NATO 5% of GDP pledge for defence, does Europe stands to benefit?

A lot of noise is generated as regards to the NATO pledge to allocate 5% of the GDP for defense purposes. Whether the members of EU can afford to do this is another matter. What is important is whether Europe stands to benefit from this move or it is simply grandstanding.

While navigating strategy amid geoeconomics, I found that Europe as a whole does not stand a chance to get any boon but only bane. True enough, few countries would benefit such as France at the expense of the weaklings. Yet overall there is no tangible benefit, despite this pledge being illogical.

The stats are terribly arraigned against this move. For example, the EU's total GDP in constant prices is € 3,575 Billion. Five percent of it works out as € 178.75 Billion. Defense expenditure incurred by member states is estimated as € 326 Billion, much above the threshold of the called for pledge.

Now let me turn to the arms exports profile of the EU. The main suppliers of arms & ammunition from Europe are France, Germany Italy, UK and Spain. France tops the list in Europe as global supplier of military related items at 9.6% of the global demand. Germany comes second at 5.6%, Italy follows suit at 4.8%. Then comes UK at 3.6% trailed closely by Spain which accounts for 3.0%. Roughly EU as a whole account for nearly 24% of the global supply of military stuff leaving out UK which left the European Union few years ago.

The sticking point is Europe as a whole is not self-sufficient in manufacturing arms and ammunition for her domestic use. EU relies on USA to cover the deficiency. For example, US exports of military hardware & software to Europe is around 30% of the continent’s requirements. This 30% is just the surface scratching it one finds that there is an added item known as dual-purpose exports from US to Europe around 8.5%. Put it other way, Europe depends on America much more for her military needs than it is shown.

So on paper it appears that the NATO pledge is sound but in practice it is just superficial. The unescapable fact is that USA being the largest supplier of global arms requirements at 43%. Therefore, US is going to be the net beneficiary because EU would not be able to absorb the increased defense allocation for her needs. The elephant in the room is not America though. China controls the supply chain as regards to the Rare Earth Elements which is sine quo non for manufacturing most arms and ammunition that EU turns out. Hence, Europe befriend China for her military profile.

The catch 22 situation faced by EU is summarised as: either imports more from USA or cut her own exports of arms to the globe in order to implement the NATO pledge. Either of the business strategy is bound to fail in the long run. Trust saner counsel prevails in EU and a viable strategy is worked out

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist