NATO revival

More news in the geopolitical front: NATO leaders have officially committed to a 5% of GDP defense spending target by 2035, as confirmed at the NATO summit in The Hague yesterday. The agreement involves allocating 3.5% of GDP to core defense (troops, weapons, etc.) and an additional 1.5% to defense-related investments like cybersecurity and military infrastructure. The average defense spending among NATO members is 2.61% of GDP which is heavily skewed thanks to the US. This spending will likely be financed with debt. A lot of debt. A simple napkin calculation shows the 10 year cumulative spending need is $8.4Tn. And that means yields should go up across the board. To put that in perspective, Germany’s total government debt is $3Tn. And when you invest in weapons, you’re supposed to use them, which means there will be more conflicts. A few years back, NATO was seen as a dinosaur on its way to extinction, and now, like a phoenix, it has risen from the ashes with an unexpected strength. This is likely another strategic move form the US and its allies, flexing its military capabilities in front of China.

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