Ringailė Kuokštytė
Researcher
Security Policy Research Group, General Jonas Žemaitis Military Academy of Lithuania
Lithuania
ringaile.kuokstyte@lka.lt
Collective defence is generally about politics (and strategy) as much as about economics [1]. The commitment of NATO allies to the alliance, for instance, has been extensively examined in the defence economics literature within the framework of free riding. In fact, the present geopolitical environment, characterized by heightened threats to NATO member states and European security more broadly, along with shifting dynamics in transatlantic cooperation, provides a compelling basis to continue engaging with the debate on the free riding behaviour. Furthermore, this debate is related to a more recent discussion on defence-industrial cooperation among European allies – another important area of tensions between high and low politics –, which may yield further implications for transatlantic security.
The notion of free riding does not have a universally agreed-upon definition, even within the pertinent defence economics literature. For instance, one may opt for a definition that associates such ally behaviour with either the share of GDP allocated to defence or absolute military spending. In the first case, a free riding ally is the one that underperforms with respect to the agreed objective. In the second scenario, it is the one that tends to systematically scale down its defence spending if other allies, especially the US, increase their own.
Regardless of the definition used, evidence of free riding in NATO, particularly among European allies, underscores insufficient investment in defence and, consequently, suboptimal provision of collective security. The need for increased targeted resources has only been obvious in the context of elevated geopolitical tensions, especially since Russia’s full-scale invasion of Ukraine. Notably, in July 2023, the goal of 2% became the “floor” level of the defence spending objective of NATO allies. Reacting to Russia’s aggressive policy and war, Europeans have already boosted their defence budgets. Based on NATO’s data, for instance, while the average annual real change of defence spending of NATO Europe (and Canada) has been positive since 2015, the estimated figure for 2023 stands out as unprecedented (more than 8%). Between 2019 and 2023, additional four allies, including Finland, have become members of the “2% club”, bringing the total count to 11 (estimated).
Such efforts will hardly suffice, though. Certain allies may be expected to remain below the 2% objective. Inflating military spending is a challenging endeavour, often requiring redistribution within national budgets or an increase in public debt, which is a process with EU fiscal rules attached to it. Russia’s war, indeed, galvanized European governments to boost their defence budgets. However, one should consider the possibility that such political resolve may be out of breath, meaning that there is only so much individual governments can do without jeopardizing other specific policies. A promising policy approach in this context is consolidating the EU financing of defence-related activities and enhancing the efficiency of defence investments through EU-level initiatives. Recent noteworthy developments, particularly the European Defence Fund and collaborative procurement initiatives (e.g., EDIRPA), align with this rationale, as they offer financial incentives for cross-border projects, while also – and inherently so – facilitating efficiency gains, such as cost savings.
The European defence market has remained highly fragmented, with national governments, for instance, prioritizing their domestic production and still (relatively) independently developing or acquiring military capabilities. This has led to a notable lack of coordination at the broader EU level. The consequences of suboptimal cooperation, including duplication of investment efforts and the persistence of multiple parallel weapon systems, have been forcefully argued to lead to wasteful expenditures. It has been more recently observed, for example, that, following Russia’s war, uncoordinated efforts led to increased prices in the defence market, with EU member states competing against each other. Scarce defence funds were thus once again not optimally used.
Political inclinations in EU capitals often steer them away from deeper defence integration. Yet economic constraints draw them closer together. Recent EU defence-related advancements, notably in the areas of defence research, development, and capability acquisition, were, in fact, mainly concerned with efficiency gains rather than inspired by member states’ political will, which implies an additional shift of loyalty to the EU level. The EU as a market-oriented solution to challenges in the defence sector hardly guarantees such a shift; however, political commitment largely determines the success of the former. Member states might therefore be encouraged to think about how to more comprehensively incorporate the EU level into their defence policies, recognizing its increasingly significant role in transatlantic security.
[1] The views expressed in this contribution are
those of the author.