Europe Goes Bilateral and Congress Goes to $1.1 Trillion: The Week That Redrew the Defense Budget Map

Two events this week, separated by an ocean and two days, tell the same story about where global defense spending is heading. On May 27, British Prime Minister Keir Starmer and Polish Prime Minister Donald Tusk signed the Northolt Treaty - a landmark bilateral defense and security partnership that commits the two countries to joint air defense missile development, deeper cooperation against Russian hybrid threats, and mutual assistance in the event of an armed attack. On May 29, the House Armed Services Committee released the Chairman's Mark of the FY27 National Defense Authorization Act, endorsing a $1.142 trillion discretionary national security budget while deliberately sidestepping the administration's additional $350 billion reconciliation request.

Read together, these two developments reveal a defense spending environment that is simultaneously more ambitious and more fragile than at any point in recent memory. For investors tracking defense budgets and bilateral partnerships, the implications run deep.

The Northolt Treaty: Europe's Bilateral Defense Web Tightens

The Northolt Treaty is the latest in a rapidly expanding network of bilateral European defense agreements that have proliferated since Russia's full-scale invasion of Ukraine in 2022. According to data cited by Politico, of the 169 multilateral defense deals signed by EU countries, the UK, and Ukraine since 2014, 135 were signed after 2022, with 36 signed in 2025 alone. The pace is accelerating.

The substance of the UK-Poland deal covers joint development of medium-range air defense missiles, intelligence sharing on Russian hybrid threats, joint military exercises, and a mutual assistance clause that mirrors NATO's Article 5 language. Poland plans to sign a similar bilateral pact with Germany next month. The continent's biggest military powers - the UK, France, Italy, Germany, and Poland - are weaving their defense industries and militaries into a tighter web of cooperation that operates alongside, and increasingly independent of, the NATO framework.

The driver is explicit. Defense analysts quoted in coverage of the signing pointed directly to uncertainty about U.S. commitment to NATO under the Trump administration as the primary motivation for the bilateral surge. When the anchor of collective defense becomes unreliable, frontline states build their own redundant architecture. That is what Europe is doing, and it is doing it at speed.

For defense investors, the Northolt Treaty and its siblings are demand signals. Joint air defense missile development between the UK and Poland means procurement programs. Joint exercises mean equipment standardization requirements. Mutual assistance clauses mean stockpile obligations. The 135 bilateral deals signed since 2022 are not just diplomatic documents - they are purchase orders waiting to be written.

The HASC FY27 Bill: $1.1 Trillion With a $350 Billion Asterisk

On the American side of the ledger, the House Armed Services Committee released its Chairman's Mark of the FY27 defense authorization bill on May 29. The headline number is $1.142 trillion in discretionary national security spending - exactly matching the administration's request and representing the largest base defense budget in U.S. history. The Pentagon's portion alone totals $1.071 trillion.

Within that topline, the committee proposed modest but meaningful adjustments. Procurement gets a net increase of $1.2 billion, with the biggest additions going to Defense-Wide agencies ($573 million), the Air Force ($441 million), and the Navy ($203 million). Aircraft procurement is the standout winner, with $887 million added across the services for additional UH-60 Black Hawks, CH-47 Chinooks, C-130Js, and MH-139s. Navy shipbuilding gets an extra $207 million.

The cuts are equally instructive. The Space Force's Automated Satellite Command and Control program takes a $706 million reduction despite receiving $1.5 billion in the original request - a significant signal of congressional skepticism about that program's cost structure. Collaborative Combat Aircraft development loses $137 million. The Family of Affordable Mass Missiles program is trimmed by $52 million.

The Reconciliation Gap Is the Real Story

The number that matters most in the HASC bill is not what is in it - it is what is missing. The committee's Chairman's Mark does not address the $350 billion in mandatory funding the Trump administration requested through a separate reconciliation bill. That block includes $155.5 billion for procurement, $124.9 billion for research and development, and nearly the entire Golden Dome missile defense research budget of $17.1 billion. The Pentagon's expanded munitions investment plans - $24.5 billion for the Army alone - are also funded through reconciliation, not the base budget.

The practical implication is that the most transformative elements of the administration's defense modernization agenda are not yet funded. The $54 billion request for the Defense Autonomous Warfare Group, which would represent the largest single-year increase for any Pentagon program in history, sits almost entirely in the reconciliation column. The base budget supports only $1 billion of that request.

Passage of a reconciliation bill is not guaranteed. Democrats have signaled opposition to the domestic spending cuts the administration proposed as offsets. Fiscal hawks in the Republican caucus have raised concerns about the overall size of the package. The gap between the $1.1 trillion base budget the HASC endorsed and the $1.5 trillion total the administration wants is where the real legislative battle will be fought over the coming months.

What Both Stories Mean for Defense Investors

The convergence of European bilateral rearmament and the U.S. budget debate creates a specific set of investment implications. On the European side, the bilateral treaty wave is generating demand for air defense systems, missile stockpiles, and interoperable communications equipment. Companies with strong European defense relationships - particularly in air defense and missile systems - are positioned to benefit from a procurement cycle that is being driven by political urgency rather than budget optimization.

On the U.S. side, the HASC bill's endorsement of the $1.1 trillion base budget provides a floor of certainty for traditional defense contractors. The aircraft additions, shipbuilding increases, and Army vehicle funding are conventional procurement wins for established primes. The uncertainty sits in the reconciliation-dependent programs - autonomous systems, Golden Dome, and the expanded munitions buildup - where the investment thesis depends on whether Congress can pass a second spending vehicle in an already contentious legislative environment.

The week of May 27-29, 2026 will likely be remembered as the moment when the post-Cold War defense budget architecture was formally replaced by something new: a world where Europe builds its own bilateral security web and the United States debates whether to fund the most ambitious military modernization program in its history. Both trends are bullish for defense spending in aggregate. The question for investors is which specific programs, companies, and geographies will capture the most value from a rearmament cycle that is now clearly structural rather than cyclical.