The war in Ukraine and the new era of competition between great powers has put European defence back in the spotlight. However, unlike other times, defence is here to stay. The designation of the first European Commissioner for Defence and Space, the emergence of innovative instruments and the discussions on the next Multiannual Financial Framework are just some of the issues that make defence more present than ever. However, the strengthening of NATO and changes in its leadership with the appointment of a new Secretary General, as well as the transatlantic reset after the result of the U.S. elections, make it equally important to look not only at the EU, but also to NATO.
There is a well-known saying that, as a curse, serves to wish others ‘interesting times’, in reference to drastic changes such as those the world is facing. While drastic changes that affect people across the globe may be a curse for the unprepared, those with expertise in navigating shifts in the European defence policy landscape, competition and technological developments may embrace these opportunities as a blessing.
At the global level, there has been a shift from a unipolar to a multipolar world. Strategic competition between great powers is straining not only the security landscape, but also global trade and economic relationships. New tariffs are established, industries are relocated, sanctions are imposed and battles are fought in the grey-zone that have a significant impact on those who suffer the consequences.
At the technological level, the succession of industrial revolutions, such as the ‘Third Industrial Revolution’ and ‘Industry 4.0’, is nothing more than an attempt to give a name to a process of accelerated change, a consequence of increased investment in research and development (‘R&D’) and the cumulative effect of certain advances — especially disruptive ones. Indeed, all of this is spurred on by strategic competition between powers.
At the military level, the adoption of new technologies during what is referred to as the ‘Information Revolution in Military Affairs’, characterised by the use of smart weapons, GPS guidance, stealth technologies and improvements in Command and Control (‘C2’), has resulted in a growing number of active participants in the sector. This is demonstrated by recent conflicts, such as Nagorno-Karabakh, the invasion of Ukraine or, more recently, the attacks by Iran and its proxies against Israel. This situation has also caused countries like Russia and China to narrow their military differential with the United States and its allies. Therefore, it is forcing U.S. administrations to launch a series of efforts that could give birth to a new Revolution in Military Affairs (‘RMA’), this time centred around artificial intelligence.
What do these developments mean? In sum, these shifts have left the EU in an awkward and dangerous situation. Since the 2008 financial crisis, Europe’s economies and businesses have lagged behind those of competitors, as outlined by Mario Draghi’s recent report, ‘The Future of European Competitiveness’. In security terms, the effects of the ‘peace dividend’, which Europe has benefited from since the end of the Cold War, has left the EU in a precarious position — low defence investment has led to accumulating technological backlogs in terms of force generation capacity or the ability to produce and replenish weapons and ammunition. The consequence is that Europe faces a deterrence deficit; Russia’s decision to launch a full-scale invasion of Ukraine is dramatic evidence of this point.
Facing these challenges will require unprecedented efforts from the new Commission, EU Member States and industry. But changes will be required across political, economic and industrial realms, especially as far as defence and technology — which are closely linked — are concerned. In practical terms, new defence initiatives will have to be launched, and existing ones will be refined and realigned. In addition, public and private investment will continue to increase, particularly with the new involvement of the European Investment Bank and the potential arrival of ‘defence Eurobonds’ or similar instruments to finance industry. Supply chains will also have to be secured, and Europe will have to restart the production of some components and systems that, until now, were purchased abroad. In doing so, Europe will have to strike a balance between competition and collaboration — including competition with the United States — and the maintenance of existing alliances.
That being said, there are several questions that are top of mind for EU policymakers assessing what the war in Ukraine means for Europe’s future defence policy.
The Finance Question
Will the European Commission and EU-27 governments put their money where their mouth is and allocate €500 billion to defence investments? Assuredly, and if initiatives such as the European Defence Fund (‘EDF’) or the future European Defence Industry Programme (‘EDIP’) are to be continued in the next Multiannual Financial Framework (2028-2034), the budget cannot be what it has been to date. Certainly, there is political understanding and willingness that funding needs to be increased to achieve the set level of ambition, but the big question is how, and where that financing will come from.
The Boundaries and Bureaucracy Question
Who does what? The arrival of a first-ever Commissioner for Defence and Space, as well as the new role of the European Parliament in defence matters, could add complexity to the existing defence institutional ecosystem and the interrelationships between players such as the Commission — especially the Directorate-General for Defence Industry and Space (‘DG DEFIS’) — and the Council, as well as the European Union External Action Service, the European Defence Agency and NATO. As a result, it is becoming increasingly complex and confusing to understand and respond to the distribution of competences and functions, let alone the evolving relationship between the EU and NATO and the increasing risk of duplication and overlap.
The Rutte, Trump and 2% Question
On NATO’s side, the arrival of a new Secretary General, Mark Rutte, and the return of Donald Trump to the White House sharply raises questions regarding the kind of balance that will exist between those who spend more than 2% of GDP on defence, and those who spend approximately half of that. Mechanisms may therefore have to be put in place to close the existing gap, if it is not sustainable for only some members to meet the agreed target.
What This Means for Companies Beyond the Defence Sector
We therefore find ourselves in a time of change. In such moments, new opportunities are opening up for those who can seize them. Firstly, European companies will need to devote significant resources to R&D. It will be necessary for them to increase their size — including through acquisitions and mergers — in order to compete successfully in the international market. All this while engaging with an increasing number of EU initiatives, the need to raise funds, but also to maximise opportunities through joint consortia and public programmes and contracts.
Secondly, non-EU companies (e.g. the United States, Canada, Japan, South Korea or the United Kingdom) will need to find ways to continue to be seen as a necessary and value-added partner, rather than as mere competitors in a zero-sum game. This can be achieved, for example, through partnerships and common programmes and projects both at the EU and NATO level.
Thirdly — and regardless of where they come from — companies and institutions will need help in discerning between the superfluous and the vital, in areas such as artificial intelligence, quantum computing and cryptography, genetic engineering, dronics and robotics, or even the adoption of sustainable practices. It is no coincidence that these are all dual-use technologies.
In a world where competition increasingly exceeds the military field and where states and companies are investing increasing sums in R&D, it was only a matter of time before civil R&D took the lead. The military is not just lagging behind — it’s becoming ‘diluted’ in the broader concept of security, which now encompasses everything from energy to trade routes and from communications to lawfare. Consequently, it makes it difficult to establish solid and holistic plans, considering also the existing gaps in concept definition, such as ‘Strategic Autonomy’, or documents such as the ‘Strategic Compass’.
With all of this in mind, it is in these troubled waters that we will need to move beyond conventions, such as those surrounding the term ‘defence’. Therefore, emphasis and effort will need to be placed on adopting a holistic approach that allows Europeans to offer that competitive edge they need at a time of accelerated change.
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Author: Beatriz Cózar-Murillo, Director for Defence & Aerospace in our Brussels office.
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.
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