Europe faces incremental defence shift amid geopolitical pressures

Published 23/02/2025, 11:20
© Reuters.

Investing.com -- Europe is likely to take incremental steps rather than a transformational approach in adjusting its defence strategy, Barclays (LON:BARC) said amid the mounting geopolitical pressures and inefficiencies in defence spending.

Russian aggression in Ukraine, more assertive U.S. trade and foreign policies, and rising competition from China have intensified the need for a re-evaluation of European security policies. However, it expects changes to be gradual.

Increasing euro area defence spending from about 2% to 3.5% of GDP by 2035 could boost euro area GDP by 1.6 percentage points compared to a no-increase scenario, Barclays said. It estimated this would require approximately €1.63 trillion in additional defence spending, with €680 billion allocated to investment.

The bank noted that national-level decision-making has led to inefficiencies, with spending priorities varying across EU countries. While discussions on joint defence initiatives are underway, Barclays does not expect a large-scale EU-level funding facility similar to the bloc’s post-pandemic recovery fund.

Instead, the European Investment Bank could play a greater role in financing security investments, and some EU and non-EU countries may establish a special purpose vehicle to issue bonds for defence-related industries.

Barclays said any significant increase in defence spending would have fiscal consequences, requiring flexible application of EU fiscal rules, potential reallocation of unused EU funds, and negotiations for the bloc’s 2028-2034 budget framework.

Well-designed pan-European solution that boosts spending, reallocates resources, and promotes research and development would yield better results than national-level increases, Barclays added.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.