What impact will Brexit have on EU defence spending?

Author(s): Dr Lucie Beraud-Sudreau; Sophia Besch; Malcolm Chalmers; Gabriel Elefteriu; James Rogers & Jack Wright

May 10, 2018

Brexit’s impact will be indirect

By Dr Lucie Beraud-Sudreau (IISS)

Brexit’s impact on EU defence spending will be indirect. Prior to the current budget proposals by the Commission for the 2021-2027 period, defence was not considered as a core competency of the European Union (EU). However, a conjunction of crises and new uncertainties has brought defence and security to the fore of the EU agenda. Brexit is only one of those, alongside the Russian invasion of Crimea in 2014, the wave of terrorist attacks in Western Europe, the migration crisis, and the election of Donald Trump as President of the United States.

As these events occurred at the time of a change of political perceptions both in Brussels and the member states, defence has become a point of focus for EU action. This has led to multiple initiatives including the European Defence Fund (EDF) and the Permanent Structured Cooperation (PESCO). These new projects designed to foster EU defence cooperation are now to be funded in the new 2021-2017 budget framework, as the Commission proposed to allocated €19.5bn (US$24.2bn) during this seven-year period. This will include €6.5 (US$8.1bn) for ‘military mobility’ and €13bn (US$16.1bn) for the EDF which will finance cooperative defence-R&D and capability developments. However, Brexit will mean that the EU loses its largest defence spender (£39.7bn in 2017, or $51.1bn) and a key contributor to EU operations. This does not impact EU defence spending per se, but rather the military capabilities of the EU understood as the sum of its member states.

For the first time Europeans are seriously debating EU defence spending

By Sophia Besch (Centre for European Reform)

Britain leaving costs the EU money. Currently, there is no defence line in the EU budget, overall EU defence spending is the sum of all member-state spending. In Europe, the UK is the biggest defence spender, one of few countries that fulfil NATO’s target of spending 2%GDP on defence, and responsible for 40% of the EU’s overall spending on defence research and development.

Today, however, Europeans are for the first time seriously debating spending EU money on defence. From 2020 on, in the next EU multiannual financial framework (MFF), the Commission wants to spend €500 million a year on defence research. That would make the EU the fourth biggest funder of defence research in Europe, after the UK, France and Germany. The Commission also wants to support joint capability development with €1 billion annually from 2020, to co-finance new military prototypes.

Europeans will have to make up for the absence of British money in the next MFF.  As an EU member, the UK is what is known as a ‘contributor country’, every year it pays around €10 billion more into the EU’s budget than it gets back. Introducing additional spending will not be made any easier in the Brexit context. On the other hand, Britain’s leaving has arguably motivated Europeans to get more serious about defence, and propelled forward new initiatives like the defence fund. Still, both Europeans and Brits benefit, if they find a way to include British capabilities and expertise in European defence even after Brexit.

Brexit could harm Europe’s ability to maintain a competitive defence industry

By Malcolm Chalmers (RUSI)

20 of the 22 states that belong to both the EU and NATO have increased defence spending in real terms in the last three years. Nine of these – mainly ex-communist states in Central Europe – have recorded increases of more than 20%.

This increased activity results mainly from widespread concern about Russia since its aggression against Ukraine, while also reflecting an increasingly robust economic recovery. In contrast, the UK’s decision to leave the EU is unlikely to have much impact on defence budgets.

The main determinants of defence spending levels in Europe are national and historical. The UK and France spend much more than Germany and Italy, reflecting the strong international roles to which the two former powers have aspired for the last 70 years.  NATO’s commitment to spend 2% of GDP on defence has made little difference to this longstanding pattern – Germany and Italy are now at 1.2% and 1.1% respectively – and there is no reason to believe that the EU will be any more successful.

Yet a hard Brexit could harm Europe’s ability to maintain a globally competitive defence industry. The EU is planning to spend significant amounts from its own budget on support for defence research and development. If these programmes exclude UK-based companies from taking part – already seen with the Galileo programme – it could lead to a further fragmentation of Europe’s defence market, making it more difficult to compete with American (and increasingly Asian) companies. UK exit from the single market and the customs union could add further pressures, making it more difficult to maintain the cross-channel supply chains on which joint projects depend.

An opportunity for European leaders to start a more ambitious EU defence project

By Gabriel Elefteriu (Policy Exchange)

The main effect of Brexit concerns the way in which it has enabled an unprecedented surge in new top-level policy decisions and initiatives around EU defence, which had hitherto been constrained by British opposition. Most significantly, there is now a common European Defence Fund, a Military Planning and Conduct Capability (an operational HQ in all but name), and a newly-activated Permanent Structured Cooperation (PESCO) framework which prioritises EU rather than NATO capability requirements in line with EU’s avowed goal of developing a European “strategic autonomy”, especially from the US.

These are momentous changes: the EU of 2018 is very different in fundamental ways, particularly defence policy-wise, to the EU that Britain voted to leave in 2016. Proponents of ever-closer EU integration have rightly celebrated these developments as a major leap forward for this particular agenda. That being said, significant scepticism remains over the practical impact and implementation timeline of these changes. President Macron’s recent call for yet another European (but non-EU) Intervention Initiative, prompted by an obvious French frustration with the limitations of PESCO, is a case in point. If it gains traction – and with British help post-Brexit, it might – such a plan could then cast the EU defence developments in a new light (or shadow), while providing what Europe really needs: a credible military intervention force able to act where NATO cannot.

In the end, European leaders used Brexit as an opportunity to quickly set a much more ambitious EU defence project on track. But whether the train will ever leave the station – and how fast and far it will go – will depend, as always, on the power politics in Brussels and other EU capitals.

The EU’s weakness means the UK will continue to play a lead role in NATO

By James Rogers; Jack Wright (The Henry Jackson Society)

Presently, there is no such thing as “EU defence spending”. The 28 EU members each have their own defence budgets, which they allocate in accordance with their own national interests. The UK accounts for just under a third of this combined national spending and as much as two thirds of Europe’s effective fighting power. This is because the British Armed Forces simply possess a unique range of logistical and “power projection” capabilities that few other EU members have access to.

Last year, 25 EU member states (excluding the UK, Denmark and Malta) committed to establish “Permanent Structured Cooperation” to enhance their military power. This will be complemented by a “European defence fund” of between £0.9-£4.8 billion per year for EU-led defence-industrial projects. However, this is relatively small change in comparison to the £178 billion the UK plans to spend over the next 10 years on an array of new military apparatus, from the Queen Elizabeth class supercarriers, to the Lightning II stealth combat jet.

Moreover, as a report by The Henry Jackson Society has recently demonstrated, many of the richest mainland European countries (i.e., Germany, France, Italy, etc.) have consistently failed to meet NATO’s defence spending target, set in 2014 as two percent of national output. And, save for a few notable exceptions in Eastern Europe, there seems little inclination to allocate much additional funding to defence, meaning that many European forces will continue to deteriorate. Consequently, the EU’s weakness means the UK will almost certainly continue to play a lead role in NATO, underpinning continental defence.