Experts, officials and diplomats struggle to pinpoint the cost of EU defence reform as both industry and national governments seek clarity ahead of fraught budget negotiations in the coming months.
With Lithuanian Andrius Kubilius as the first-ever European commissioner for defence being tasked with increasing cross-border cooperation in production and enabling long-term procurement, a series of funding measures have been floated to support the endeavour.
The proposed €1.5 billion budget for the 2025-2027 EU defence industrial programme (EDIP), aiming to make the Union’s military-industrial complex “war-ready”, is not enough, Kubilius said.
Putting a total price on the ramp-up of the defence industry is a highly complicated task, however. Commission President Ursula von der Leyen estimated this summer €500 billion was necessary for the next decade. Earlier in the year, former Internal Market Commissioner Thierry Breton put the figure at €100 billion.
Neither officials nor industry are convinced that either figure is a base from which meaningful work can begin.
Months after the Commission made the €500 billion figure public, “we still do not know where that number comes from,” one EU diplomat told Euractiv, reflecting a general sentiment.
“These figures are very emblematic,” one member of the defence industry said, while another industry representative with deep knowledge of EU defence policy agreed that “it is a round number, it sounds good.
It is also unclear if this money should be earmarked for the procurement of modernised equipment for the member states’ armed forces, for research and development of European projects, to scale up production, or if it includes direct support for Ukraine’s own companies.
For liberal MEP Nathalie Loiseau, €500 billion “should be the number that we should have in mind, just considering how we were outpaced by the US, by China and how we need to be present both in disruptive technologies but also conventional weapons.”
A number of voices, especially in the Baltics, have argued for European NATO members to at least meet the non-binding target of spending 2% of GDP on defence – ideally going beyond that – to close an annual funding gap that stands at €56 billion. By comparison, Europeans allocated around 3.5% of their GDP to defence spending during the Cold War.
Even though the target is non-binding in the NATO forum, “the European Union has its own mechanisms to enforce” binding commitments, centre-right MEP Riho Terras told Euractiv.
Doing the maths
Clarity on the total costs is becoming all the more urgent since several member states, especially the most frugal, have refused to closely explore funding options without a clear assessment of how much cash is needed and for what purpose.
The vagueness of the Commission’s estimates to date is a product of the many variables still unsolved in the overall funding equation.
Manufacturing costs wildly differ between tanks, air defence systems, ammunition rounds or soldiers’ boots. The volume of potential orders also impacts how many new production lines or factories companies will need to open, which in turn impacts investment in machines, staff, training, protection gear, and more.
The number of countries and sectors willing to collaborate on projects will determine how far the EU will have to pitch in on administrative costs.
Complex as this is, Burkard Schmitt, defence director of the Aerospace, Security and Defence Industries Association (ASD), thinks there is an obvious starting point.
“The first question is not for industry; it is a question to member states’ armed forces. What do they need, and by when?” Schmitt replied when asked how much money the industry needed. As a start, he proposed to think about “taking stock of what is needed for every member state to meet the NATO targets, and then calculating the investment needs.”
NATO targets are confidential, as is whether each of the 32 members of the military alliance meets them.
From there, Schmitt proposes a follow-up question. “What would it take to be prepared for a large-scale war? It’s one thing to have all your combat units fully equipped, but if you want true readiness, you must be able in case of war to repair and replace all that equipment, as well, and this in the shortest time possible,” Schmitt said.
Even with full books following a surge in demand linked to the Ukraine war, many of the largest defence companies have argued that political commitments on increased spending were short-term in nature and did not warrant investment into new production lines.
The Kiel Institute paints a gloomy picture of any near future re-armament, citing Germany’s attempt to modernise its armed forces. “Given Germany’s massive disarmament in the last decades and the current procurement speed, for some key weapon systems, Germany will not attain 2004 levels of armament for about 100 years,” their study reads.
The advantage of EU funds
For the industry representatives Euractiv talked to, it is obvious that EU funds or Europe-wide funding solutions will not scale up production overnight nor break down all barriers to cross-border cooperation.
But “a little bit is already better than nothing,” one industry representative benefiting from the EU’s Defence Research and Development Fund (EDF) said. Other representatives of companies involved in EU defence schemes echoed this point.
Even at a modest €500 million, the Commission’s plan to scale up ammunition production (ASAP) attracted several companies interested in support for the cost of their collaboration with other EU countries.
According to Breton, ammunition production in Europe will have increased to a minimum of 2 million rounds produced a year in 2025, a success he partially attributed to ASAP.
The European defence industry as a whole “has increased its industrial capacity by 50% since the start of the war,” the EU’s top diplomat Josep Borrell said in March.
Similarly, EU funds have had a positive impact on cross-border research and development, several large-scale companies said in a report on the EDF read by Euractiv. Nonetheless, they highlighted that an extra €76 million in annual spending was needed to reach agreed targets on investment in defence equipment.
Kubilius, within his first 100 days as defence commissioner, will have to present a white paper on the future of European defence.
Coming after reports from Enrico Letta and Mario Draghi on the internal market and competitiveness, and with a third due from Sauli Niinisto on the state of EU military and civilian preparedness, Kubilius’s paper is expected to provide a more concrete view of where member states, and their militaries, see gaps to be filled.
Additional reporting by Giada Santana.
[Edited by Owen Morgan]
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Publish date : 2024-09-25 22:12:00
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