Europe Needs a Paradigm Shift in How It Supports Ukraine

Europe’s approach to supporting Ukraine’s war effort is no longer fit for purpose. There is a desperate need for Europe to ramp up its defense industrial production. But despite a clear consensus behind this urgent need, European production lines are not yet maxing out their capacity. The root of the issue is not so much a lack of political will but, as is frequently the case with European defense, a failure to cooperate and a lack of funding.

Time is of the utmost urgency. Russian defense production is accelerating, with Russia gearing up for a winter offensive and bombarding Ukrainian cities in the December at the highest rate since the conflict began. It is clear that Putin is not seeking an off-ramp or negotiated settlement to this war but to reverse Russia’s humiliation and subjugate Ukraine. However, Europe has not yet shifted to the new reality that Ukraine faces a long war. Should the U.S. Congress fail to pass more funding for Ukraine, the transfer of U.S. weapons, most worryingly munitions, will slow to a trickle. With U.S. support for Ukraine on thin ice in Congress, former president Donald Trump leading the polls, and Russia ramping up its war machine, Europe needs to act urgently to both support Ukraine and restock its warehouses to improve its own military readiness.

Over the past two years, Europeans have supported Ukraine by emptying their warehouses of aging equipment and munitions. The European Union’s European Peace Facility (EPF) has incentivized its member states to give military equipment to Ukraine by reimbursing them for some of the costs.  However, there is now little left to give, as most of the old equipment has been divested. As such, European military support to Kyiv is lagging. The problem is that there is a tension between rebuilding European militaries and supporting Ukraine. Thus, European countries are much more reluctant to give Ukraine newer, more expensive equipment, which is vital for national defense and meeting NATO targets.

A new paradigm is urgently needed for Europe’s military support for Ukraine. The challenge now is less about incentivizing countries to give weapons to Ukraine but about getting European defense industries to ramp up production. This requires significant new funding and requires Europeans to do something they rarely do in defense: work together.

As such, the European Union should create a new emergency EU fund for defense procurement for Ukraine and European readiness. This fund should emulate Germany’s Zeitenwende €100 billion fund. The goal would be to procure critical matériel at scale for both Ukraine and for EU militaries. For NATO and Washington, this EU effort would strengthen NATO’s readiness and could also serve as a major deliverable for next summer’s Washington NATO summit. Active and vocal support from the Biden administration will be essential to getting the European Union to agree to such a measure.

The Problem with European Defense Production

The war in Ukraine has awakened European governments to the need to invest in defense. European defense spending is up across the board with production increasing as well. But this is not happening at the speed and scale required.

First, European companies are reluctant to significantly expand production. European defense companies are expanding production somewhat but are hesitant to make major new investments to build new factories and open new production lines. Companies are nervous that demand could collapse should the war abruptly end or fighting subsides since they only sell to governments. Instead, they are waiting for long-term contracts from governments to expand substantially arrive, but those contracts are not yet arriving at scale. The CEO of Norway’s Nammo, which produces ammunition, argued for longer-term 10 to 15 year production contracts “because that’s what it takes” to support expanded investments. “We’re looking at three to four years contracts [currently] and that’s kind of challenging . . . We need to talk about how we share the risk with governments.”

Second, European states are not necessarily prioritizing Ukraine with the new funding. National ministries of defense are trying to rebuild defense capacity, meet NATO targets, and modernize their forces with a limited pool of funding. They are thus loath to use precious defense resources to provide a decade-long contracts to offset corporate risk. Hence, ministries of defense in Europe view Ukraine as a priority, but it is not their only priority. Germany for instance is using its Zeitenwende fund to procure F-35s and air defense, which, while important, does nothing for Ukraine.

Third, European states are still not coordinating their procurement efforts. Since European militaries all essentially need to restock their warehouses with much of the same equipment, they could be working together to combine orders, create economies of scale, and provide a clear demand signal to industry. But they are largely not. National ministries of defense think and operate nationally and there remains little cross-European coordination when it comes to defense procurement. As Sean Monaghan noted in a CSIS brief, European ministries of defense tend to cooperate less when they have funding. With more resources, defense ministries are less focused on lowering costs and can avoid the time and bureaucratic hassle of coordinating with others. Hence, European ministries of defense are all acting rationally. They are balancing the need to restock, invest in future high-end systems (F-35s), and support their own national defense industrial base. From a wider European perspective, this is leading to suboptimal outcomes. For instance, the Czechs and Slovaks may have bought the same infantry fighting vehicle from Sweden, but the Czechs opted for a 35-millimeter (mm) gun, while the Slovaks a 30 mm gun, needlessly hindering interoperability.

Existing EU initiatives to encourage joint procurement are not sufficiently ambitious. The funding for EDIRPA, the European Union’s attempt to provide financial incentives for joint procurement, was approved at just €300 million, a paltry sum given the scale of the challenge. Additionally, EDIRPA only allows the European Union to contribute a maximum of 20 percent to a given procurement and is more focused on longer-term projects.

Fourth, European companies often do not prioritize European security. With little demand in Europe, many private European defense companies focus more on the export market and thus are less tied to the demands of the state. As such, European states have often been told to get in line by European companies as they fulfill foreign orders first, something that would be hard to fathom in the United States.

The European Union’s Ammunition Effort Provides a Model

Given Ukraine’s urgent need and Europe’s limited stockpiles, in early 2023 Estonia proposed a new EU initiative to increase production and buy 155 mm artillery rounds for Ukraine. This proposal was quickly adopted and titled the Act in Support of Ammunition Production (ASAP), with the goal of providing Ukraine with 1 million 155 mm rounds a year. The plan has three tracks. First, EU member states agree to give munitions from stocks. Second, EU member states make joint procurements of ammunition, and €2 billion from the European Peace Facility are being used for track 1 and 2. Third, the European Union will provide €500 million to aid ramped-up production and help companies overcome barriers to expand production.

Recent reports reveal that the European Union is not on track to hit the one million round target. Yet production is ramping up. Thierry Breton, the European Union’s internal market commissioner who oversees the ASAP proposal, said this November, "production capacity in the European Union has increased by between 20% and 30% since February." He also said that getting European production to one million per year would be met next year. Analysis from the Polish think tank OSW assessed, “European ammunition production will only increase significantly on condition that individual member states place sufficiently large orders.” This has proved astute, as Europe’s member states are not putting in the orders needed to dramatically expand production.

The Solution: EU Defense and Readiness Fund

The European Union should create a new €100 billion special fund to buy urgently needed equipment for Ukraine from European suppliers. The fund should focus on identifying Ukrainian needs—whether ammunition, tanks, armored vehicles, artillery, small drones, demining equipment, air defense or munitions. Whatever Ukraine needs to fight Russia, is also the type of equipment that Europe should have on hand as well. This would build off the European Union’s ASAP initiative and would address its limitation—the lack of funding—enabling the European Union to put in the orders and dramatically scale up production, as well as expand it to other areas of need for Ukraine.

The European Union would therefore act as a buyer, with the resources to achieve economies of scale over longer time horizons, while giving industry a degree of certainty and the longer-term contracts it needs. This would absorb some of the potential risk from the private sector of overcapacity to get production moving. Should orders outstrip Ukrainian demand, with hopefully a successful end to the war, the rest of the equipment could be either provided to European states or stockpiled for European militaries by the European Union, with the European Union serving as a Europe-wide warehouse.

The implementation of the fund will stretch the capacities of the European Union, which has never been a defense procurer. The European Defense Agency (EDA) is a relatively small entity and lacks the capacity to make major procurements. However, part of the problem with defense procurement in Europe is the intense bureaucracy. Prioritizing the needs of the Ukrainians should avoid getting entangled in the weeds of differing European states procurement requirements. What is good enough for Ukraine to fight the Russians will also suit most European militaries. While the EDA should be expanded, the European Union could also lean on its member states for capacity, as well as the Organization for Joint Armament Cooperation, a multilateral body made up of France, Germany, Belgium, Spain, Italy, and the United Kingdom. The European Union should also work closely with NATO and ensure its procurements are advancing NATO objectives and helping to meet NATO goals.

Additionally, this fund should take Ukrainian battlefield innovations and seek to pair that with defense industrial production capacity. Many Eastern European defense companies have tremendous latent capacity and now find themselves at a crossroads. Eastern European defense industries are about to undergo a major transformation, as providing support to old Soviet-era equipment in use by former Warsaw Pact NATO members is no longer viable, since this equipment has largely been sent to Ukraine. One purpose of the fund could be to help repurpose these factories to produce Ukrainian innovations at scale. This could be financed by the European Union and lead to joint ventures between Eastern European and Ukrainian industry, for example in first-person view (FPV)-prone production desperately needed by European ground forces.

The Funding Issue

The biggest challenge to establishing this EU fund will be getting approval within the European Union for funding. Complacency and frugality are beginning to take over European politics and European leaders, particularly finance ministries, are used to claiming helplessness when it comes to funding defense. The European Union is struggling to get EU member states to approve additional funding for Ukraine, with Hungary blocking action. Additionally, a German constitutional court ruling has caused budgetary chaos in Berlin, which has made Germany—Europe’s largest economy and top contributor to the EU budget—even more reluctant to provide funds for EU-wide efforts.

But if EU states are unwilling to contribute more to a joint fund there is another more straightforward way: borrow it. The European Union’s NextGenerationEU recovery plan launched in 2020 proved that issuing common debt is feasible under exceptional circumstances. By the end of 2022, the European Union borrowed €121 billion for NextGenerationEU. It has also borrowed around €100 billion for the Support to mitigate Unemployment Risks in an Emergency measure, which supported short-term employment schemes. The European Union has a triple-A credit rating and can borrow at relatively low levels (although not as low as Germany or France). Despite uncertainty about the future interest rate environment, borrowing funds is well worth it to ensure Ukraine’s preservation, ramp up defense industrial production in Europe, which will also benefit Europe’s sluggish economy, and ensure Europe’s security.

As Estonia’s defense minister explained, “The biggest challenge and the biggest obstacle is very simple—you need new money.” European politicians, in particular finance ministers, need to stop pleading poverty and acting helpless, as there is a clear way to access the funding needed to ramp up production.

Washington’s Role and the Coming Summit

Yet Europe is not going to act on a such a significant defense matter unless the United States explicitly supports the effort. President Biden should press EU leaders, insisting that if the European Union can borrow to respond to a pandemic, it can borrow in response to a war.

The formation of a new EU fund would also be a significant deliverable for the Washington NATO Summit in July. The summit must indicate that Europe is indeed stepping up and taking more responsibility for its defense. A major new European fund focused on Ukraine and European readiness would achieve that. It would also provide a clear signal to Moscow of the alliance’s commitment to Ukraine. Because the focus is on immediate production not on future systems, such as a future European tank that could compete with U.S. systems, there are no significant impacts on the U.S. defense industry. Europeans are also eager to make the summit successful and are looking for guidance on deliverables that go beyond the standard demand to spend 2 percent on defense.

Europe has the financial firepower to step up and support Ukraine. The United States should insist it do so.

Max Bergmann is the director of the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.