The EU defence market could face a supply crisis if member states do not align their defence spending and procurement plans, according to Draghi’s report on competitiveness.
Europe’s defence industry faces structural weaknesses in innovation, governance, international dependency and public spending, former Italian prime minister Mario Draghi said in his report on EU competitiveness.
“Member states do not systematically exploit the benefits of coordination at EU level, standardisation and interoperability, joint procurement, acquisition and maintenance, or pooling and sharing of resources,” reads according to the report, published on Monday (9 September).
The result? Uncoordinated, inadequate and inefficient defence spending compared to other global players such as the US, which spends almost three times as much as the bloc.
Over the past decade, member states have reversed the trend of underinvestment in the defence industry that followed the Second World War – with most EU countries committing to spend at least 2% of their GDP on military spending.
But despite national budget increases, defence spending is still ‘insufficient’ given the existing geopolitical environment, Draghi noted, claiming Europe is trying to build up its defence capabilities and provide military support to Ukraine with an internal (mainly export-oriented) industry that is not prepared for such an increase in demand.
The EU Commission estimates that Europe’s defence industry needs an additional €500 billion over the next decade to remain competitive and meet current demand, and Draghi warned of the potential negative consequences of not working together in the coming years.
“Increased internal demand without reinforcing coordination may aggravate supply bottlenecks in the European defence market,” Draghi’s report said.
Europe’s defence industry is currently highly fragmented. The market is dominated by major players from five member states (France, Germany, Italy, Spain and Sweden) and more than 2500 SMEs – often leading to overlap and duplication.
“Integrating the European defence industry, moving away from national preferences, purely small national markets, towards a more integrated market in Europe is absolutely fundamental,” Guntram Wolff, senior fellow at the Brussels-based think tank Bruegel, told Euronews in an interview.
In 2022, joint procurement accounted for just 18% of defence spending – despite EU countries committing to a 35% benchmark to the European Defence Agency.
“We have to stop being competitive between member states … we have to make sure that we also join forces in terms of the good brains, the good production capabilities on the ground and all that, to make sure that we produce state-of-the-art stuff in the European Union,” MEP Hannah Neumann (Germany/Greens) told Euronews.
But the bloc’s investment in defence research and development lags far behind its competitors, with just €9.5 billion in 2022 compared to the US budget of $140 billion in 2023 – and Europe needs new ways to fund all future challenges.
“The big question is, is there a need for safe common assets? The answer is yes. There is a need for common funding. One needs to issue common assets,” Draghi said at a press conference on Monday.
The key to reverse the international dependence lies on capitals
The former Italian prime minister proposes increasing and improving access to public and private funding, tackling international dependencies and improving coordination between member states to scale up production.
“We do not buy enough weapons. And what we do buy, we buy at way too high prices. So there is a real need to move towards a European, more integrated defence market,” Wolff added.
ADVERTISEMENTThe ‘Buy European’ principle also has an economic security aspect, as between February 2022 and mid-2023, purchases from outside Europe accounted for 75% of publicly announced new orders in the EU.
“Either we finally understand that we are strong together, or we will continue to buy a lot of equipment from the US, which I don’t think any policymaker, no matter which political group you belong to, can see as a political goal,” Neumann concluded.
On the other hand, the defence industry is looking for clarity on procurement from national authorities, a less complex regulatory framework and a solid long-term plan.
“The key to reversing the persistent dominance of non-European suppliers in Europe lies in the capitals,” according to a report published on Monday by the AeroSpace and Defence Industries Association of Europe (ASD), noting that while the EU can provide incentives, defence procurement decisions are the exclusive prerogative of national governments.
ADVERTISEMENT