The war in Ukraine and the latest US decision on long range weapons will be in focus as European foreign ministers meet in Brussels today. They'll be discussing the situation in Ukraine with the country's foreign minister and also relations with the US ahead of Donald Trump taking office in January and his uncertain support for Ukraine and NATO. The Russia's invasion sparked a flurry of investment in defense, but what capacity does Europe have now to produce the military
equipment it needs well. Joining us to discuss is Diana Demitrova, who is managing director and partner at Boston Consulting Group. You've recently published a report on this subject. Thank you for joining us this morning. Diana, on the program, much of Ukraine's battle with Russia has depended on weapons that came from the US. We've been talking about some of the rules around how those weapons can be used on
the program this morning. But how does that set us up for what happens next and how much Europe can step up to perhaps replace those weapons if US supplies seem less certain in the future.
Be with you. I think in general, as we've seen in kind of the political conversation, Europe will continue to outspend what they have historically, will breach hopefully the two percent level. And as we dar Anthem analysis, we saw that China actually had crossed the barrier of how much they spent versus US as Europeans. And when I say Europeans, I mean France, Germany, Italy, Spain, in the United Kingdom in about two thousand and seven, So they now spent
almost double what we spent on their military equipment. So I think the call for action is clear also in the context of the politics. But if we just look at the wrong numbers, it indicates how much we need to step up.
How much I suppose has that changed in the almost thousand days that the war in Ukraine has been has been happening. I mean, how much does the build up increase. Europe's defense industry is still quite reliance on external supply chains.
External supply chains absolutely. And also if we look at major program acquisition, Europeans take about forty percent of those that spend goes outside of the European Union, whereas in other countries like the United States, it's only about twenty percent that goes externally. So we are a defense I'll call it conglomerate that does look out more than others in the context.
What's the risk if there are disruptions to trade. We're of course thinking about the potential of trade tariffs from the US under Donald Trump. What potential does that have to disrupt that supply into Europe's defense industry.
Yeah, I think it's an opportunity. We do need to reshow or think about how those supply chains come closer, and we have clear provenance of them, and we expect the Defense Review that hopefully will come out early next year will also indicate in that on that trend and in that direction. So we expect local OEMs, being German or British will need to think about how their supply chain comes closer to home.
How quickly did you think that might be built up? Do you think that Europe might focus on a let's say three percent of GDP goal for defense spending.
It's a great question. I think the exact target of the spend will materialize is we start to realize how much energy and effort it takes to build up those supply chains locally to home, but also build up the capacity in our respective nations. So For me, the percentage
is just the outcome. I actually think the journey to get that closer to home needs to start now, because it does take years to get the reliability of what you need and also the specialization of what you need much closer to your manufacturing facility on the European continent.
One of the issues that you've identified in your report that's a challenge in this area is interoperationability. So how I suppose things can be made in one country and used in another, How quickly can that be resolved? What is the best way for these countries to be able to improve that transferability of technology among them.
Brilliant question, Stephen, And we think this is one of the main root causes as to why our spend is and perhaps as effective. When you think the America has kind of one battle tank, Europe has seventeen. That's seventeen different variants, seventeen different maintenance schedules, which makes everything much more complex. And one of the things we call for in our report is that coordination and coordination is twofold.
The coordination is with industry, between ministries of defense and industry, but also amongst the nations themselves. And I think you saw in our report in Europe we have eighty plus kind of alliances in different conversation pockets. It's important to start to bring that too much fewer such that we can have that interoperability conversation, start to reduce the variance of the programs we buy, and then we can optimize.
How I mean, we know that, but the European Foreign ministers are meeting in Bossels latter's day. How receptive do you think Europe is currently to that thinking? I mean, certainly Manue and Macon Schultz, they are sort of deeply involved in the issues with Ukraine. How responsive, how engaged you think Europe actually is given that that Germany is about to go to another election, Dvance's Macui is very
much weakened in his political position. What's your assessment of how open and determined Europe is right now to do that?
Given where we are globally and the fact that geopolitics considered continues to operate in a slightly kind of different tilt, I think that they will see that this is the only path forward in order to accelerate the pace at
which we manufacture a scale. So I think we'll see a slight divorce of the politics to hopefully recognize that you need to create a flywheel within defense such that we can output much quicker given the fact we have conflicts that are borders and other conflicts that are escalating glibally?
Is there one danger though, in the conversation around sort of military build up, certainly one of our former defense ministers, I think it was talked about the UK and Europe now being in a pre war set up versus the kind of post Second World War Cold War era? Is there a kind of danger of us talking ourselves into bigger and wider conflicts.
I don't yet see that danger materializing. I think what we see as a re establishment of an independence in the defense industry in Europe, also because we had tilted the balance lately differently of World War two. I don't know that that makes anybody any more considerate should it come to having to escalate or continue conflict