The global fight against COVID-19 has devastating economic consequences which might soon be felt in the defense sector. First estimates by OECD and national institutions conclude that the initial economic impact of the measures to fight the virus will by far exceed that of the 2008 financial crisis. The severe socio-economic consequences may tempt European governments to prioritize immediate economic relief over long-term strategic security and defense considerations. The good news is: there is no automatism – it remains fundamentally a political decision.
If European governments do decide to slash defense spending as a result of the current crisis, it would be the second major hit within a decade. Defense budgets have only just begun to recover towards pre-2008 crisis levels, though capabilities have not. Nationally, as well as on an EU and NATO level, significant gaps still exist. European armies have lost roughly one-third of their capabilities over the last two decades. At the same time, the threat environment has intensified with an openly hostile Russia and a rising China.
With European defense budgets under pressure, the United States might see any effort to balance burden-sharing among allies fall apart. A militarily weak Europe would be no help against competitors either. The US should work with allies now to maintain NATO’s capabilities.
Improve coordination to avoid past mistakes
Europe’s cardinal mistake from the last crisis was uncoordinated national defense cuts instead of harmonized European decisions. In light of the looming budget crisis, governments could be tempted to react the same way. This would be the second round of cuts within a decade, leaving not many capabilities to pool within NATO. If domestic priorities trump considerations about procurement of equipment for the maintenance and generation of military capabilities the system-wide repercussions would be severe. NATO defense, as well as the tightly knit industrial network in Europe, will suffer. Capabilities that can only be generated or sustained multinationally – like effective air defense, strategic air transport or naval strike groups – could become even more fragile; some critical ones may even disappear.
If Europeans cut back on capabilities like anti-submarine warfare, armored vehicles of all sorts and mine-warfare equipment again, they could endanger the military capacity of nearly all allies. Ten years ago, such capabilities for large-scale and conventional warfare seemed rather superfluous, but today NATO needs them more than ever. This outcome should be avoided at all costs, because rebuilding those critical forces would be a considerable resource investment and could take years. Europe would become an even less effective military actor and partner to the US, resulting in more discord about burden-sharing.
Uncoordinated cuts would also affect the defense industry, as development and procurement programs would be delayed or cancelled altogether – hitting both European and American companies. Moreover, their ability to increase efficiency through transnational mergers and acquisitions and economies of scale is limited due to continued national sentiments in Europe. Companies might decide to either aggressively internationalize, including massive increase of defense exports, or leave the market as national armed forces as otherwise reliable clients drop out. Technological innovation would suffer from a shrinking defense industrial ecosystem and duplicated national research and development efforts, risking the foundation of security for the next generation of defense solutions.
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