Defending Europe without the US. Conversation with Guntram B. Wolff [PODCAST]

What should we know about the European defence industry? What capacity must Europe make to prevent Russia from being aggressive? What will be the consequences of the German debt limit reform? And is the common European defence marketplace possible? Leszek Jażdżewski (Foundation Liberte!) talks to Guntram B. Wolff, a elder analyst in an independent European think tank Bruegel based in Brussels and prof. of Economics at the Université libre de Bruxelles (ULB). From 2022 to 2024 he was the manager and president of the German Council of abroad Relations (DGAP), and from 2013 to 22 was the manager of the Bruegel Institute. In his career, he has contributed to deeper investigation into European political economy, climate policy, geoeconomics, macro-economics and abroad affairs. He regularly appears in the European Parliament, the Bundestag and speaks to the boards of companies. In 2020, "Business Insider" recognised it as 1 of the 28 most influential "influential players" in Europe.

Leszek Jażdżewski (LJ): What is the current state of defence manufacture in Europe from an economical point of view?

Guntram B. Wolff (GBW): The defence manufacture is characterised by a large fragmentation. Contracts are carried out by national ministries and national public procurement agencies on a comparatively tiny scale. This means that we order a tiny amount of weapons from each category, with many different types of weapons throughout Europe.

As a result, we are faced with very advanced unit costs at a low level of production. This combination is actually rather problematic at a time erstwhile we want to seriously increase our capabilities, as well as our defence spending. If you importantly increase spending on a fragmented market, the end consequence will be higher costs without improving the quality and quantity of weapons.

That is why we must now guarantee that we decision distant from this fragmentation towards a more integrated marketplace with more competition and thus lower costs, better quality and greater production.

LJ: Together with Alexander Burilkov you late published a survey entitled “Defense Europe Without the US: First Estimates of What Is Needed” —Defence of Europe Without US: First Estimates of Needs). What do we request to keep support for Ukraine, assuming that next year (or possibly even this year) there will be no support for the Ukrainian origin from the United States?

GBW: We wrote this article precisely due to political change in the United States. To be honest, the gross breach of assurance between the United States and Europe - at the minute erstwhile they began to discuss the safety of Ukraine without involving Ukraine and European partners - made it clear to everyone that it was a completely fresh United States. Their current version is very problematic for us due to the fact that it threatens our own safety interests.

This means that Europe must step up its action. We must support Ukraine in the fight against Russian aggression, due to the fact that if we do not, Russia will decision further on the battlefield and 1 day it may take much of Ukraine. The scope of this support includes arms supplies as well as financial, strategical and much more.

As Europeans, we already supply over half of the full support for Ukraine – even if we look only at military support (US is liable for the another half). Now we must velocity up and fundamentally replace US support. From a financial point of view, this is not a large problem. The U.S. military support amounted to around 20 billion a year, representing just over 0.1% of the European Union's GDP. This is so completely feasible from a financial point of view.

LJ: What is the EU presently lacking to match Russia's fresh capacity growth? Especially if, as you have rightly pointed out, you can no longer number on US support.

GBW: We request to realize that Russia is presently operating in war conditions. He invests immense amounts of money from his own budget in defense. As a result, its defence manufacture has grown significantly, and production in Russia has increased significantly.

Europe must be able to do the same to effectively deter Russian aggression. This means that we request more tanks, more traditional, conventional military elements that are utilized in conventional warfare. This is very crucial due to the fact that it is the foundation of European defence. This is besides what Europe can produce – and it will be able to produce more if there is simply a greater request for it.

What is much harder to replace is US support and strategical leadership – including the alleged "strategic factors" that the US provides Europe, namely satellite communications and intelligence, or strategical capacity for air transport. At the moment, there is no immediate substitute for them and we can't truly make it overnight.

Therefore, there is simply a gap that needs to be filled as shortly as possible. This means crucial investments in this space, and any of these investments must be carried out at European level and not only at associate State level.

LJ: If the United States no longer participate in defending Europe, how could it be replaced by fragmented European armed forces? Can this be done within NATO, by expanding cooperation between national countries? Will any circumstantial countries take on this burden?

GBW: In the short word there is simply a large gap and it is so so crucial that Ukraine continues to effectively deter Russian forces. Therefore, we must support Ukraine in order to have time to make our own capabilities.

Europe has quite a few troops, but our troops are fragmented. In this context, it would be best to bring the troops closer together and integrate them under joint command. But this cannot be achieved overnight. Europe will so gotta decide to combine more national troops. In particular, Germany will gotta play a major function in this scenario. The number of German troops has fallen importantly since the end of the Cold War (now under 200,000 active soldiers, while during the Cold War the number was over 400,000). If Germany can increase the size of its troops by 50,000 or 100,000, it will be important. Nevertheless, there is no immediate solution in the short term.

LJ: What is now stopping Europe from becoming a centre for large scale ammunition production? And what can be done to velocity up this process?

GBW: The production of 155 mm ammunition has increased importantly in Europe, but is inactive insufficient compared to the immense request in Ukraine. Although a company like Rheinmetall has increased its production from a very, very low level to over 700,000 today, and to my knowledge, European ammunition production is expected to scope 2 million this year. This is simply a immense increase – from mostly little than 100,000 per year across Europe to 2 million.

Although growth is huge, it is besides also slow, given the immense request in Ukraine itself. I think that might inactive work. Europe is on the right track and we will yet have adequate production capacity for this kind of production. If we now start ordering larger quantities of key weapons systems, specified as tanks, artillery haubice or air defense, we will build our production capacity comparatively rapidly (within 2 or 3 years), leading to much more production.

The reason I'm an optimist is that so far there has just been no demand. European governments have spent more on procurement than before, but inactive not that much. For example, Germany did not order many tanks before 2022. The number of tanks owned by Germany declined from over 3000 during the Cold War to around 350 in 2022. Since 2022, Germany has ordered only 125 Leopard II tanks. This is not only a tiny order, but besides to be delivered in 2030. With specified tiny numbers, manufacture does not truly invest in production capacity.

Therefore, erstwhile you start ordering 500 or 1,000 tanks, then companies will invest in industrial production. And this industrialised production can start comparatively rapidly in a country like Germany, which has engineers who know how to operate industrial robots and who can draw on experience in the car manufacturing sector. Therefore, with the appropriate political will and the mobilisation of more resources, we will actually see rather a crucial increase in production in the area of conventional warfare.

LJ: As regards the economical costs of this fragmentation of the European defence industry, what are the main obstacles that presently prevent deeper industrial integration?

GBW: The main obstacle to deeper industrial integration in the European defence manufacture is that associate States and national companies like to defend their national markets and industries. They are afraid of competition and of the losses that this may entail in the area of local jobs.

And here comes a trick in the field of political economics. We are now at a time erstwhile defence budgets will be so increased that even with greater competition and greater request for another countries, the overall cake will increase so much that the defence manufacture across Europe will benefit. The fragmentation and protectionism of national markets so no longer make sense. Moreover, not only do they make no sense, but they are in fact highly costly and prevent us from rapidly building our ability to defend ourselves.

LJ: Many European countries believe that the only chance to prepare for the script of a possible war with Russia is to build up their own defence capacity right now, that is to say, to buy “straight off the shelf”. Is there a compromise between supporting Ukraine, preparing for a possible direct threat from Russia, removing this threat, and building long-term industrial possible that will replace the United States over a 10-year period?

GBW: Yes, there are definitely any possible compromises in the short term. Nevertheless, there are 2 fundamental problems with buying "straight off the shelf" from America. The first problem is that the US defence manufacture base itself is overloaded. Therefore, it is not actual that you can simply buy consecutive from the shelf. The delays in deliveries from the US have increased importantly over the last fewer years. You can't just buy a 5th generation fighter (F-35) now and get it next day – you can only get it in 5 years.

The second problem is at a deeper level and of a political nature. If you're buying top-class equipment from the United States and politics is inactive what it is, then you might hazard losing access to this equipment if the president of the United States decides. Therefore, for high-tech products (such as F-35), dependence on American companies is huge, and US policy has a immense impact on all of this. The various acquisition agreements besides explicitly state that many intelligence and software data must be coordinated and agreed with the United States. That means you're buying weapons in effect, but it's not your weapon, but a weapon controlled by the appropriate chamber. And that's the real problem, given politics.

LJ: What can be done to decently mobilise European countries that are inactive falling behind in terms of the improvement of their own defence industry? Can the single marketplace rule be applied to the defence manufacture in Europe?

GBW: There will undoubtedly be clear opposition to the introduction of a single marketplace for defence industry. We must supply adequate financial incentives to do so – and only if these appropriate incentives are provided, it can be introduced. Meanwhile, the European Commission's proposals on defence markets, which are presently on the table, are insufficient to accomplish this.

Only if there are crucial financial incentives will we be able to introduce greater competition and integration of the single market. Moreover, I do not think that this single marketplace is simply a single marketplace only in the European Union - alternatively a single marketplace consisting of likewise reasoning countries that agree to cooperate in the field of defence. It may include Britain alternatively than include any countries in Europe which are politically perceived as besides close to Russia or besides inadequately adapted to the strategical objectives of deeper defence integration.

LJ: Recently, Germany has decided to improvement its debt limit. In total, it is simply a trillion euros, more than twice the current budget expenditure. Half of this amount is to be allocated to defence investments and the another half to infrastructure. Should we anticipate akin solutions from another European decision-makers? How will this affect Europe's defence capabilities and the European economy?

GBW: From the point of view of safety and military, it is large news that Germany can now increase the scope of loans for defence spending – it is very important. The improvement of the German debt limit was indeed necessary. Whether this improvement has been designed in the best possible way, the most crucial thing is that we will be able to increase defence spending in Germany and that national fiscal constraints have been greatly loosened.

At the same time, the European Commission proposes to loosen European fiscal rules. To date, European fiscal rules have limited defence spending, but fresh rules will already let countries to borrow and spend more on defence.

Undoubtedly, these 2 things combined are a affirmative phenomenon in defence spending. However, a strictly European defence financing component is missing. What is this European component? Basically, the only thing the European Commission proposes is simply a debt instrument worth EUR 150 billion. However, the financial benefits of loans to the associate States are very limited to most countries that truly want to invest in defence now, which fundamentally means most countries located geographically between Germany and Finland. Therefore, it does not truly supply the incentives needed for it to be utilized frequently. In this light, this instrument will most likely not accomplish much.

LJ: We seem to be surviving in a time of large uncertainty, including the way the global economy works. How should Europe adapt to the fresh rules of the game that president Donald Trump seems to effort to impose on the full world?

GBW: We're at a point where we don't know how it's going to go. Nevertheless, the changes taking place in the United States are so large and so frightening that they will affect the global global order as well as the global global financial and monetary system. Currently, a crucial amount of global capital and many global investors are reconsidering their vulnerability to the United States. If this is serious, we'll truly be at a turning point.

For Europe, this change is simply a major threat due to the fact that Europe has long remained in the alliance with the United States and transatlantic relations have been the basis of global order. At the same time, this is besides an chance for Europe. If we take the right steps, we can attract quite a few capital right here.

This is precisely what we can see – in the last fewer weeks there has been a large movement of capital from the United States to Europe, and this process may even accelerate. However, if it is to accelerate at any stage, we must offer attractive investment opportunities. This means that Europe must have a clear growth strategy. We must truly invest in improvement opportunities. That is why the second pillar of the German debt limit improvement – the anticipation of expanding investment in infrastructure – is very important. We request to take this seriously.

We request to invest more in physical and digital infrastructure in Europe to make corporate investment more attractive. And if that happens, we can attract much of global capital to Europe. specified a change would fundamentally change the way the global strategy operates.

In this context, we are truly on the brink of a fresh era. However, this may not be a completely fresh era if autocorrective forces in the United States are increasing. However, the opposition in the United States to the fresh administration is now alternatively limited. That is why we are now moving towards a alternatively fundamental change.

Read the analysis: www.bruegel.org/analysis/defendin...mates-what-needed

This podcast was produced by the European Liberal Forum in collaboration with the Movieno Liberal Social and the Liberté Foundation!, with the financial support of the European Parliament. Neither the European Parliament nor the European Liberal Forum are liable for the content of the podcast nor for any way of utilizing it.

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Dr. Olga Łabendowicz translated from English

Read English at 4liberty.eu