Analysis | Ukrainian song for Macron is terribly bittersweet

Europe and NATO clearly want to do more to help Ukraine. US Defense Secretary Lloyd Austin said after a meeting of more than 50 NATO allies he was “confident” that countries would offer anything to bolster Kiev’s air defenses. The Dutch have pledged 15 million euros worth of anti-aircraft missiles.

Yet Ukraine’s advocacy inadvertently exposes the challenges and compromises that come with it as defense budgets move from famine to feast after the decades-long “peace dividend” of the post-Cold War era.

More than seven months after Putin’s war, we have already learned that announcements of increased defense spending across Europe have not yet fully materialized. The weapons sent to Ukraine so far have come from existing stockpiles, and the political will to exhaust resources in a given area to fortify Ukraine has not always been there, especially when the equipment is in disrepair.

The ability to replenish inventories is a challenge that relies heavily on supply chains. Lockheed Martin Corp. said in May that doubling the production capacity of, for example, its Javelin missiles could take years. Alessandro Profumo, chief executive officer of Italy’s Leonardo SpA, warned this week about the industrial challenges ahead: more intensive use of existing systems and the possibility of replacing them more quickly, while developing next-generation technology to disrupt them.

And now the backdrop of the recession in the EU and the UK, forcing governments to dig deep into public funds to protect consumers from inflation, is casting a shadow on future defense obligations. Declines in the pound and euro against the US dollar make buying equipment from the US more expensive and spending targets harder to achieve (even if it ultimately benefits domestic exporters); deteriorating growth prospects are putting further pressure on government budgets.

The recent turmoil in the UK budget is a good example of this. Rather than choosing between guns and butter, the ruling Tories have promised it all, from pledging to spend 3% of gross domestic product on defense by 2030 – or about £157 billion over the next eight years, according to think tank Royal United Services Institute — on energy aid and a whole host of unfunded tax cuts. Combining all of this with bleak growth prospects may require unpopular austerity measures roughly double the defense budget, the Institute for Fiscal Studies believes.

Restrictions that are apparent in the UK today may be apparent elsewhere tomorrow. Bloomberg Economics estimates that for the Group of Seven Major Industrialized Countries as a whole, the cost of repaying debt could rise to 3.6% of GDP in 2030, from 1.7% in 2019. Faced with these challenges, some clear paths make sense to follow. The first is to prioritize aid to Ukraine. Economist Jacob Nell says in a paper co-authored last month that the Ukrainian armed forces have been effective in destroying a large amount of Russian military equipment and capabilities at a low cost. The pledge to provide an additional $50 billion by 2023 would fully fund Ukraine’s 2023 budget and could be done with the help of International Monetary Fund Special Drawing Rights, easing pressure on Western budgets. The second is to be more realistic. The long list of European spending after the pandemic includes public health and climate change – pointing to tax hikes, not austerity. The UK’s political ambition to be an Indo-Pacific power while defending Ukraine broadens economic reality – perhaps ‘Global Britain’ should focus better on European Britain for now.

Efficiency gains must also be pursued. According to Lucie Béraud-Sudreau of the Stockholm International Peace Research Institute, the glass-half-full picture of this crisis is that the EU is pursuing closer defense integration as a result. NATO could also improve coordination.

Difficult decisions are ahead for European governments. Gainsbourg’s bittersweet music is a sign of things to come.

This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist on digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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