Europe has to solve its defence problem. Now.
European leaders speak as if they are aware of this new reality. But their actions fall far short of what is needed.
Let’s face it, the task at hand is daunting and requires a level of solidarity that the European Union is ill-equipped to achieve. Definitive agreements largely leave defense and financial matters to individual member states, greatly complicating efforts to rapidly rearmament.
Each of the major European nations has its own military industries: France mostly buys the French, Germany buys the Germans. The result is a costly proliferation of unsuitable weapons systems that are not produced at scale. While Europe produces 50 main battle tanks per year, Russia produces more than 1,500. A new German Leopard 2A8 costs an estimated €29 million; a Russian T-90, around 4 million euros (levels of support involved may vary). Europe is heavily dependent on the United States for major so-called strategic enablers such as satellite intelligence and airlift capacity.
Financing is similarly fragmented. Each EU country’s contribution to the common defense depends on its financial capacity and individual threat assessment. There is too much inequality and free riding. Germany could afford an additional €500 billion; France not so much. Poland, on its eastern flank, spends about 5% of gross domestic product on defense; Spain, only 2%. There is no common sovereign borrowing mechanism that would allow European nations to collectively, quickly and cheaply finance rearmament.
There is no shortage of solutions. A coalition of willing countries, preferably including the United Kingdom, could create a common European Defense Mechanism with the power to issue jointly backed sovereign debt and supply what is needed, without national favoritism and in sufficient quantities. To start, this effort could focus on next-generation technologies, such as robotics and cyber capabilities, for which established national champions have not yet emerged and where the benefits to overall productivity may be greatest. The more countries join, the better the chance of creating a pan-European safe asset that could compete with U.S. Treasuries and catalyze the unified capital market desperately needed to attract private investment and boost growth.
Instead, Europe is trying to move forward in shambles, with little success. More than a 10th of the EU’s already meager €150 billion Security Action for Europe funding, aimed at encouraging joint procurement, is likely to go to Hungary’s Russia-friendly government; This is effectively a bribe to ensure the unanimity required by EU rules. The EU and the UK could not even agree on the conditions for the latter’s accession. Northeast European countries have made some progress in pooling resources, but they cannot and should not carry the entire defense burden alone. Regional leaders need to overcome such setbacks and make a more serious and consistent effort. More than seventy years ago, the nations of Europe came together in the hope of achieving peace and prosperity after the horrors of two world wars; It was a tremendous experiment in the power of mutual benefit and common values to triumph over narrow self-interest and archaic rivalries. Definitely worth defending.
(This is an opinion piece by Bloomberg)
