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European plans to finance military spending are proliferating rapidly. Anticipating a reduced contribution from the US, the EU is considering a €500 billion special purpose vehicle, financed through sovereign secured bonds. The block also plans divert a part of its common defense budget. European NATO members are discussing an increase in target spending, from 2 to 3 percent of GDP. This figure is still well below US President-elect Donald Trump’s 5 percent. wants who cough
While any new amount of cash will be good news for the European defense sector, which has been booming since Russia invaded Ukraine in February 2022, there are caveats. The reward will not be distributed evenly, as state-owned groups or specialized equipment manufacturers will take much of it. Collapsed supply chains create problems at the top. And rapidly evolving technology is changing the landscape of warfare.
The EU Law on Support for Ammunition Production is illustrative. He distributed 500 million euros to increase production to 2 million shells annually starting at the end of next year. Almost half went to state and private companies, Jefferies estimates; Of the rest, Germany’s Rheinmetall took a fifth, Britain’s Chemring 13 percent and Thales 2 percent.
War and national security are only part of the picture. Years of underinvestment in peacetime mean there is much catching up to do in improving equipment, while supply chains, fractured by deglobalization, are being reconfigured.
It doesn’t help that industrial supply chains are made up of sprawling networks of small and medium-sized businesses. Take Italian shipbuilder Fincantieri, which works with more than 7,000 SMEs. These companies lack the strong balance sheets of major companies and are often the last to receive loans and other financing. This makes it difficult for them to expand production capacity.
Furthermore, a large increase in European funding cannot be counted on. On the one hand, ailing economies and budget pressures will weigh on efforts to expand NATO spending. A quarter of NATO members are already failing to meet the 2 percent target. Poland is the country that spends the most, with 4 percent, and aim 4.7 percent in 2025 also has one of the smallest denominators; Economic output is about half that of Spain, which contributes just 1.3 percent of GDP according to NATO estimates for 2024.
The United Kingdom ranks high, promising 2.5 percent next year, but that figure continues to fall. very short of its own internal projections that call for spending of 3.6 percent, more than half of current spending.
The will to increase spending and modernize military capabilities is strong; achieving the objectives will be more difficult.