The concept of "NATO 3.0" arrived in Munich this week with the force of a strategic earthquake. Floated by US Deputy Secretary of Defence Elbridge Colby, the proposal envisions a fundamentally restructured alliance in which Europe takes primary responsibility for its own territorial defence, while the United States shifts its military focus toward countering China in the Indo-Pacific.
The American Proposition
Colby's vision represents the strategic logic of a Washington that views China, not Russia, as the primary threat. Under NATO 3.0, European allies would dramatically increase defence budgets — well beyond the current 2% of GDP target — to build credible conventional deterrence on their own continent. The US would remain a nuclear guarantor but the days of American ground forces as Europe's first line of defence would effectively end.
European officials have greeted the proposal with what one diplomat described as relief mixed with dread. Relief because NATO 3.0 implies continued engagement, unlike previous threats to withdraw entirely. Dread because of the price tag and the speed at which capabilities would need to be rebuilt after decades of atrophy.
The Fiscal Dilemma
Most European governments are struggling with elevated debt following the pandemic, the energy crisis, and years of stimulus spending. Adding hundreds of billions in defence expenditure will require painful trade-offs: spending cuts elsewhere, tax increases, or significantly more borrowing.
The EU Council recently activated the national escape clause for defence financing for Austria, exempting defence spending from fiscal rules. This signals Brussels is prepared to create fiscal space for rearmament. But whether other member states will follow — and whether markets will tolerate rising government debt — remains uncertain.
The European Parliament has begun debating plans for joint defence funding, and the Commission is expected to propose new mechanisms. But translating political declarations into operational military capability typically takes five to ten years — time that Europe may not have.
Defence-Industrial Consolidation
One area where progress is tangible is defence-industrial consolidation. The Weimar Plus grouping — France, Germany, Poland, and the UK — has been driving coordination on joint procurement, interoperability standards, and shared production lines. Defence stocks have surged in European markets, rising more than 3% in the first trading days of 2026, as investors anticipate a sustained multi-year increase in spending.
The European Group of Five, which adds Italy, is also articulating a coherent security vision. These smaller coalitions have proven far more effective than the full 27-member EU consensus process at making rapid decisions, particularly around Ukraine.
The Ukraine Factor
The war in Ukraine remains the most immediate test of Europe's ability to provide for its own security. A coalition of over 30 European and partner nations has assumed responsibility for coordinating military and financial aid and is preparing post-ceasefire security guarantees — tasks once reserved for Washington. The conflict has exposed critical gaps in European ammunition production, logistics, and command structures that NATO 3.0 would require filling urgently.
"Continued hesitation would leave Europe exposed in a grey zone between competing spheres of influence — steadily eroding its ability to shape its own destiny."
— Munich Security Report 2026
Between Ambition and Reality
The gap between European strategic ambition and operational reality remains vast. Building a credible defence pillar requires not just money but political will, institutional reform, and a willingness to accept risk. For a continent that has spent decades outsourcing its security to the United States, the adjustment is as much psychological as it is financial.
But the alternative — continued dependence on a Washington that is openly pivoting away — carries its own dangers. NATO 3.0 may not be the alliance Europeans wanted. The question now is whether it is the one they are willing to build.