Europe May Need $720 Billion in Defense Funds, Analysts Say
(Bloomberg) -- Key European countries may need to double defense spending to meet the challenge of Russia’s aggression in Ukraine as well as the possibility of less American support in a Donald Trump presidency, according to a Bloomberg Intelligence report.
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The 15 largest European members of the North Atlantic Treaty Organization might have to ramp up military investment by as much as $340 billion annually to $720 billion, BI analysts led by George Ferguson wrote.
During his campaign, Trump said he would dial back US security relationships with Europe and during a NATO summit in his first term, Trump threatened to leave the military alliance if allies didn’t boost spending.
“Russian aggression has already spurred increased defense spending in Europe,” Ferguson wrote. “However, more may be required to support Ukraine, counter Moscow’s broadly aggressive regional posture and address deepening strategic competition with China.”
The report comes after former European Central Bank President Mario Draghi warned of a “slow agony” in the European Union if member states failed to act quickly to boost the region’s productivity with additional investments. He said that Europe would need to expand its industrial capacity in defense to ensure the region’s fundamental values didn’t disappear.
Europe urgently needs battle tanks, artillery pieces and infantry fighting vehicles for its ground forces as well as support aircraft such as tankers, cargo and sub-hunters, according to the report.
Companies likely to benefit from increased spending include Leonardo SpA, Airbus SE, BAE Systems Plc and Rolls Royce Holdings Plc, the analysts wrote.
After decades of underinvestment since the end of the Cold War, rearmament on this scale might take the continent more than 10 years, with contractors’ backlogs swelling, and aerospace and defense supply chains already stretched.
But the region’s smaller defense industrial base probably won’t be able to supply all that’s needed in the near to medium term.
Some signs of intensifying industrial activity are starting to show: In 2023, the European defense sector’s turnover grew by 17% from the previous year to €158.8 billion, according to a report published Tuesday by the Aerospace, Security and Defense Industries Association of Europe.
According to the ASD, this jump can be explained by the sector starting from a low level after decades of underinvestment and being jolted back to life by Europe’s efforts to boost its security since the start of the war in Ukraine. Employment in the sector has also grown by 9% to 581,000 jobs.
However, the trade association identified several challenges that are likely to persist, including supply-chain bottlenecks and shortages of critical raw materials and electronic components, as well as high energy costs, a tight labor market and trade restrictions due to sanctions on Russia.
The ASD pointed out that a significant amount of Europe defense procurement flows to foreign suppliers, notably the US.
“If we can’t get our act together now, I don’t know what we need to do to step up,” Micael Johansson, the vice chairman of ASD’s board and CEO of Saab AB, said, calling on Europe to “do more like during the pandemic.”
(Updates with additional defense report in final five paragraphs)
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