The debilitating state of Europe’s defense capabilities
Vladimir Putin is endeavoring to reconstruct a version of Greater Russia, while Western Europe appears ill-equipped to mount an effective defense. The conflict in Ukraine has laid bare the deficiencies within European defense, yet the continent’s leaders remain insufficiently proactive in revitalizing their military capabilities. One reason is that environmental, social, and governance policies persist in undermining defense investment.
Commence with the European Investment Bank, an institution that provides financing for investments aligned with the policy objectives of the European Union. The bank has historically been reluctant to fund dual-use projects such as drones unless the anticipated revenue from civilian applications exceeds fifty percent. More than two years elapsed following the onset of the Ukraine conflict before the bank decided to eliminate the dual-use threshold. Nevertheless, the bank continues to decline financing for the production of weapons or ammunition.
Numerous leading private banks in Europe have articulated sustainability policies that explicitly prohibit the provision of financial services or loans to firms engaged in the production of “controversial weapons” or their components. This expansive classification generally encompasses anti-personnel mines and cluster munitions, both employed by Ukraine for valid defensive objectives. Financial institutions are adapting to the influence of progressive nonprofits that contend that peace is achieved through disarmament rather than deterrence. The prominent Berlin-based organization Facing Finance contends that “the European arms industry attempts to present itself as the protector of European security and freedom” and asserts that “the arms industry is unequivocally not a sustainable investment.” It is hardly unexpected that sustainability, in its various interpretations, does not rank highly on the agendas of Russia, Iran, China, and North Korea.
European defense firms require private capital to enhance the continent’s industrial foundation, pursue research and development initiatives, and cultivate a proficient workforce. The deficiency of private inv estment particularly hampers small and medium-sized defense firms, including those manufacturing essential components. A report from the European Commission this year revealed that approximately 40% of small and medium-sized defense firms faced challenges in securing financing, in contrast to 30% of the broader category of small and medium enterprises. According to a survey conducted by ADS, a trade association for U.K. defense and security businesses, over half of British companies of this size that sought banking services in the last 12 to 24 months reported that access posed a significant barrier to their growth.
“The exclusion of the defence industry from private funding opportunities may jeopardize European defence initiatives and risks placing European firms at a competitive disadvantage, while also presenting a security threat to the EU and its Member States, particularly in critical domains such as cybersecurity, artificial intelligenc e, and space,” cautioned the European Commission report. Europe is gradually becoming aware of the global threats that loom ahead. Currently, twenty-three out of NATO’s 32 members are progressing towards the defense spending benchmark of 2% of GDP, with discussions emerging around aspirations of 3% or higher. However, they will require the assistance of Europe’s private sector, which appears to be engaging in idealistic sustainability pursuits that may compromise the continent’s security.
