Despite increases
Management consultants believe defense budgets are inadequate
February 18, 2024, 11:21 a.m
This year, Germany is meeting NATO’s two percent target again for the first time. In a study, the management consultancy McKinsey calculates the impact of lower spending over the past decades and comes to a devastating conclusion.
The management consultancy McKinsey considers the defense efforts in Europe to be insufficient. In a new study on the European defense strategy, which is available to “Spiegel”, the consultants come to the conclusion that the European NATO states have spent $1.6 trillion less over the past three decades than agreed in 2014 would have met NATO’s two percent target.
“Based on announced military spending, defense budgets in Europe will increase by 700 to 800 billion euros between 2022 and 2028,” the study says. That is a significant increase over previous spending levels, but “may not be enough to offset the backlog of decades of lower investment.”
Large parts of the European armament systems are outdated. When it comes to land systems, such as tanks and howitzers, around 50 percent of all systems in Europe were put into operation before 1990. For land-based air systems, such as air defense, it is up to 80 percent.
More intra-European cooperation
According to McKinsey, the fragmented corporate landscape is also to blame for the misery. It has led to two to three times as many European suppliers competing for aircraft, tanks and ships than in the United States. Europe’s leading defense companies only generate around 30 percent of the sales of an average US defense company and are less profitable.
The consultants therefore recommend stronger intra-European cooperation. Lack of collaboration and separate procurement led to duplication of research and development and limited potential economies of scale, they write.
This year, for the first time in three decades, Germany reported to NATO planned defense spending of two percent of gross domestic product. However, Federal Defense Minister Boris Pistorius made it clear at the Munich Security Conference that he considers the two percent target to be too low in the long term. “Of course we need more,” Pistorius said in a panel discussion. He referred to Russia and also to trouble spots in the Indo-Pacific region and Africa. When asked whether four percent was more realistic, the SPD politician said that a “sufficient amount” was needed, perhaps three percent or even 3.5 percent of the gross domestic product.