Europe's Defense Problem Isn't Spending
It's that it can't convert €800 billion into military capabilities
Europe is spending more on defense than at any point in decades, which is a very good thing. In fact, EU spending reached nearly €400 billion last year, a 63% increase since Trump and Covid and the Russians scared the shit out everybody a few years ago.
Additionally, the ReArm Europe plan aims to mobilize €800 billion by 2030. It’s all happening now! Germany alone has extraordinarily managed to unlock roughly €400 billion in additional borrowing capacity for defense.
So, the will to spend, and the need to do so, is very real. And yet the system receiving this money, the EU defense industry, is structurally incapable of converting the absolutely ginormous amounts of capital into defense capabilities.
Consider that Europe fields more than five times as many variants per weapon category as the United States, and has three separate European fighter programs that have together produced roughly 1,861 aircraft.
(Don’t tell the Europeans, but the US’s F-35 program alone has generated 3,556 aircraft).
So the issue here is not spending, which we know Europe can do no problem; it’s a dangerous level of fragmentation that is currently compounding in realtime across logistics chains, spare parts, training, maintenance, and ultimately cost.
If you are a European who thinks the US DoD takes the piss when it comes to the price of an defense-rated screw, please sit down, because I’ve got bad news for you…
You know that the founding raison d’être of Europe was to have a single market? For the purpose of military and peace? Well, defense is one of the only markets where this concept breaks down entirely: the EU’s defense market is actually is comprised of twenty-seven national procurement systems, which collectively fail to generate consolidated demand. And without aggregated orders, production and manufacturing of European defense hardware remains subscale. And you guessed it: without scale, unit costs remain high. Ultimately, without competitive pricing and delivery speed, governments default outward.
So €800 billion poured into Europe’s currently fragmented system will only buy one thing: more fragmentation. Thus, the binding constraint in Europe is not capital, which we’ve (somewhat) unlocked. It is whether twenty-seven nations can construct a single institutional architecture that can convert convert €800 billion into deterrence.
The frameworks applied here, of architecture lag, premature markets, coordination architectures, are developed formally in two companion papers by Sinéad O’Sullivan. Available on request: s@sinead.co
What an insightful read. The money was never the problem. Twenty-seven separate procurement systems mean twenty-seven separate demand signals, which means no scale, which means no competitive pricing, which means governments keep defaulting outward.
Fragmentation doesn't get solved by adding capital, it gets reproduced by it. The binding constraint has always been whether the institutional architecture can aggregate demand at all. Most people are still arguing about the budget.