European Defence Spending Should Be Better Aligned

Dr Nicholas Marsh, Dr Bruno Oliveira Martins, Prof Jocelyn Mawdsley |

Introduction

As a response to the war in Ukraine, European countries have decided to increase their military spending. But member states and EU institutions are not on the same page about what to do with it. Increased defence spending, in itself, does not automatically translate into higher common EU industrial capacity or defence capabilities. On the contrary: uncoordinated military spending brings different risks, and more effort should be put on policy and strategic alignment. Decision-makers need to consider these risks when making strategic decisions about strategic priorities and the allocation of funds. Effective spending requires both strategic coordination and recognition of the risks.

 

What we know so far

Although final consolidated numbers for 2023 are not available, the data suggests EU member states have, overall, responded to the February 2022 Russian invasion of Ukraine with increased defence budgets. Numbers provided by the Stockholm International Peace Research Institute (SIPRI) shows that collectively, military expenditure numbers in 2022 were 2.91 per cent higher compared to 2021 (after adjusting for inflation). That increase followed year on year increases since the 2014 Russian seizure of Ukrainian territory.

 

However, increased defence spending wasn’t a common, harmonized European response. Instead, a handful of countries appeared to have been galvanized into action, while a larger group did not share their sense of urgency. The overall increase between 2021 and 2022, therefore, masks considerable differences among EU / European NATO member states. Only 16 of the 27 EU member states actually increased their defence expenditure, and among these the increases by Estonia and France were less than 1 per cent. Only a few member states made rapid, double-digit increases, namely Belgium, Finland, Lithuania, Luxembourg, Netherlands, Poland and Sweden. Conversely, defence expenditure in 11 EU member states actually decreased in 2022 compared to 2021.

SIPRI does not yet have data for 2023, but NATO estimated military expenditures for 2023 suggest the trend is for higher expenditure but with continued gaps between states’ sense of urgency.  Large double-digit increases (after adjusting for inflation) were reported by sixteen NATO member states. The remainder reported more modest increases, while Greece reported a significant decrease in expected expenditure. While this preliminary data suggests a more general rise in EU member states’ defence spending, there are still big differences in the urgency experienced by member states. In other words, there does not seem to be a Europe wide consensus that there needs to be increases in defence expenditure. This may undermine the ability of the European Commission to marshal significant long-term resources toward defence production despite its ambition to do so.

 

Uncoordinated National Responses

An important way to assess countries’ defence expenditure commitment is the speed at which defence spending increases are planned. Some of those states that have announced large increases are unlikely to make fast progress. For example, in January 2023 President Macron announced a planned increase of about a third in the French defence budget. While France is due to meet the target of 2% GDP spent on defence in 2025, which had been agreed by NATO member states in 2014, the full increase will not be complete until 2030. While the planned ‘massive’ investments in capabilities like drones and military intelligence would clearly augment the French armed forces, the envisioned timescale means that they are a long-term investment rather than an urgent response to the current crisis.  Italy is operating on an even longer timescale. Unlike France, Italy is “very far” from the 2% goal as reported by its defence minister in November 2023, and no year was given as to when that might be achieved. Poland, on the other hand, has already embarked upon a significant spending increase. In 2023 it was to double its defence spending compared to the previous year, and reach 3.9% of its 2024 GDP on defence, almost twice the 2% target. It remains to be seen whether this level of spending can be sustained, and whether Poland is able to use the extra money effectively.

What emerges is an uneven picture, marked by different priorities, different choices, and different national objectives. This unevenness means that increasing defence expenditure in Europe does not automatically translate into increased collective capacity. The EU’s long list of programmes and policies employed and/or introduced since the beginning of the war indicates that there is a growing willingness from the EU institutions to step up their commitment to defence matters, but that has not translated into a common understanding of what Europe’s main threats are and how they should be addressed from an industrial perspective. For reasons such as different threat perceptions among national electorates, different international defence commitments, tensions between political and economic logics, and industry constraints, EU countries are not aligned in their rearmament priorities.

For the 22 EU member states that are NATO members, NATO’s Defence Planning Process (NDPP) has, in recent years, been the main vehicle to harmonize national defence spending to achieve greater unity of effort. The NDPP provides a framework  to harmonize national and NATO planning activities, and it has been successful in the past in contributing to more equitable burden-sharing. But the question is whether it or the European Commission’s ambitious plans for defence industry can override fragmented national responses to the war in Ukraine.

 

The consequences of European defence fragmentation

In theory, increased military spending would lead to general industrial development, intra-EU or NATO cooperation, economies of scale, and an increase in EU or NATO political leverage over states. But so far this has not happened. In fact, there are several risks associated with an uncoordinated increase in military spending, and this has received far less attention than the issue deserves.

 

Worsened fragmentation of the European defence industrial base – More funds available may lead to higher levels of fragmentation of the already fragmented European defence industrial base. It is likely that the uneven increases in defence spending will be accompanied by traditional European government preferences to spend on national champion defence companies. As each country tries to sweat out the maximum domestic economic benefit, they will likely collectively forfeit opportunities to build a more productive and efficient European defence industry.

 

Competition between different European companies – The realisation that current European defence industry cannot supply all that is needed for Ukraine, coupled with security of supply concerns, has revived interest in improving national defence technological and industrial bases (DTIB). Poland’s acquisitions from South Korea are a good example of such a growth strategy for DTIBs. However, while this may offer a short-term solution to filling capability gaps, competing defence industrial interests will make it harder for the EU and NATO to deliver a coordinated defence industrial strategy in the longer term. Moreover, there are signs that competition and duplication among EU countries are driving the prices up, rather than triggering economies of scale that a coordinated effort could allow. A scenario of competition between different EU countries would thus probably lead to an actual increase in prices of weapon systems and components.

 

Mismatch between operational needs and industrial supply – Some of the recent EU initiatives, chiefly the European Defence Fund (EDF), have received criticism for prioritising industrial objectives rather operational ones. The EDF has put the focus on innovation and industrial development, and its priorities appear to be based upon the needs of industry rather than the operational needs of European armed forces. If the new funds follow a similar logic, and with expected lack of coordination amongst European countries, there will be a further mismatch between what is needed by Europe’s militaries and is produced by industry.

 

Challenges to the definition of a common strategic autonomy – A non-alignment in defence spending across Europe will further complicate the narratives around the EU’s concept of strategic autonomy. If different spending priorities are a consequence of different threat perceptions and different visions about the future of EU defence, the idea of a single understanding of a European strategic autonomy becomes even further undermined. In other words, when we read “strategic autonomy”, we need to ask “for whom?”

 

Excessive militarization

While attention has mainly been focussed on low levels of European military spending, European leaders should also be wary of the risks of excessive militarisation, or perceptions thereof. Defence spending represents a diversion of funds and resources from civilian production and welfare. While it is very difficult to reach a consensus on where the line can be drawn, spending more than is necessary could ‘crowd out’ civilian industries upon which European prosperity and defence budgets ultimately depend, for example through shortages of specialised workers. Attempts to rapidly build up defence industry may result in calls to provide governments with new powers to, for example, suspend local democratic processes concerning planning and building construction. Moreover, military funding of dual-use technologies, as well as military funding of civilian research environments, have been seen as a threat to science and technology and problematic to the freedom and autonomy of scientific research, while military funding of civilian tech companies such as Google has triggered protests from tech workers. More directly, perceptions that Europe has excessive military spending would be likely to further undermine the ability of European leaders to reach a consensus or coordinate their efforts, given political polarisation is rising in many European states. It is therefore important that the EU and European governments are seen to deliver value for money and not to be wasting taxpayers’ money on inefficient and ineffective spending.

 

Challenges for green transition – there is a particular risk that European attempts to meet the urgent challenge of improving defence production and military capability act against the equally important long-term goal of de-carbonising European industrial and energy sectors. If that were perceived to be happening it may be even harder to achieve a European consensus on military expenditure. There is a risk that funding will be redirected away from developing and implementing green technology and toward defence and military sectors that have been criticised for being high carbon emitters. For example, President of the European Council Charles Michel has  proposed cutting the EU renewables fund from €10 billion to €1.5 billion to divert the funding into military investments. It also remains to be seen whether the leadership of the EU and European states are up to the task of undertaking two simultaneous ambitious transformations of European industry.

 

Conclusion

A mere increase in defence spending will not automatically translate into higher common European industrial capacity or defence capabilities. In fact, as long as priorities remain unaligned, the risks of growing availability of military funds are considerable and should be more widely discussed at the political level. Yet, the focus continues to be on bring more funds to the mix, which was once again observed in the 9 January 2024 statement by the EU’s Commissioner Thierry Breton who expressed a wish to set up a EUR 100 billion defence fund – a massive amount considering that the current European defence fund (EDF) is budgeted at EUR 8 billion for the 2021-2027 period. Risk mitigation strategies should favour efforts promoting strategic alignment and political convergence. Spending more money on defence is only one part of the jigsaw. Effective spending requires both coordination and recognition that there are downsides.