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Investing.com - European Union plans to boost military expenditures and pursue a revitalization of its industrial faces a number of "significant hurdles," including a sizeable technology gap with the U.S., according to analysts at Baird.
Last week, the EU unveiled a blueprint to lift defense spending and purchase more European arms, as the bloc looks to address fears over a possible threat posed by Russia and worries that the U.S. may no longer be willing to provide a reliable security backstop.
The European Commission, the executive body of the EU, said it aims to make sure that the Europe has a "strong and sufficient" defense stance by the beginning of the next decade. In particular, Brussels would seek to bolster the continent’s arms industry, which could mean that the presence of companies in the sector from countries outside the bloc would likely be limited.
EU countries would also push to fill perceived "capability gaps" in key defense areas like drones, military transport, artillery, cyber warfare and infrastructure protection. As part of this push, the EU proposed that members bring together their resources, while the Commission would also borrow 150 billion euros for EU members to spend on defense.
A move to ease bloc-wide fiscal rules could also raise another 650 billion euros, the proposal showed.
However, in a note to clients on Monday, the analysts at Baird said there were large deficits between European and U.S. defense technologies that "call into question the reality of this plan."
"The serial underinvestment in national defense by EU member states the past few decades, coupled with a virtually non-existent [venture capital]-funded Defense Tech ecosystem, makes us question Europe’s ability to internally develop next-generation weapons across critical areas," the Baird analysts wrote.
From 2020-2024, the EU imported roughly 80% of its military hardware, with about 53% of all EU imports provided by U.S. contractors, Baird research showed. Additionally, U.S. defense spending in 2024 totaled appproximately $874 billion, compared to just $352 billion by the EU. The U.S. Department of Defense, meanwhile, allocated some 16% of its budget towards research and development, versus only 4.5% by Brussels.
Still, European Union foreign policy chief Kaja Kallas told reporters that Europe faces a "pivotal moment" which could determine the future of its defense.
Kallas added that, despite ongoing negotiations around a potential ceasefire to the war in Ukraine, Russia has moved its economy into "full war mode," with 40% of its budget going towards the military.
At the same time, a recent thawing in relations between Moscow and Washington, and indications that the U.S. may no longer be as focused on its role in Europe, have bolstered arguments in Brussels that more defense spending is necessary.
Russia, for its part, has hit out at the EU’s rearmament drive, saying it was based on an "invented story" of a Russian threat.
(Reuters contributed reporting.)