Tag: defence

The European Commission’s plan to boost defense spending and planned Germany’s infrastructure investments are key drivers, along with lower central banks’ interest rates, that could offset some of the impact of the US import tariffs on the Eurozone economy and manufacturing, according to multinational bank ING.

“Total defence production in EU could rise as much as five times by 2030,” ING said in a May 1 report.

The boost for Eurozone industrial production is expected from the commission’s initiative to unlock Eur650 billion ($737 billion) — if countries allocate an extra 1.5% of GDP to defense — raising average EU defense budgets to 3.5% of GDP.

In addition to the planned Eur150 billion in European defense loans, the EC is also considering shifting the existing Eur392 billion in the European Cohesion Policy fund to strengthening the defense capabilities of member states, ING said.

The bank stressed that EU defense spending has already been on the rise, having increased over the last four years by more than 30%, to 1.8% of GDP, and the domestic manufacturing of military transport, such as fighter planes, naval vessels, submarines and tanks, has been one of the EU’s few growing industrial subsectors recently, second only to pharmaceuticals, but otherwise, the upside for local manufacturing has been limited given Europe’s lacking production capacity and ununified defense strategies.

As a result, since the Russian invasion of Ukraine, roughly 80% of the EU’s defense procurement has gone to non-EU firms: Europe-wide, imports of major arms have increased by 155% between the 2015-2019 and 2020-2024 periods, according to the ING report.

Provided the EU rolls out harmonized defense standards that overcome the currently fragmented nature of its military equipment market, builds up collective investments in manufacturing and makes better use of dual-use technologies and capacities at companies previously focused exclusively on the civilian market, the region can see its defense output soar with potentially 50% of its military needs sourced within the EU in the long term, ING estimates.

A growing number of European manufacturers already pursue opportunities in military products. Dutch civilian manufacturer VDL wants to use its former car factory for the production of defense equipment, and German tank manufacturer Rheinmetall is interested in certain facilities of Volkswagen. French-German military land system manufacturers KNDS recently bought a wagon factory from French rolling stock manufacturer Alstom to scale up the production of tanks. Italian aerospace company Leonardo is considering drone production in collaboration with Turkish UAV specialists Baykar, ING said.

The EU defense industry is largely concentrated in Germany, France and Italy, but none of the largest EU defense companies are among the top 10 players globally.

“Arms revenues of [the EU’s] Airbus and Leonardo amounted to almost 13bn and 12.5bn in 2023, whereas the largest US defence company, Lockheed-Martin, earned over 60bn in arms; this figure stood at 30bn for the largest UK player, BAE Systems,” ING said.

That said, the share of defense output in EU’s industrial production could increase from 0.5% in 2024 to 2.5% in 2030 and therefore contribute to a long-awaited reboot of the European industry, ING said.

Germany’s federal assembly Bundestag in March approved the amendment to the Basic Law, which makes an allowance for a Eur500 billion infrastructure fund to be spent over the next 12 years, including on clean energy and transport. This came as good news for EU manufacturing sectors, especially for steel and metallurgy in general.