Can Europe's arms industry challenge US market dominance?

 
For years, the topic of European defense spending barely registered in most EU capitals. Now it is a primary concern.

From the EU's announcement of €150 billion ($163.5 billion) worth of loans to spend on weapons, to Germany's likely next leader, Friedrich Merz, channelling his inner Mario Draghi and vowing to do "whatever it takes" to bolster Europe's defense, there has been a dramatic sea change of late, however.

The shift comes amid renewed fears over Russian aggression in Eastern Europe and doubts over US commitments to NATO and the transatlantic alliance.Yet data released this week by the Stockholm International Peace Research Institute (SIPRI) laid bare how challenging it will be for Europe to go it alone.

Almost two-thirds of arms imported by European members of NATO from 2020-2024 came from the US, a significant hike on the 52% the US accounted for from 2015-2019.

Over 90% of the arms imports in Norway, Sweden, Italy and the Netherlands came from the US, while the UK figure was over 80%. From 2015-2019, less than 10% of German arms imports came from the US but the figure was 70% for the period from 2020-2024.

Tim Lawrenson, an associate fellow at the International Institute for Strategic Studies, says the US has been the main military power and security guarantor for European countries ever since NATO was founded 76 years ago, adding that Europe was "content to be dependent on NATO" and trusted that the US would stand by its commitments.

"Recent developments have raised serious questions in European minds about whether this now needs to change," he told DW.

Guntram Wolff, a defense specialist at the Brussels-based think tank Bruegel, says there is a degree of interdependence between US and European defense companies that is not reflected in the figures.

"So many products are truly NATO products built with components from many allies," he told DW, pointing to the example of the Lockheed Martin F-35 fighter jet - a US product built with components and assistance from several European NATO countries.

However, European defense companies were especially vulnerable when it comes to the provision of so-called strategic enablers such as satellites.

"If you talk about tanks and these kinds of things, the gap between the US and EU is probably not so big," he said. "However for the strategic enablers, a lot comes from the US such as transport helicopters or satellite communications. We are very dependent on the infrastructure as well as on the products."

Tim Lawrenson thinks European nations trying to close the gap between the amount produced in Europe and the amount imported from the US involves "significant cost and time to expand Europe's defence industrial capacity for existing products as well as developing new products, in particular to replace capabilities that are currently largely provided by the US."

It also raises the question of whether European governments should simply buy from wherever they can to address gaps as quickly as possible, or whether they should prioritize a "Made in Europe" approach, to bolster the European defense industry.

The question then is more one of time than capability. "In three years, it's going to be very difficult for Europe to be ready on its own," said Wolff, adding that "in five years, it's a different ball game."

Lawrenson argues that in "normal times" it would take "two, three years for complex products," but in more pressured times, "those timescales may be shortened somewhat, but not by much."

France and Germany have clashed over whether or not EU defense loans could be spent on equipment from outside the bloc, including from European NATO members such as the UK or Norway which are not in the EU.

EU Commission President Ursula von der Leyen has said that the loans should be spent within Europe, including from the likes of UK, but not outside the continent. "These loans should finance purchases from European producers, to help boost our own defense industry," she told the European Parliament.

Although Europe's collective defense and aerospace sector is smaller than that of the US, it is no minnow. In 2023, it accounted for a turnover of €290.4 billion ($316 billion) compared to $829 billion in the US.

There is considerable optimism that Europe has the industrial know-how and capability to build a world-class defense sector, particularly if European government spending pledges are fulfilled.

Germany is particularly key. The plan of Friedrich Merz has been widely received as potentially transformative and experts believe Europe's biggest economy is well-placed to meet the demand. The defense sector pivot may even help drag the country out of its de-industrialization malaise.

Wolff believes a growing defense industry could "offer attractive salaries and will attract workers from other sectors, including from the car industry."

Hans Christoph Atzpodien, general manager of the German Federal Association of the Security and Defense Industry, agrees, saying that the qualifications of car industry workers will often meet the requirements of defence companies. However he cautions that retraining and security clearance requirements may slow down the process.

"The timelines for issuing these authorizations are currently nowhere near fast enough to enable a rapid transition of the relevant personnel," he told DW.

Tim Lawrenson thinks German movement on the defense spending issue could propel Europe's other big players - France and the UK - to do likewise.

"If Germany went ahead with a big budget increase, it would act as a strong catalyst for the other two countries to do more. In a sense, they'd almost feel obliged to make those hard decisions."

That raises the long-standing question of whether Europe's governments and defense companies can come together for the continent's collective good.

Lawrenson believes that cooperation in development and even in procurement in the defense sector is "really hard."

"European countries find it easier to procure alone, and the US Foreign Military Sales system makes it quick and easy to buy from them. We need to find a way to convince countries to buy European, whether alone or jointly, even if it's not a collaboratively developed product," said Lawrenson.

Atzpodien agrees, and said he is "convinced" that it will be possible to equip Europe's armed forces. This, however, would depend less on the companies and more on their customers, namely national governments. "They must develop the political will to really harmonize their needs in order to achieve larger quantities."

>>DW