A new article published by The Centre for Economic Policy Research (CEPR) has made the case that investing within defence is a public good within Europe.
Published to the organisation’s website, the article says that current defence policies within the continent have become ‘increasingly outdated’ against the backdrop of mounting geopolitical threats.
The trio write that there has been a long period of low-priority investment within defence.
They say: “For many EU countries, rebuilding defence capabilities will require a substantial sacrifice of resources at a time when spending on the energy transition and ageing are rising. The danger of falling short of what is needed is particularly large when defence investment decisions are taken in an uncoordinated way potentially leading to duplications and omissions at the same time.”
In order to deliver defence as a public good, the CEPR says that this will require the development of the continent’s defence industry. Over one year, between 2022 and 2023, the CEPR writes that 78% of total procurement spending went to non-EU suppliers, out of which 63% went to the US.
The CEPR adds: “The evolving geopolitical threats and the increased uncertainty about the US commitment to defend Europe in case of an attack from outside means that the EU will increasingly need to provide for itself. This requires an expansion of the range of hardware that can be produced on European soil, but it also means an increase in sheer production capacity as well as building an integrated internal market for this equipment. The latter is important, because many countries have their ‘national champion’ in defence production, causing an absence of proper competition and a vulnerability of governments to lobbying activity by these champions.”
Defence spending has been an increasing topic within investment circles within the past few years. Just at the beginning of this month, Portfolio Adviser Europe wrote about how a third of ESG funds within the UK and Europe had more than doubled their investments in this sector since Q1 2022.
This followed Hargreaves Lansdown writing earlier this year that a boon was coming in defence spending. It wrote about increasing conflict in Ukraine and the Middle East, saying that it would lead many countries to boost their defence spending for years to come.
