The European economy is large enough to close the big transatlantic gap in defence spending: if NATO members were to meet the 3.5% spending target, total European defence expenditure would approach US levels. However, increased spending alone will not automatically translate into stronger capabilities. The central challenge lies in the fragmentation of procurement, weak coordination and persistent national industrial jealousies that limit efficiency gains.
Recent increases in defence spending can be expected to have a significant macroeconomic impact, particularly in countries like Germany and the Nordics. EU-level instruments such as SAFE and the European Defence Fund facilitate financing and cooperation, but they primarily ease funding strains rather than generate additional spending. Fiscal rules are unlikely to be the main binding constraint; rather, high debt levels and market perceptions shape national decisions.
A key inefficiency arises from the organisation of procurement, at both the national and European levels. What is required is a shift from joint procurement managed by small groups of countries to joint capabilities managed at the European level. In particular, space and cybersecurity represent critical non-kinetic domains where economies of scale are large and duplication especially costly. Expanding and refocusing projects such as IRIS², and strengthening EU cybersecurity capacity, could deliver tangible gains.
Finally, the large gap in military R&D between the US and Europe remains a structural weakness. Without a concerted effort to address this gap, Europe will continue to depend on US technology in crucial areas.
This Explainer accompanies a CEPS, RUSI, Clingendael and IEP Task Force report ‘More Europe in defence – three pathways’ published here.
