Recent shifts in U.S. foreign policy have compelled the European Union to bolster its defense and security efforts. As a result, the EU will need to embark on a substantial rearmament effort, as well as increase its public spending.
Defense spending by EU Member States is relatively low, despite growing in recent years
The increase in defense spending and EU countries’ finances
• Bruegel and the Kiel Institute estimate that EU countries may need 300.000 more soliders and at least 250 billion euros in additional spending to guarantee their security over the short and medium term.
• However, high defecits and debt levels mean EU countries may have little space to increase spending.
• There have been calls to finance the increased defense spending with new debt emissions, both jointly at the EU level and nationally.
The EU defense industry
• The EU defense industrial base lacks the scale and is overly fragmented to satisfy new demand for military equipment, at least in the short term.
• This is especially true of the industry’s upstream suppliers, which are mainly small or mid-cap firms.
• According to ASD, none of the leading EU defense companies are among the global top 10.
• The EU could help its firms grow and increase their scale by promoting a single European defense market and allowing some consolidation among competitors.