Money Can(’t) Buy You Force

The announced increases in EU member states’ defense budgets, if realized, would put an end to decades of underinvestment. Continuous budget cuts, starting with the cashing in of the peace dividend after the Cold War and exacerbated by austerity policies and uncoordinated cuts in the aftermath of the 2008 financial crisis, have resulted in a major and lasting depreciation of EU member states’ armed forces.^[1] This has led to a relative loss of the EU’s combined military strength. While the US, Russia, and China increased their defense budgets by 65.7 percent, 292 percent, and 592 percent respectively between 1999 and 2021, combined EU defense spending only increased by 19.7 percent.^[2]

The trend of decreasing military budgets was reversed after Russia’s 2014 annexation of Crimea, which led several EU member states to increase their defense spending for the first time in years. Since 2015, EU member states’ collective defense expenditure has steadily increased, with 2021 marking the seventh consecutive year of real growth.^[3] Nevertheless, European defense has remained underfunded, perpetuating Europe’s dependence on the US.^[4] According to the NATO Secretary General’s Annual Report 2022, only five countries that are members of both the EU and NATO met the goal of spending two percent of GDP on defense in 2022: Greece, Lithuania, Poland, Estonia, and Latvia.^[5]

20 EU member states have promised increases in defense spending since Russia’s invaded Ukraine in February 2022, which on paper are far more significant than those implemented after 2014 (Figure 2.2). In his famous Zeitenwende speech, delivered three days after the start of Russia’s war on Ukraine, German Chancellor Olaf Scholz announced the establishment of a 100 billion euro special fund (Sondervermögen) and pledged that Germany would spend two percent of its GDP on defense “from now on.”^[6] In January 2023, French President Emmanuel Macron declared his country would reach NATO’s two percent goal by 2025 and that its military spending would increase by a third by 2030.^[7] Some days later, Polish Prime Minister Mateusz Morawiecki made the commitment that his country would spend 4 percent of its GDP on defense in 2023.^[8] In terms of the share of GDP spent on defense, Warsaw would then even be ahead of Washington.^[9] Unsurprisingly, Russia’s war has also led the Baltic states to significantly increase their defense spending. Estonia, Latvia, and Lithuania have all pledged to increase their defense spending to 2.5 percent of their respective GDPs.^[10] If EU member states met these spending pledges, their combined annual defense expenditure would increase by 61 percent by 2028, or 400 billion euros in real terms (Figure 2.1). EU member states would then on average spend 1.8 percent of GDP on defense by 2028.

If translated into increased military capabilities, these investments will also contribute to more equal burden-sharing between the US and European NATO allies. A comparison between EU and US forecasts shows that the transatlantic spending gap could shrink from 2.4 percentage points in 2020 to 1.3 percentage points by 2028 (Figure 2.3).^[11] This may partly defuse bipartisan criticism in the US that Europe does not pull its weight in providing for its own security. Greater burden-sharing would also better prepare Europe for a scenario in which the US limits its engagement in Europe’s security.^[12] In light of the intensifying rivalry between the US and China, as well as the possibility of yet another US president coming into office who openly questions the relevance of the transatlantic alliance, this is a plausible scenario.^[13] However, even these new spending commitments are not enough for the EU to collectively meet NATO’s spending two percent goal – which could even be reconceptualized as a floor, not a ceiling, at NATO’s July summit in Vilnius. Europeans cannot be complacent and need to further increase their defense spending.

Despite these challenges, it is imperative that EU member states meet and up their defense spending pledges to face the current deteriorating security environment. After largely neglecting their promises made at the 2014 Wales summit, European NATO allies cannot afford to kick the can down the road any further. Part of the additional funding will have to be used to make up for years of underspending and to close the capability gaps that have arisen in European militaries since the 1990s. These long-standing gaps include air-to-air refueling and long-distance air lift.^[26] European inventories have additionally suffered large reductions across several equipment categories of the EU member states’ air, maritime, and land forces. For example, the number of main battle tanks decreased by 80 percent between 1992 and 2021, while the number of 152mm/155mm artillery and multiple launch rocket systems fell by 64 percent and 48 percent respectively (Figure 2.4).

The military assistance provided to Ukraine since the onset of the war has exacerbated these pre-existing capability gaps and accelerated the reduction of inventory levels. EU member states have sent significant quantities of military hardware to Ukraine, including various types of main battle tanks, armored vehicles, fighter jets, artillery systems, and air-defense systems.^[27] Between November 2022 and February 2023 alone, Poland, Spain, and the Netherlands, for instance, delivered a total of 46 main battle tanks to Ukraine.^[28] In the same period, EU member states sent 39 152/155 howitzers and two multiple launch rocket systems to Ukraine.^[29] These donations further reduced the countries’ land equipment holdings throughout the EU. From November 2021 until February 2023, the stocks of 152mm/155mm artillery of the Netherlands, Poland, and Spain, for instance, reduced by 19.6, 12, and 10 percent respectively. In the same period, Poland’s inventory of main battle tanks saw a 20.6 percent decrease.^[30] EU member states thus have to replenish and expand depleted stocks urgently to ensure that this support can be sustained in the future.

Faced with widening, long-standing gaps and short-term needs, EU member states need to prioritize which capability gaps to fill. To do so, the EU heads of state or government tasked the European Commission and European Defence Agency (EDA) at the Versailles Summit in March 2022 to produce an analysis of defense investment gaps. The analysis, presented in May 2022, assessed the state of the EU’s armed forces and issued recommendations on how to fill the most pressing gaps. The short-term priorities include, for instance, replenishing stockpiles, replacing Soviet-made equipment with more modern European solutions, and strengthening EU states’ multilayer air and missile defense systems.^[31]

Russia’s war on Ukraine has not only widened Europe’s long-standing capability gaps but also created new ones. For instance, it has demonstrated the relevance of several types of drones, ranging from larger ones armed with guided missiles to small commercial ones used for Intelligence, Surveillance, and Reconnaissance (ISR) purposes. At present, they still play a comparatively small role in the EU member states’ armed forces.^[32] However, as the war in Ukraine shows, their role in the future of warfare will only increase (Chapter 3).

Finally, Russia’s invasion of Ukraine has also underlined Europe’s continued dependence on the US. Past events, such as the chaotic evacuation of US and European citizens from Afghanistan in August 2021, reconfirmed Europe’s reliance on US high-end capabilities. These include air-to-air refueling and long-distance air lift as well as suppression of enemy air defenses and C4ISR (command, control, communications, computers, and ISR).^[33] Recent analyses of the capacity of EU member states in the face of an actual war have shown how ill-prepared Europe still is. Germany would, for instance, only have munitions for two days of fighting.^[34] Ramping up the production of ammunition, however, appears to be a difficult task at present, as NATO Secretary General Jens Stoltenberg warned in February 2023: “The waiting time for large-scale ammunition has increased from 12 to 28 months. Orders placed today would only be delivered two-and-a-half years later.”^[35] Greater efforts to close long-standing and new gaps are therefore essential to ensure better transatlantic burden-sharing and mitigate the risks that come with Europe’s security reliance on the US.

The fragmented EDTIB is, however, a central impediment to closing long-standing and new capability gaps.^[36] Unlike in other areas of the economy, there is no European  single market for defense but rather 27 national markets with high entry barriers for outside competition. As a result, European defense companies tend to produce small volumes of the same type of arms, which is not only inefficient but also hampers interoperability.^[37]  

This fragmentation has led EU member states to use a much greater variety of different types of weapon systems than the US. The MSC’s 2017 European Defense Report, a research project with McKinsey and the Hertie School’s Centre for International Security Policy, showed that, in 2016, European member states used 178 different major weapon systems, whereas the US military only used 30.^[38] For example, EU member states used a significantly wider range of different types of main battle tanks (17 versus 1), destroyers/frigates (29 versus 4), and fighter planes (20 versus 6) than the US. The situation has hardly improved since then. This fragmentation is worsened by the proliferation of national requirements and standards. These have often resulted in the production of multiple variants of certain military equipment. A case in point is the NH90 helicopter, which exists in over 20 different configurations.^[39] This customization creep also obstructs collaborative development and procurement efforts among EU member states, making them more complex and costly.

Data from the 2022 Defense Gaps Analysis by the European Commission and EDA shows that, between 2007 and 2016, EU member states spent more than 60 percent of their defense procurement budgets on such imports, causing further underinvestment in the EDTIB.^[40] Under pressure to replace weapon systems donated to Ukraine and to rearm as fast as possible, European member states have recently aggravated the fragmentation of the EDTIB by opting for available off-the-shelf procurement options rather than investing in European weapon systems that would decrease fragmentation but take longer to procure.^[41] Such off-the-shelf options often include hardware produced in non-EU countries.

A case in point is Germany: Since February 2022, it has ordered US-made F-35 fighter jets and Chinook heavy-lift helicopters and the Israeli-made Arrow-3 air-defense systems.^[42] The European Sky Shield Initiative, presented by Germany as a joint European project to develop a layered air-defense capability for Europe, envisions the procurement of German, US, and Israeli air-defense systems. Yet, it has been criticized by France for its reliance on non-European systems.^[43] Poland, in turn, has invested in a range of non-European weapon systems, including K2 Black Panther main battle tanks, K239 Chunmoo multiple rocket launchers, and FA-50 fighter jets from South Korea.^[44] In addition, it has ordered M1 Abrams main battle tanks and HIMARS multiple rocket launchers from the US.^[45] Some of these systems were not used in Europe until Poland acquired them and thus add to the fragmentation of Europe’s defense landscape.^[46] This procurement decision was primarily motivated by the acute threat Russia poses to Poland, leading Warsaw to prefer the early availability of off-the-shelf systems over the interoperability advantages of European systems that would take longer to procure. In addition, the recent Polish-German disagreements about the donation of Poland’s German-made heavy weaponry to Ukraine may have also played into the country’s decision to look for arms suppliers elsewhere.^[47]

Since Ukraine has received military support from many European partners, and these partners use a wide variety of different systems, the EU has essentially exported its fragmentation.^[49] In this regard, the Ukrainian Defense Minister Oleksii Reznikov described the combination of different weapon systems in Ukraine’s army as a “military zoo.”^[50] Ukraine has, for example, received five different types of main battle tanks from EU partners, including variations of the Leopard 2 and 1 as well as a variety of different Soviet-era tanks.^[51] This poses a great logistical challenge to Ukraine in terms of training and in navigating the complex logistics of maintaining and repairing a huge variety of weapon systems that all require their own types of spare parts while defending itself against Russia’s aggression.

The increases in defense spending by numerous EU member states after decades of underinvestment is good news – if Europeans keep and further raise their pledges. With more financial resources, they have the chance to fill capability gaps and shortfalls in their military inventories and invest in the European defense technological and industrial base. The question now is how exactly these resources should be used. EU member states are facing various dilemmas, such as whether to focus on filling long-standing capability gaps or investing in new technologies that have proven effective in the war in Ukraine. Another dilemma facing EU member states is whether to invest in more European defense cooperation or prioritize a swift rebuilding of military capabilities by opting for the earliest-available off-the-shelf procurement option, even if this is not a European system. EU member states will now have to address the questions of what to prioritize in procurement, and how to procure better together.