![Defending Europe Without the United States with Guntram B. Wolff [PODCAST]](http://4liberty.eu/phidroav/2025/04/LEP_Guntram-B.-Wolff_square-1024x1024.png "Defending Europe Without the United States with Guntram B. Wolff [PODCAST]")
What should we know about Europe’s defense industry? What capabilities does Europe need to develop to deter the Russian aggression? What are the consequences of the German debt brake reform? And is a common European defense single market possible? Leszek Jazdzewski (Fundacja Liberte!) talks with Guntram B. Wolff, a Senior fellow at Bruegel. He is also a Professor of Economics at the Université libre de Bruxelles (ULB). From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. He regularly testifies to the European Parliament, the Bundestag, and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe.
Leszek Jazdzewski (LJ): From the point of view of economics, what is the current state of the defense industry in Europe?
Guntram B. Wolff (GBW): The defense industry is characterized by a high degree of fragmentation. It is one where the orders are done by national ministries and national procurement agencies – and on a relatively small scale. This means that we are procuring a small number of weapons for every individual weapon category, with many different types of weapons across Europe.
As a consequence, we have very high costs per unit accompanied by low production numbers. This combination is really quite problematic at a moment where we want to seriously increase our capacities as well as spending on defense. If you significantly increase spending in a fragmented market, the end result are higher costs without any improvement in the quality and in the quantities.
Therefore, right now, we have to make sure that we move away from this fragmentation and towards a more integrated market with more competition and, therefore, lower costs, better quality, and higher quantities.
LJ: You have recently published an analysis written together with Alexandr Burilkov titled Defending Europe Without the US: First Estimates of What Is Needed. What do we need in order to maintain the support for Ukraine, providing that there will be no support for the Ukrainian cause whatsoever next year (or even perhaps this year) coming from the United States?
GBW: We wrote this paper precisely because of the political change in the United States. Frankly speaking, the blatant breach of trust between the United States and Europe – at a moment where they started discussing about Ukraine’s security without involving Ukraine and European partners – has made it clear to everybody that this is a completely new United States. Its current version is very problematic for us because it undermines our own security interests.
This means that Europe needs to step up. We have to support Ukraine to sustain its fight against the Russian aggression, because if we do not do this, then Russia will advance further on the battlefield and might one day occupy much larger parts of Ukraine. The extent of this support involves deliveries of weapons as well as financial, strategic, and many other types of support.
As Europeans, we are currently providing already more than half of the support – even if we look narrowly, only at the military support (the US is the other half). Now, we have to step up and basically replace the US support. Financially, that is not such a big problem. The US military support has amounted to around 20 billion per year, which is a bit more than 0.1% of the European Union’s GDP. Therefore, financially, it is totally feasible.
LJ: What is the EU currently lacking to match recent Russia’s build-up of production capacity? Especially if, as you rightly said, the US support cannot be really counted upon anymore.
GBW: We need to understand that Russia is in a full war economy setting. It invests huge amounts of money from its own budget into defense. Its defense industry has thus massively increased, so the production numbers in Russia have increased really significantly.
Europe needs to be able to match that to have an effective deterrence. This means that we need to have more tanks, more traditional, conventional military material that is used in conventional warfare. That is very important as this is the base of European defense. This is also what Europe can produce – and will be able to produce in larger quantities if there is more demand for it.
What is much more difficult to replace is, indeed, the US support and the strategy leadership – including the so-called ‘strategic enablers’ that the US provides to Europe, namely satellite communication and intelligence or strategic airlift capacities. At the moment, there is no immediate substitute for these, and we cannot really build this overnight.
Therefore, there is a gap there, and that gap needs to be closed as quickly as possible. This means significant investments in that space – and some of these investments need to be done at the European level and not just at the member state level.
LJ: If the United States no longer participate in Europe’s defense, how could it be replaced by the fragmented European militaries? Can it be done within NATO, by means of expanding the collaboration between nation states? Will any particular countries take up the burden?
GBW: There is a big gap in the short term, and this is why it is so important to have Ukraine continuing to be effective in deterring the Russian forces. Therefore, we have to support Ukraine in order to also have the time to build up our own capacities.
Europe has a lot of troops, but our troops are fragmented. In this context, the first best solution would be to move troops closer together and integrate them under a joint command. This, however, will not be achieved overnight. Therefore, Europe will have to go for a combination of more national troops. Germany, in particular, will play a big role, will have to play a big role in this scenario. German troop size has massively decreased since the end of the Cold War (it is now below 200,000 active troops, whereas during the Cold War period this number was above 400,000). If Germany can increase by 50,000 or 100,000 its troop size, this would clearly make a big difference. Nevertheless, in the short term, there is no immediate solution.
LJ: What is keeping Europe from being a huge hub of ammunition production? What can be done do speed this process up?
GBW: The production of ammunition such as the 155 mm has substantially increased in Europe, but it still is insufficient compared to the massive demand in Ukraine. A company like Rheinmetall has increased its production from very, very low to over 700,000 at the moment, and in my understanding, European ammunition production is set to reach 2 million this year. This is a massive increase – from essentially below 100,000 per year for Europe as a whole to 2 million.
Despite the increase being massive, it has also been too slow given the huge demand in Ukraine itself. In my view, this is still going to work. Europe is on the right track, and we will have enough capacities for this kind of production. If we start ordering in larger quantities of key weapon systems such as tanks, artillery howitzers, or air defense now, we will build up capacities relatively quickly (in the course of two, three years), thus leading to much bigger production numbers.
The reason why I am optimistic is that, so far, the demand was not really there. European governments did spend more, but not that much more. For instance, Germany did not order a lot of tanks before 2022. The number of tanks Germany had went down from more than 3,000 in the Cold War period to 350 or so in 2022. And since 2022, Germany only ordered another 125 Leopard II tanks. Not only is it a small order, but also it is supposed to be delivered only by 2030. With these kinds of small numbers, the industry is not really investing in capacity.
As such, once you start ordering 500 or 1,000 tanks, companies will invest in industrialized production. And this industrialized production can take off relatively quickly in a country like Germany, which has the engineers who know how to run industrial robots, and who can draw on the experience in the car manufacturing sector. Therefore, with the political will and more resources mobilized, we will actually see a pretty significant increase in production numbers in the area of conventional warfare.
LJ: In terms of the economic costs of the fragmentation of the European defense industry, what are the main obstacles that currently prevent a deeper industrial integration?
GBW: The main obstacle to a deeper industrial integration in European defense is the fact that member states and domestic companies like to protect their domestic markets and industries. They fear competition and the losses that this might imply in terms of local jobs.
And here comes the political economy trick. We are now at a moment where defense budgets will be increased so much that even with more competition and more demand directed towards other countries, the overall pie is growing so much that defense industries everywhere across Europe will benefit. Therefore, this fragmentation and protectionism of national markets does not make sense anymore. It makes not only no sense, but it is actually extremely costly and prohibits a rapid build up of capacities.
LJ: Many European countries feel that the only chance to prepare for a scenario of a potential war with Russia is to build up capabilities right now, meaning buying ‘from the shelf’. Is there a trade-off between supporting Ukraine, preparing for the potential imminent threat from Russia, deterring this threat, as well as building a long-term industrial capacity to replace the United States in a 10-year perspective?
GBW: Yes, in the short term, there definitely are trade offs. Nevertheless, there are two fundamental problems related to buying ‘off the shelf’ from America. The first problem is the fact that the US defense industrial base itself is overstretched. As such, it is simply not true that you can just buy off the shelves. If you buy in the United States, delivery delays have increased massively in the last couple of years. One cannot simply purchase a fifth-generation fighter jet (F-35) now and get it tomorrow – you might get it in five years.
The second problem occurs on a deeper level, and it is political in nature. If you buy top-end gear from the United States, and the politics continues to be what it is, one might risk losing access to that gear if the president of the United States decides so. Therefore, for high technology products (such as the F-35), the dependence on the US companies is enormous, and the US politics is enormous. It is also clearly stated in various purchase agreements that a lot of the intelligence and software needs to be done in coordination and in agreement with the United States. This means that, at the end of the day, you buy a weapon, but it is not your weapon, but a weapon in the control of the right house. And that is really a problem given the politics.
LJ: What can be done to incentivize the European countries which might be lagging behind in terms of development of their own defense industry? Can a single market principle be applied to the defense industry in Europe?
GBW: There will be a lot of resistance to a single market for the defense industry. We have to provide the right financial incentives to do so – and only if you provide the right incentives, will this happen. Meanwhile, the European Commission’s proposals on the defense markets that are currently on the table are insufficient to achieve that.
Only if there are substantial financial rewards, will we be able to introduce more competition and integration of the single market. Moreover, I do not think that this single market will be an EU single market – rather a single market of like-minded countries agreeing to cooperate on defense. It might well include the United Kingdom and not include some countries in Europe that are politically seen as either too close to Russia or too little aligned with the strategic objectives of a deeper defense integration.
LJ: Recently, Germany decided to reform its debt break. Altogether, it is one trillion euros, which is more than double of the current budget spending. Half of it is supposed to go to the to the defense investments and the other half to the infrastructure. Is this move what we should expect from other European decision makers? How is it going to impact Europe’s capacities and the European economy?
GBW: From a security and military perspective, it is great news that Germany can now increase its borrowing for defense spending – that is very important. The reform of the German debt break was, indeed, necessary. Regardless of whether the design of the reform was done in the best way it could, the core is that we will be able to increase defense spending in Germany and that the domestic fiscal constraint has substantially loosened.
At the same time, the European Commission is proposing to loosen the European fiscal rules. So far, the European fiscal rules had been constrained on defense spending, but the new rules will allow countries to borrow more and spend more on defense.
Undoubtedly, these two things in combination are positive for defense spending. What is missing is a truly European element of funding defense. What is that European element? Basically, the only thing the European Commission is proposing is a 150 billion loan instrument. However, the financial advantage of lending to member states is very limited for most countries that really want to invest in defense now – which means most countries between Germany and Finland, to make it geographically clear. Therefore, it does not really provide the incentives needed to be taken up a lot. In this light, the instrument will likely not go very far.
LJ: We seem to live in a time of great uncertainty, including the way that global economy works. How should Europe adapt in light of the new rules of the game that President Donald Trump seems to be trying to impose on the world?
GBW: We are at a point where we are yet to see how it will all develop. Nonetheless, the changes that are happening in the United States are so big and so frightening that it will impact the global international order, as well as the global international financial and monetary system. Currently, a lot of global capital and many global investors are reconsidering their exposure to the United States. If that starts to happen in earnest, we are really at a watershed moment.
For Europe, this change poses a big threat because Europe has been in an alliance with the United States, with the transatlantic relation being at the core of the international order. At the same time, it is also an opportunity for Europe. If we get this right, we can actually attract a lot of capital.
This is exactly what we are seeing already – there has been a great deal of equity capital moving from the United States to Europe in the last few weeks, and this process can further accelerate. However, if it is to accelerate at some stage, we have to offer attractive investment opportunities. This means that Europe needs to have a growth strategy. We need to really invest in capacities to grow. This is why the second pillar of the German debt break reform – the opportunity to invest more into infrastructure – is actually very important. And we need to get that right.
We need to invest more in the physical and the digital infrastructure in Europe, so that corporate investments become more interesting. And if they do, we could actually attract a great deal of global capital to Europe. This shift would fundamentally change the way the international system works.
In this light, we are really on the brink of a new era. However, it might not be a completely new era if the self-correcting forces in the United States gain strength. Still, at the moment, the opposition in the United States towards the new administration is rather limited. Therefore, at the moment, wea re going in the direction of quite a fundamental change.
Read the analysis: www.bruegel.org/analysis/defendin…mates-what-needed
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