Since 2008, the world has experienced a severe economic crisis, one that has led to many austerity measures, including deep cuts in defense spending in many countries. As NATO Secretary-General Anders Fogh Rasmussen has argued, maintaining a capable and effective NATO Alliance in this era of financial crisis presents a real and pressing challenge for NATO.In response to these challenges, at the Munich Security Conference in February 2011 Rasmussen launched a proposal for “Smart Defense.” This proposal aims to examine how “NATO can help nations to build greater security with fewer resources.” It emphasizes the need to “spend better” by prioritizing, specializing, and seeking multinational solutions. This article will examine and analyze the proposal for Smart Defense with a view to assessing its value in helping NATO surmount the fiscal challenges it faces. The first section will provide a brief overview of the current fiscal environment within NATO member states, including key member states’ current and planned defense spending cuts and how these cuts will impact burden sharing within NATO. The next section will briefly describe the Secretary-General’s Smart Defense proposal, and will explore each pillar of the concept. The third section will examine the key challenges and strengths of

the proposal. Finally, conclusions will be drawn about the ability of the Smart Defense proposal to help NATO overcome the current fiscal challenges.