Europe tries to keep defence spending boom close to home

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Europe tries to keep defence spending boom close to home

Januš Kizenevič

‘Unfortunately, this is not going to be a quick win’ says Lithuania’s Kizenevič

President Donald Trump urged European defence spending higher this year with threats of not defending Nato allies, even though European purchases of US weaponry had hit a record high last year.

Trump partly wants European countries to pay a fair share — but many believe he also wants them to buy more equipment from US companies.

European countries have different priorities. Those splashing the cash are increasingly keen to build factories and keep advanced technology closer to home.

Poland is the forerunner in central and eastern Europe in ramping up defence manufacturing. Last year it had Nato’s highest level of defence spending as a share of GDP, and it has long extolled the benefits of developing its own military equipment manufacturing.

But other countries are now getting in on the action, spurred on by disbursements from the European Union’s €150bn Security Action For Europe joint borrowing scheme, set up in May. SAFE is meant to support member states’ defence readiness by providing cheap, long term loans to help them make urgent and major investments in support of the European defence industry, especially to close critical capability gaps.

The highest amounts allocated were announced in September as Poland at €43.7bn, Romania €16.7bn and Hungary and France each €16.2bn.

Lithuania building factories

But even countries that took smaller amounts are highly motivated to build industry of this type. Lithuania has borrowed €6.3bn and Januš Kizenevič (pictured), its vice-minister of finance, told GlobalMarkets on Wednesday that his country fully expects to be part of the solution of spending more European defence money within Europe. Lithuania also strongly wants to attract further western European investment in its defence manufacturing industry.

Lithuania has increased its defence spending. It was around 3% of GDP last year, 4% this year and over the next five years is projected to reach 5.5%.

Trump demanded earlier this year that Nato allies raise defence spending to 5% of GDP, saying in March “If they don’t pay, I’m not going to defend them.”

But those threats have raised fears in Europe about depending too heavily on buying arms from the US. A policy brief by the Bruegel thinktank, published on Monday, said US military sales to Europe ballooned from an average of $11bn annually in 2017-21 to $68bn in 2024.

Policymakers are keen for Europe to develop its own military industrial base.

In Lithuania, German defence group Rheinmetall started this year building a modern ammunition production facility, which Kizenevič described as a “first milestone” of this kind of investment.

GlobalMarkets understands the Lithuanian government is in talks with other similar companies. “We believe that other German companies and maybe a French company will be following Rheinmetall,” Kizenevič said.

The Bruegel report said US defence manufacturing would not easily be replaced, even with substantial investment. Some US technology is unrivalled, and many weaponry parts are manufactured there. But the thinktank stressed the pressure on Europe to build its own capabilities, as Europe’s dependency gives the US leverage in multiple policy areas.

“Unfortunately, this is not going to be a quick win,” said Kizenevič. “It’s a long term strategy, and with the defence sector under-invested, not only in Lithuania, but in neighbouring countries in western Europe, we have to do a lot, but in a smart way. We can’t just spend money as quickly as we can on it — the biggest job is to spend in a sustainable way.”

Kizenevič said Lithuania was keen to attract military and defence investments and saw this as a key area for future security. The need was clearer in eastern Europe than western, he said — and that was reflected in budget allocations.

Spain feels the heat

Nato allies agreed at a summit in June to meet Trump’s demand to spend 5% of GDP on defence. Spain was the only country that did not commit, only agreeing to 2.1%. Attention was drawn to this again this week as Trump threatened tariffs on Spain because of it.

Rheinmetall also unveiled plans last month to build a new ammunition plant in Latvia.

“The more we can produce in Lithuania, the better protected we are from all geopolitical shocks and from all supply chain disruptions,” said Kizenevič. “We considered the Rheinmetall investment to be a very positive response from our Nato partners Germany and are encouraged that they believe Lithuania is good place to develop such investment. We believe it is only the first milestone for this type of investment. We can do much more, and not only in ammunition manufacturing, but also drones manufacturing and other equipment manufacturing. Our focus is on attracting such investment, because we see it as crucial.”

As well as looking to foreign companies for investment, Lithuania also has plans to refresh an existing but small and old ammunition factory.

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