WIREDGOV

EU financing of defence procurement is sensible. But excluding non-EU European industry risks delays and reliance on bond markets limits long-term, strategic security.

Europe’s intelligence chiefs warn following the conclusion of the war in Ukraine, Russia may make limited strikes against eastern European members, below the threshold for nuclear escalation, to test NATO’s response.

Deterring Russia from doing so will be difficult. Its economy is now focused on war. Per year, Russia outproduced the total arsenal of Main Battle Tanks (MBTs) of the largest four European MBT fleets, claiming over 1500 fielded tanks. This number may include refurbished models from Soviet-era stockpiles of an inferior quality to modern alternatives, but it illustrates how quickly Russia will be able to use this wartime economy to rebuild stockpiles and equipment once the Russo-Ukrainian war comes to a halt. A ceasefire will only stop material attrition and allow men to be redeployed from the front line to assembly lines.

Europe, on the other hand, has struggled to increase its defence production during the first years of the war. It depends heavily – militarily and industrially – on the US for key capabilities, such as strategic airlift, aerial refuelling, communication systems, space-based C4ISR and communication infrastructure. 78% of procurement spending in Europe was spent on non-European products between 2022 and 2023. Of those capabilities that Europe can provide itself, it has too few and can produce more at too low a rate. Valuable synergies and scaling effects are still lost because of a too great a diversity in platforms. To deter Russian aggression, Europe will need to establish its stockpiles will last long enough to stop an attack and it has the industrial capacity to supply its forces in a protracted war transatlantic allies may tire to support.

Credit Figure 1: Under the March 2025 market, the EU accessed capital at lower costs than 24 of its 27 members.

Building and maintaining such an industrial capacity is expensive. A recent report by the International Institute for Strategic Studies (IISS), a think tank, has found that it would cost $1 trillion to replace capabilities the US is currently providing to Europe. But European nations are already under fiscal pressure because of increasing borrowing costs, and cost factors such as demographic aging and climate change will continue to put pressure on public finances.

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