already includes Poland, Austria, and Ireland, to block the deal’s ratification.

French Trade Minister Sophie Primas stated: “France’s voice remains strong in Europe. We are not alone in opposing Mercosur in its current form. We can achieve a blocking minority.”

Paraguayan President Santiago Peña plans to visit France to convince President Emmanuel Macron to support the agreement. Meanwhile, Italy’s stance remains undecided, with Prime Minister Giorgia Meloni signaling conditional approval based on guarantees and compensation for the agricultural sector in the event of market imbalances.

As a major EU member, Italy’s decision could significantly impact the agreement’s fate.

The conclusion of political negotiations marks an important milestone for the EU-Mercosur agreement. However, the process is far from complete.

The finalized text will be published next week, allowing EU member states to express their views. It must undergo legal scrutiny and translation, which could take months.

To expedite the process, Brussels may separate the trade chapter from the political and cooperation pillar. This approach, if adopted, would require approval only from the EU Council and Parliament, bypassing the need for unanimity among member states.

Alternatively, full ratification of the agreement would require a qualified majority in the Council of Ministers (at least 15 countries representing 65% of the EU population). The political and cooperation pillar would require ratification by all national parliaments, potentially delaying implementation for years.