Twenty countries in Europe are increasing spending. In aggregate, however, that is about one percent in real growth over last year—not enough for the transatlantic community to meet future challenges. So what are the prospects Europeans will invest more? Here is our breakdown.
Why isn’t Europe spending more now in the wake of war against Ukraine? Interest in more defense spending is not the long poll in the tent-it’s inflation, energy costs, debt servicing, and weak economies. There are serious fiscal structural challenges to Europe spending a lot more on its own defense. This is a key point because it’s not just about telling Europe to ‘defend yourself the U.S. has to pivot to Asia,” commitment to defend themselves (post-Ukraine war) is not the problem.
Meanwhile, the U.S. has its own fiscal challenges, as well as increasing demands for a bigger defense presence in the Indo-Pacific.
What is the biggest challenge? Think it is self-imposed constraints on economic growth and energy. The “green agenda” is hamstringing Europe. Energy and climate are much more relevant to the defense industrial base than folks realize. Heard one analyst argue that Europe lost 30 percent of its industrial capacity to higher energy costs.
How are defense companies responding to future demand? Euro-defense industries have yet to really ramp-up because they still don’t see the long-term demand signal and they are waiting to see that if after the war against Ukraine is over that folks just don’t go back to business as usual.
Will this change? Really think the roll out of the NATO regional defense plans is a valuable because it will give a baseline of requirements for countries-not just spending targets-but capabilities target to justify their spending.