The Russian invasion of Ukraine is unleashing a new era of
military spending across Europe, member countries of the North
Atlantic Treaty Organization like Germany are now increasing
their defense budgets. national polls
right now are showing pretty big majorities in favor of exports
to Ukraine and in favor of the announced defense funding,
the US remains the top spender in NATO with the defense budget
that accounts for about three and a half percent of US GDP,
the median amount spent by the 30 NATO member countries was at
1.6% of GDP in 2021. That number could be changing.
Whenever there's a military crisis involving Europe, you're
gonna see military spending increase.
I mean, we were arguing three or so weeks ago about whether the
Nord Stream two pipeline would be canceled. And that sort of
seems like ancient history at this point.
Now, NATO countries face the prospect of upgrading old
weapons developing and fielding new weapons and replacing
weapons given to Ukraine and the US the top military spender in
the NATO alliance by far is looking at increasing its own
budget while selling high tech arms to friendly nations. In its
2022 fiscal year, the US set aside $770 billion for defense
spending. Now the Biden administration is requesting
$813 billion for fiscal year 2023. NATO spending has been
trending upwards since 2014, but the changing world order could
supercharged defense budgets.
Defense spending in Europe began to decline after the end of the
Cold War in the early 90s. In 1991, NATO member States spent
an average of $300 billion annually by 1997. The average
military spending across NATO fell to $250 billion. Think
tanks began calling this the peace dividend countries had
more room in their budget for non defense items, NATO
countries began to invest money in education, infrastructure and
health care. Instead of spending it on defense. The NATO alliance
was created to counter the Soviet Union and Warsaw Pact a
collection of Soviet satellite states such as East Germany
decades later, after the fall of the Soviet Union, the Russian
Federation rose from the ashes inheriting the USSR as nuclear
weapons and large conventional military throughout the 1990s.
Russia descended into economic distress and the military was
generally underfunded and neglected after Vladimir Putin
rose to power in 2000. Russia attempted to modernize its Cold
War era military without the former Soviet Union as a common
rival Western politicians began to question the effectiveness of
NATO during the latter part of the 2000s. In the late 2000s.
Russia began to involve itself militarily against neighboring
countries while also undertaking a modernization program for its
armed forces.
There's long been bipartisan frustration with Europe on
defense spending, and I think that's why in 2014, it was the
Obama administration that push for the 2%
pledge. The so called 2% pledge came during a NATO summit in
2014. NATO countries said they would commit to spending 2% or
more of their GDP on their militaries, it became an easy
way for the Obama administration to rally for more military
spending across Europe. As it shifted focus to Asia, President
Trump took his own stance on NATO and railed against the
Alliance during his administration for not meeting
defense spending goals. NATO aims for a 20% share of defence
expenditure to be on equipment. Since Russia annex Crimea
spending has trended higher. For example, since 2014, Bulgaria
has increased equipment as a percent of spending by more than
20 percentage points, Poland's increased by six percentage
points and Italy's spending on military equipment as a share of
its total defense spending jumped from just more than 10
percentage points to 28.9%. The crisis
has also demonstrated is demonstrating again, Europe's
almost total dependence on us deterrence capabilities, US
intelligence, yes, political leadership, and that's a
dependence that grows potentially more problematic as
the US elections draw nearer, right. And I think that
policymakers in Berlin but also in lots of other European
capitals, should be really worried thinking about what the
European response would have been, what it looked like, had
there been a different president in in the White House.
Others have argued that having European nations beholden to US
security assistance actually helps Washington and other
policy arenas.
We have long oppose the European Union being involved in defense,
and largely for sort of bizarre bureaucratic reasons. We just
don't really want it to sort of get NATO's way. But I think we
need to sort of understand that the EU is a growing political
actor when we see it, respond on sanctions. Using its economic
power, the collective economic power of Europe is given
tremendous amount of
influence there. The Russian invasion of Ukraine has changed
the conversation on defense spending across European
capitals in a big way.
German Chancellor Schultz is established 100 billion euro
Defense Fund and committed Germany to moving to the 2% of
GDP standard for defense spending. This was unthinkable a
month ago. And so I think there really has been a significant
move in other countries as well. Poland has said that it's going
to go from two and a half percent to 3% of GDP. So you
know, the basics of international politics. When the
world starts to look more dangerous, you would assume that
countries get more serious about defense spending, and by and
large, that's what we've seen from Europe so far.
If defense spending rises in Europe, it could benefit a wide
array of defense contractors. The US has a large volume of
companies that do business with European militaries. But there
is competition in Europe, it has
long been a challenge for European governments to decide
what they prefer, do they want to fill capability gaps fast to
off the shelf purchases from the US, but at the cost of
developing the European defence industry order, they want to
invest as much as possible into European capability projects,
joint projects partners, to strengthen the European defense
industrial base. But you know, that often comes with delays.
Long development times higher costs,
the US is a major supplier of big, expensive, complicated
military products like fighter jets and missile defense
systems. But some NATO countries have their own homegrown defense
industries. Take France, for example, its home to Dassault,
Airbus and NexStar. The situation in Ukraine could spur
the European defense industry to expand and increase cooperation
on big projects like the Airbus A 400 M, or the euro fighter
which were created with funding from several different
countries.
I think what we really need to do in the months and years to
come is a very honest analysis of what are the critical
capabilities that we want to keep in Europe that we want to
keep nationally? And what are the capability gaps that we are
going to need to fill very urgently. And then rather than
making these decisions based on some sort of ideology, make them
based on you know, long term planning on what types of
industrial capabilities we want to preserve where
we like having the defense industrial base for economic
reasons, the same reason that they like having it for economic
reasons, and I think that it is a trade off, right? It's if
you're going to have a more autonomous European defense
capability, they're going to demand and in some sense need an
indigenous defense industrial base on which they can draw both
for political purposes and for strategic purposes.
Germany has signed a deal to buy F 35 Lightning two fighters and
several NATO allied countries are looking to upgrade from
Soviet era equipment like MiG-29s and Russian produced
surface to air missile systems to us made armaments.
What we have seen is that NATO has clearly taken a leadership
role in this crisis, right? In a way this is what the alliance
would was made for
how the US response in the coming months could shape how
the European response to the war in Ukraine plays out.
It's the crucial moment for the United States to take all of its
long standing complaints about European fecklessness and
attention to security and to allow them to build up a
capacity that could allow the United States to create some
distance between itself and European security safely without
risk to American interests in
Europe, Europeans look at this crisis. And were be really
concerned if Donald Trump was in office, someone who's a NATO
skeptic. And so I think there's a sense in Europe that they need
to be able to take care of themselves if America is
unreliable.