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Europe’s Defense Spending Sluggish Despite Ukraine War

Slow growth isn’t compensating for post-Cold War divestments, analysts say.

LONDON—Even as a war rages on the European continent, European defense spending is stuck slightly above neutral, with an overlapping set of political and industrial problems blocking any quick increases in capabilities and styming supplies to Ukraine. 

European defense spending rose at a rate of four percent in the last ten years and may grow more than six percent annually in the next five years, according to market research by management advisory firm McKinsey. The report does not specify whether the numbers were adjusted for inflation.

However, those rates mean that it will still be years before many NATO countries meet the alliance’s guideline that members should spend at least two percent of gross domestic product on defense. 

European nations are also playing catch-up to decades of flagging investment since the Cold War’s end. 

According to the McKinsey report, a Europe that had maintained its Cold War budgets would have spent an extra $8.6 trillion on defense from 1992 to 2022. One marker of this gap is the 80 percent drop in European armies’ fleets of main battle tanks over those years. 

Falling spending isn’t the only problem. More than sixty percent of European weapons are only operated in one country, according to the McKinsey report. That can make such systems harder and more expensive to maintain and even keep in ammunition. 

Still, some European nations are spending more these days. Poland, at the head of the pack, is raising its defense budget to four percent of gross domestic product. The European Union, spurred by Estonia, has launched a novel joint procurement scheme to spend two billion euros to boost 155mm shell production for Ukraine. 

Others, at least rhetorically, say they want to spend more money on defense. Italy has voted to increase defense spending to two percent of gross domestic product, while Germany announced a 100 billion euro fund for defense purchases in 2022. 

But many such proclamations fail to bear fruit.

“It’s one thing for a political statement to be made about increasing funding,” said Christian Rodriguez, partner at McKinsey. “It’s another thing for that funding to be appropriated and brought to industry.” 

The lack of clear signals from governments, meanwhile, creates problems for ramping up the production lines necessary for supplying munitions to Ukraine, where everything from shells to tanks are used in volumes not seen in Europe since World War II. 

Governments think industry should pay for increases in industrial capacity themselves, said David Chinn, a McKinsey senior partner. Industry, however, wants the certainty of a multi-year contract before spending billions of dollars to overhaul production facilities. From arms manufacturers’ perspective, Chinn said, “The world has changed in the last 18 months; who’s to say how quickly it may change again?” 

Rodriguez said the long-term drop in defense spending may create some barriers that even money can’t immediately overcome. Complex defense systems often require highly skilled laborers who take years of training to become proficient. 

“There are some areas where automation and digital manufacturing can help and offset some of that, but you’re going to need to build the talent base,” he said. 

Expensive European-produced systems are also part of the problem. Cost considerations have pushed European countries to turn to cheaper weapons from Israel or South Korea, including Poland’s purchase of hundreds of South Korean tanks and self-propelled howitzers. 

Western defense industrial producers are receiving the message about the government’s increased desire for cheaper solutions, at least in part. 

With an eye on the losses entailed in any war against a well-armed adversary like China or Russia, BAE is designing its STRIX drone to be “attritable,” or cheap enough that the loss of a single drone isn’t a major problem, said John Shipp of BAE Australia. 

The drone is intended to serve as a spotter for the United States’ long-range Precision Strike Missile missile. The company is hoping to offer the drone for around one tenth the price of a manned equivalent, such as a helicopter. 

The Next Generation Adaptable Ammunition, also from BAE, likewise seeks to cut costs, said Steve Cardew, the company’s business development director for munitions. Cardew said the new 155mm round will be 50 to 75 percent cheaper than current 155mm rounds, thanks to a range of manufacturing changes, including how its propellant is mixed. 

The rounds, which Russia produces an equivalent of for as little as $600, can cost as much as $6,000 to produce currently, Permanent Secretary of the Estonian Defense Ministry Kusti Salm previously told Defense One

With governments moving cautiously on defense spending, though, such advancements are hardly likely to come in time to alleviate the immediate shell shortages caused by the war in Ukraine. BAE’s new round won’t have initial production capability for the round until 2025.  

“On the first day of the Battle of Verdun, in 1916, one million shells were fired,” said Guillaume de Ranieri, senior partner at McKinsey. “I think capability exists. The question is how fast do you rebuild it.” 

Source : Defense One