Huge european defense financing gap

The European defense financing gap amounts to 850 billion euros, according to two analyses published on the Zerohedge website and using statistical data provided by NATO, the Kiel Institute for the Global Economy and Exante Data. This deficit is caused by the fact that, since the 2014 NATO summit in Wales, when it was established that each member state of the North Atlantic alliance should allocate 2% of GDP to national defense, only a few European states have respected this obligation assumed by the final declaration of that summit.

Therefore, according to the cited source, Europe is facing a major challenge in terms of its defense capacity. After years of insufficient spending, European NATO member states are now under pressure to invest more in the military sector to face current geopolitical challenges.

But how much should Europe spend to improve its defense capabilities? The data included in the two analyses cited show an average allocation of 2.5% of GDP, starting from 2014, but it is stated that the average is influenced by the allocation made by the US, which alone spends over 3.5% of GDP on defence. In contrast, European states and Canada have allocated, on average, only 1.5% of GDP on defence over the last decade, reaching the 2% threshold only in 2024.

If we analyze the major European economies, the UK has consistently maintained spending above 2% of GDP on defence, while Germany was below the 1.5% threshold until recently, and France was slightly below 2%. Italy and Spain have also had lower spending than Germany, contributing to the chronic underfunding of European defence.

The debate over increasing defense spending often overlooks the fact that underfunding over the past decade has created a shortage of supplies, a shortage that has been exacerbated by the war in Ukraine. This means not only a lack of military equipment and advanced technology, but also significant deficiencies in operational capacity, personnel training, and maintaining an effective fighting force on all fronts. The cited source shows that even if European states increase defense spending now, it will take years to restore the lost capabilities. According to official NATO data, Germany has a cumulative deficit of more than 200 billion euros compared to NATO's 2% threshold, and Italy around 150 billion euros. In total, Europe's deficit amounts to 850 billion euros. If Europe were to try to match the US spending of 3.5% of GDP, Germany would need to invest an additional euro550 billion (totalling euro800 billion), while Italy and France would need to increase their investments by over euro400 billion each. Overall, the European deficit with the US has exceeded euro2.65 trillion since 2014, according to the analysis published by the cited source. Furthermore, the analysis shows that the US spends approximately 70% of the combined amount allocated at NATO level on defence annually, while the rest of NATO countries spend only 30% of the total. For example, according to a NATO report for the period 2023-2024, the US allocated $860 billion for combined defence spending, out of the total of $1.3 trillion spent for this purpose. In Europe, the highest combined spending was by Germany - $68.1 billion, followed by the UK - euro65.8 billion and France - euro56.6 billion. According to NATO data, Romania allocated $8.5 billion in the same period.

However, it is stated that, despite the seemingly alarming situation, US spending reflects preparation for conflicts on multiple fronts, both in Europe and in the Pacific. In addition, restoring military capabilities does not necessarily require a 1:1 increase in spending, but a well-thought-out strategy that includes the rapid modernization of defense equipment and infrastructure.

The cited source mentions that, in the last ten years, the US has spent $8.4 trillion on defense, while the rest of NATO has spent only $3.8 trillion. This means that the US has invested more than twice as much as its European allies. If Washington were to decide to reduce its commitment to NATO, European states would face a huge security vacuum that they would have to compensate for with a significant increase in spending.

According to the RAND Corporation's Defense Spending Index, the US bears 47% of the burden, far exceeding any other NATO member. While NATO's official budget is $3.5 trillion, this does not represent the burden if NATO goes to war. It is to be expected that the members with the largest armies and who spend the most on defense will spend the most resources in a conflict.

Against this background, Europe is in a turning point in its defense. Underfunding over the past decade has led to a major capability deficit, and the recent increase in defense budgets is not enough to quickly compensate for this loss. If Europe wants to become militarily autonomous and reduce its dependence on the US, it must adopt a long-term strategy that aims at both technological modernization and increasing operational capabilities, as agreed at the summit on Sunday, March 2, which took place in London. Increasing the military budget is not just an option, but a strategic necessity for the future of Europe, and a decision in this regard is expected from European leaders at the European Council summit on Thursday, March 6.