If, as Georges Clemenceau said ironically, “war is too serious a subject to be left to the military”, it would be necessary to see if companies can take cards. Because, as the International Institute for Strategic Studies (IISS) stated, we have entered “the age of uncertainty”: the arms industry is preparing to live its next golden age.
Geopolitics has changed priorities. State spending on this item has skyrocketed. It reached a global level of 2.24 trillion dollars in real terms in 2022 (data from the SIPRI institute).
And it is Europe that is putting on the uniform, with an annual increase of 13%, the largest in 30 years and with a total figure ($345 billion) that Western European states have not disbursed since the of the cold war, before the fateful 1989.
The economic prospects for companies in this sector are good, because as a whole European countries have not managed to allocate 2% of GDP to defense, something that Poland and the Baltic countries did achieve, after Russia’s attack on Ukraine. There is room to grow.
In the marketplace, the US is the one who deals the cards (and the guns). It is the world’s largest arms supplier, with a share of 42%. Europe is in a limbo that is difficult to understand. On the one hand, their chancelleries promote diplomatic solutions and call for the de-escalation of conflicts (in particular, in the Middle East). On the other hand, European companies do juicy business precisely with the states of those regions and other hot spots on the planet: close to a third of the world’s arms exports are carried out by companies belonging to European countries. In the list of the ten most important sellers, there are five states from the Old Continent, according to data from 2023. These are Germany –11% of all global sales–, France (7%), Italy (5%), the Kingdom United Kingdom (4%) and Spain (3%).
European companies profit from war zones. Most of the Middle Eastern states’ arms imports were supplied by the United States (52%), followed by France (12%), Italy (10%) and Germany (7.1%). The weapons imported in the last ten years have been used in Gaza, Lebanon and Yemen.
If it is true that the first five companies in the world by turnover are from the United States (Lockheed, Raytheon, Northrop, Boeing and General Dynamics), European companies also have their own champions. In the last two years, since the invasion of Ukraine, their returns to the stock market have skyrocketed. Germany’s Rheinmetall (munitions) shares have increased by 430%, BAE Systems by 85%, Thales by 89% and the Euro Stoxx index of the aerospace and defense sector (SXPARO) by 90%. Despite receiving new orders, many European arms companies are unable to increase production capacity due to labor shortages, rising costs and supply chain disruptions, exacerbated by the war in Ukraine. “The companies were not prepared for not being able to adapt to the production that a high-intensity war requires”, say SIPRI. Everything is delayed.
We thus have a paradoxical situation. Despite having a very powerful European armaments sector with influence in the world, the European Union turned to the foreign market to buy 80% of its armaments between February 2022 – the beginning of the war in Ukraine – and June 2023. A percentage that Enrico Letta, author of the recent report on the single European market, has described as “shameful”. And as if that weren’t enough, today barely 18% of European purchases are managed jointly. More than half of European arms imports come from the United States. “This obeys the objective of maintaining transatlantic relations, apart from technical aspects and costs”, said Dan Smith of SIPRI.
However, from now on Europe will have to manufacture and produce more of them for internal use. “Compared to the US, Russia or China, Europe spends as a percentage of its GDP up to 45% less than the US. This situation, which for years meant important advantages for Europe in terms of resources dedicated to other games, has turned against it”, wrote the professor of the Complutense University Antonio Fonfría.
The new European plan states that all EU countries must buy at least half of their armaments within the same bloc by 2030, make at least 40% of their purchases jointly and raise the weight of the internal market up to at least 35% of the entire European arms business. In addition, the strategy includes the creation of a fund of 1.5 billion euros between 2025 and 2027 for the European military industry.
It is a radical transformation, but one that presents several unknowns. According to Stefano Pontecorvo, president of Leonardo, “the defense industry no longer works like an arsenal, but rather by order. To speed up the production of items with long lead times, you need to produce them in larger quantities. And these investments cannot be made all at once”. For example, the future European combat aircraft (FCAS) may take 15 years to become operational.
According to Abel Romero, analyst at the Spanish Institute of Strategic Studies (IEEE), “the problem is that the EU’s defense capacity is a chimera, since not only do the necessary military capacities not exist, but they are also fragmented and excessively diverse. If we want a capable European defense industry, it seems reasonable that the American arms industries allow the development of the European ones, and not intend to continue selling their products to Europe in a majority way, as is currently the case”. “No country can be autonomous in defense on its own,” recalls Rafael Martínez, professor of Political Sciences at the UB. “The most sensible thing is for each European country to specialize in an area and for companies to form consortia to offer products together”, he opines.
War is too serious a matter to be left in the hands of the United States alone.
