If, as Georges Clemenceau ironically said, “war is too serious a matter to be left to the military,” we should see if companies can take action on the matter. Because, as the International Institute for Strategic Studies (IISS) stated, we have entered “the era 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 will reach 2.24 trillion dollars worldwide 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 highest in 30 years and with a total amount (345 billion dollars) that Western European states have not disbursed since the time of the cold war, prior to 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 market, the US is the one who deals the cards (and the weapons). It is the largest global arms supplier, with a share of 42%. Europe finds itself in a limbo that is difficult to understand. On the one hand, their foreign ministries promote diplomatic solutions and call for the de-escalation of conflicts (particularly in the Middle East).
On the other hand, European companies do succulent business precisely with the states of those regions and other hot spots on the planet: nearly a third of the world's arms exports are carried out by companies belonging to European countries. Five states from the Old Continent appear in the list of the ten most important sellers, according to data from 2023. These are Germany —11% of all global sales—, France (7%), Italy (5%), the United Kingdom ( 4%) and Spain (3%).
European companies profit in war zones. The majority of Middle Eastern states' arms imports were supplied by the United States (52%), but followed by France (12%), Italy (10%) and Germany (7.1%). Weapons imported in the last 10 years have been used in Gaza, Lebanon and Yemen.
If it is true that the top five companies in the world by turnover are American (Lockheed, Raytheon, Northrop, Boeing, General Dynamics), European companies also have their own champions. In the last two years, since the invasion of Ukraine, its stock market returns have skyrocketed. The shares of the German company Rheinmetall (ammunition) 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 their production capacity due to labor shortages, rising costs and supply chain disruptions, exacerbated by the war in Ukraine. “Companies were not prepared as they were unable to adapt to the production required by a high-intensity war,” they say from SIPRI. Everything is delayed.
We thus have a paradoxical situation. Despite having a very powerful European arms sector with influence in the world, the European Union turned to the foreign market to buy 80% of its weapons 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 European single market, has described as “shameful”. And if that were not enough, today only 18% of European purchases are managed jointly. More than half of European arms imports come from the United States. “This is due to 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 for internal use. “Compared to the US, Russia or China, Europe spends up to 45% less as a percentage of its GDP than the US. This situation, which for years represented important advantages for Europe in terms of resources dedicated to other items, has turned against them,” wrote Complutense University professor Antonio Fonfría.
The new European plan establishes that all EU countries must buy at least half of their weapons within the bloc itself by 2030, make at least 40% of their purchases jointly and increase the weight of the internal market 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 functions as an arsenal but rather on commission. To speed up the production of items with long lead times, it is necessary to produce them in larger quantities. And these investments cannot be made all at once.” For example, the future European fighter jet (FCAS) may take 15 years to be operational.
For Abel Romero, analyst at the Spanish Institute for Strategic Studies (IEEE), “the problem is that the EU's defense capacity is a chimera, since not only do the necessary military capabilities 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 do not intend to continue selling their products in Europe in a majority way, as is currently the case. “No country can be autonomous in defense alone,” recalls Rafael Martínez, professor of Political Science 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 jointly,” he believes.
War is too serious a matter to be left in the hands of the United States alone.
