Ukraine is in desperate need of weapons. But so is Europe. Unless the European Union ramps up military spending in a big way, Ukraine will have to keep rationing ammunition, making it unable to repel intensive Russian attacks. The EU, whose own arsenals have been depleted by decades of piddling investments, will be vulnerable to Russian aggression, too, as well as to Donald Trump’s threat to downgrade – or even eliminate – America’s presence in NATO were he to become president.
While almost everyone in the EU agrees that weapons ranging from the fairly simple (artillery shells and armoured personnel carriers) to the razzle-dazzle (electronic warfare systems and long-range naval drones) need to be produced like so many loaves of bread, there is zero consensus on how it should be done. How do 27 countries, 23 of which are NATO members, get their act together to create a plentiful and efficient weapons market?
All sorts of schemes are being tossed around. The potentially dangerous or futile ones are those being floated by the European Commission (EC), the executive arm of the EU. Topping the EC’s proposed agenda is common funding, possibly through jointly backed defence bonds, whose fortunes would subsidize weapons production and research and development or act as guarantors for production quotas.
Doing so would make the EC a player in a potentially enormous market. Call it a power grab, central-planning style.
Thierry Breton, the EU’s industry commissioner, said this month that he wants to see a shift to “war economy mode,” as if Russian President Vladimir Putin were poised to snatch the Baltic states and drag them into a neo-Russian empire. Mr. Breton recently proposed issuing €100-billion in joint debt to pay for defence investments.
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Estonia, which believes Russia is gearing up for war with EU countries within the next decade, has endorsed the idea. France wants to take the concept one step further, offering wholesale support for the EU defence industry, to the point that it would block purchases of most weapons from non-EU countries.
All this is meddling writ large, with the potential for mission creep. If the gnomes of Brussels want to control the weapons market, why not health care and education too? At some point, a supranational government will emerge with much more power than today’s European Parliament, whose existence barely registers with the average European voter.
There is a simpler, more effective way: Increase national military spending to 2 per cent of GDP – the commitment level agreed to by NATO countries in 2006 – place orders with defence contractors and let the market work its magic. Greed will take over, and the contractors, facing fresh demand for everything from hand grenades to helicopters, will invest in capacity and pump the products out the door.
Defence spending has soared since Russia launched its full-scale invasion of Ukraine 25 months ago. EC president Ursula von der Leyen last month said the combined military budgets of the EU countries should rise to €350-billion this year, up by almost two-thirds over 2021. NATO said 18 member states are expected to reach the 2-per-cent level this year, up from only three in 2014 (Canada is nowhere near that level, at less than 1.4 per cent in 2023).
Defence companies everywhere are responding, and the share prices of some of the biggies are on fire. Italian aerospace and electronics company Leonardo is up more than 90 per cent in the past 12 months; Germany’s Rheinmetall, maker of the Leopard 2 tanks being donated to Ukraine, is up 66 per cent.
To be sure, Brussels could make a difference in some areas. It could encourage company mergers to boost efficiencies and avoid needless duplication. The United States has one type of main battle tank, the General Dynamics MIA2 Abrams; the EU has 14. The U.S. has 30 main types of weapons systems; the EU has more than 150. A 2023 European Parliament study said that avoiding needless duplication could save the EU almost €25-billion a year – €75-billion if its members pooled research and development and other expenses. Joint research has begun but needs to go a lot further.
Central planning of any market has a history of dubious results. The billions of euros in EC-approved subsidies for electric-vehicle battery production come to mind. Despite the lavish, taxpayer-funded spending on various battery plants, China still owns the battery space and is now flooding global markets with inexpensive EVs. The weapons market could suffer the same fate. Tonnes of defence money is gushing into the system. The market will figure out how to deploy it.
Eric Reguly