Rearming Europe? Funding the rebirth of European defence

Speaker 1: Welcome to The World of Intelligence, a podcast for you to discover the latest analysis of global military and security trends within the open source defense intelligence community.

Sean Corbett: Hello, and welcome to this edition of the Janes World of Intelligence podcast. I'm Sean Corbett, the chair of the Janes Advisory Board, and I'll be the host for today's conversation. Our regular listeners will be surprised not to hear the introduction by my normal co- host, Harry Kemsley, but he's been called away and perhaps foolishly has trusted me to moderate this day's discussion. And a good discussion it promises to be. So today's episode, we'll focus on an analysis of the European Union's recently published white paper for European readiness to 2030, otherwise known as Rearm Europe. To take us through this potentially critical initiative, our two of Janes' very best senior analysts. Firstly, we have Andrew McDonald, who is the head of the Janes budget team responsible for research, analysis, data modeling, and forecasting of 112 nations' defense spending plans. Hello, Andrew.

Andrew McDonald: Hi, Sean. Good to speak to you.

Sean Corbett: And good to speak to you. And next, we have Guy Anderson, who's the head of defense markets and economics. So two really big subjects that people might be slightly surprised that James is all over. Welcome, Guy.

Guy Anderson: Thank you, Sean. Great to be here.

Sean Corbett: Excellent. So before delving into the substance of podcast, it's probably worth noting that although technically not an intelligence problem set from a doctrinal perspective anyway, it still requires a significant amount of the same level of analysis and application of tradecraft to get beneath the headlines and work out the so what, and hopefully we'll get to some of that. So it's not just about pure intelligence. It's about supporting decision- making. And of course, it's an extremely topical subject right now. As the paper itself states up front, the threat to Europe on multiple levels is acute and growing. At the same time, our closest allies, brackets, the US, has made it absolutely clear that its priority from the defense and security perspective is Southeast Asia. Now, that shouldn't really be as a surprise. So as long as ago 2011 when I was actually in NATO headquarters, then President Obama spoke about a pivot to the Asian Pacific as a top US priority. But I think it would be fair to say that many European nations have either been in slight denial about this or at least prioritize other issues. And what that's meant is that European defense readiness has suffered decades of underemployment, sorry, underinvestment. That's again in their own words. But there is now recognition that Europe needs to rearm and a massive increase in European defense spending is essential, which is what this paper is all about and the subject of this podcast. So let's explore that in more detail. Without further ado, if we could start with yourself, Guy, it's an issue that you've been studying for some time now so it'd be really helpful, I think, if you could give us your take on what Rearm Europe is all about, how it fits in some of the earlier European initiatives.

Guy Anderson: Yes. So ultimately, Rearm Europe is a mechanism to release a tremendous amount of money into European defense. So there's two parts to that. So one, we've got stability in growth packed in Europe. This is the so- called debt break. It's supposed to keep the deficit of 3% GDP debt at 60% of GDP. Obviously, it was torn up during COVID, recently back on track, and the proposal is to effectively pause it again so we can get more money into defense. The other bit, the interesting bit, is 150 billion package, which is going to involve the European Commission borrowing money, relatively cheap rate, not as cheap as during COVID, and to make that money available to the member states. But I think the thing to remember is that Rearm Europe didn't start today. So it was approved by the European Council last month in March, but we can go back to 2016, coincidentally the year of Brexit, the first Trump presidency where we had the European Defense Fun., that was something like 7 billion. Critically, that was to get Europeans to work together on research and development, not actual procurement. That came much later. Then in 2022, we've got another two packages. So obviously the year of the Russia's full- scale invasion of Ukraine, we've got the so- called ASAP. This is the regulation supporting arms production. That was 500 million. We've got that catchily titled Regulation Establishing an Instrument for the Reinforcement of Industry through Common Procurement, EDIRP. That's 300 million to get Europeans to buy together. Now, it's easy for me to say that 800 million euros is a drop in the ocean, but in the scheme of things, this isn't moving the needle. But so it's this big 150 billion package that's going to be available that is potentially critical.

Sean Corbett: Great. Thanks, Guy. And Andrew, do you got anything to add to that from your perspective?

Andrew McDonald: So Guy was taking his context back to 2016. I, with your permission, will take a further step back because I think if you want to look at how we get to a situation where it took three years of attritional land war and a major diplomatic crisis to get one of the richest regions in the world to begin to consider taking measures to fund its own defense, you have to really take quite a few steps back and look at what's happening in the foundations of the global political environment. So if it's okay with you, that's my defense budget strategic viewpoint. So-

Sean Corbett: Go on, yeah.

Andrew McDonald: Yeah. Well, the context of the question is that Europe is being considered to be something of a free rider on US defense spending. But really like lots of the world, Europe has without a doubt relied on the US as a security guarantor since, I suppose, the end of the second World War throughout the Cold War. But it's really, especially since the end of the Cold War during America's unipolar moment, that peer conflict seemed such a remote possibility that Europe and plenty of the rest of the world was quite happy to take the protection of the US as the guarantor of its security. So Europe, I don't think, is especially unique in having under- invested in defense over the past few decades. But what it perhaps is unique and is quite how much it trusted its closest allies to remain aligned with its values and policy goals. But if you look at Asia, you'll see that close US allies outside of Europe have the same anxieties. So Japan, South Korea, Taiwan, Australia, they're also all worrying about over- reliance on America and doing their best to rearm themselves. So yeah, I suppose it is really the context of the post- Cold War global order that is the root of where we are at today because that's what all these countries in Europe have relied upon. But just to demonstrate further why perhaps Europe isn't really unique in this regard, the US itself from the peak at the end of the Cold War, it's... And sometimes I feel like this doesn't come across in the debates that goes on amongst countries in the media, but in real terms, US defense spending has fallen greatly. So it fell loads from the end of the Cold War to 1999. So at a peak in 1989, US defense spending in real terms was around 660 billion US dollars. And in 1999, it had dropped in real terms to 485. So that's a fall more than a quarter. So Europe isn't the only region to have neglected its defense investment. So during that period, US defense spending was 5.4% of GDP and it fell to 2. 9%. Of course, that was halted of course by the September 11th attacks, which prompted the only ever triggering of the NATO Article 5 provisions. And after that, there are wars in which hundreds of European soldiers died alongside thousands of US ones. After that point, US defense spending peaked again during the midst of the global war on terror in 2010. And after that point, once it then declined alongside Europe's. So again, this is a phenomenon that affects really all of the developed world. I'd say there are a variety of factors that got us where we are today in terms of Europe's lack of investment in defense. We've got the America's post- Cold War unipolar moment, and of course it was very happy to embrace alliance building and world policing and everything that came along with it. There's that. There's the lack of success in the wars in Afghanistan and Iraq, which produced major public disaffection with those wars and of defense spending in general, as well as quite a significant drain on the finances of the countries that were involved. Then there's the doctrinal focus on counterinsurgency rather than peer- to- peer conflict, which resulted from these wars and bled away investment from traditional kinetic capabilities. And then the cherry on the cake was the new year collapse of the global financial system in the late 2000s, then the Euro debt crisis and years and years of austerity, which the impact of which on the fiscal environment in Europe really can't be overestimated.

Sean Corbett: Right. Thanks, Andrew. That point is really well- made and it's one that I would've made as well, actually, that everyone just assumes or the layperson just assumes that the US has got unlimited pockets and it can do what it wants when it wants to. But actually, that is not the case. The world is a bad place globally and it's got a lot of commitments, and as you've said, has potentially under- rested itself in defense. So the fact that the US is always there to buffer up the coffers, it's just a bad assumption actually. And before coming back to yourself, Guy, the final thing I would make on this particular thing is that I joined the military probably just less than a year before the war came down, and I never saw this. Yes, I am that old, but I never saw this peace dividend that came out of the end of the Cold War. And I think one of the things you learn from history, and probably the most important thing, at risk of being pilloried by my historian friends, is that you don't learn anything from history. So the fact that Europe is in now crisis shouldn't really be any, from a defense perspective, shouldn't be a surprise. Guy, you wanted to come in.

Guy Anderson: Yes, just... Thanks, Sean. Just picking up Andrew's last point about the global financial crisis, and from then, it's easy to forget nearly 20 years ago we've had then the Eurozone crisis. We've had COVID. We've had the great inflation. I think the point is that there's never a good time to meet a potentially existential threat, but we managed to pick a particularly bad moment. So if we look in Europe, and even at the European Commission level, we're still dealing with the fallout from COVID. So government's got far deeper into debt. The deficit's got very, very deep. That's only just really addressing that. So the 150 billion rearmament bonds, the European Commission's talking about, well, it's to remember that the Commission borrowed 300 billion for the COVID recovery, and that's causing a bit of a headache at this point because that's going to fall due for repayment from 2028. It looks like in the years just after 2028, it could, if it has to be redeemed, that's going to eat up something like 10% of the European Commission's budget. And now this time with the rearmament bonds, they're looking to potentially roll them over in perpetuity. They reserve that right. But the point is that this is a lot of debt on top of existing debt, which is falling due for repayment. And the world, the financial world has changed greatly since COVID. So when the European Commission, when they were borrowing last time to meet the COVID debt, they're borrowing around 0%. It was effectively free money. Now, they're going to be borrowing at around 3%. And the other thing as well is that there's quite a spread between the bond yields of European countries. So there's some who can borrow less than the European Commission. And so Germany and the Nordic certainly, obviously the further you go south in Europe, the borrowing costs tend to be higher for historic reasons. And this actually brings us to a bit of a paradox. So at our desk in Janes, we were doing a bit of research into defense spending trends. And we were looking at the historic inflection points and the recent announcements, and it'll come as no surprise to anyone that there was a very, very high correlation between high expenditure percentage of GDP and proximity to Moscow. And in each case, we looked at the distance from Moscow to their capital. And there was this, I can't remember what the Pearson correlation was, I want to go into that, but it was basically so very, very high correlation. So you find that countries in Europe that can borrow most cheaply, typically in Northern Europe, typically with a greater prognosis for higher defense spending. The ones who benefit from this fund are in Southern Europe where we've seen less of an inflection for obvious reasons. There's less of a feeling of an existential threat.

Sean Corbett: That's great. Thanks. Some detailed analysis by both of you there, which I'm going to come back to in a minute. But just getting back to the paper, what I think I'm hearing, and it's a beautifully written paper, but there's a lot about the what and the why, maybe a little less about the how. But what I think I'm hearing certainly from your first bit, Guy, was that this is as much in fact more about process and policies and about how to borrow money and funding than it is about an explicit, " This is what we're going to do, here's some money to do it, and this is what we're going to do with it." Is that a fair assumption? And if that is a fair assumption, then what are the chances of European nations? Because ultimately it's down to the individual nations making meaningful progress against their and the European and global defense priorities. Big question, I know, but who's going to take that one on first? Guy, go on.

Guy Anderson: Yeah, I'll love for a few shorts because I know Andrew will have a lot to say about this. So the real Europe, it's, I suppose in some senses, it's almost the supranational equivalent of reaching down the back of the sofa and seeing what can be done to get the money. So partly, of course, the European Commission's going to go off to the bank. It's going to borrow money. It's telling the members that they can release... Well, release the break a little. They can spend more. They can get the deficit down further. They can get their debt up themselves so that should release some money. Certainly we're seeing this in a lot of cases. Germany's a great example talking about their debt break, which I appreciate is a separate thing. There's been some others. I think there's something like five points behind this in total. There's partly, there's going to be the liberalization of various procedures, so banking union, the like, so you can actually get more private money into this. But I think the headline figure in the European Commission's press release was 800 billion. And I don't doubt they put some fault into it, but it's very speculative. It's a little bit of a finger in the A. If all comes good, everything as it should be, we may get to 800 billion. As it happens, even the 150 billion, it remains to be seen how much it's drawn down, how many countries actually tap into this.

Sean Corbett: Great. Thanks, Guy. Anything to add on that, Andrew? I'm sure there is.

Andrew McDonald: Yeah. I'd certainly agree with Guy's assessment that the headline figure of the press release that started all this was it's designed to have an impact. It was a PR message rather than a solid piece of defense planning, to the extent that I have yet to be bothered to work out whether or not it is that feasible. Because if, as Guy was saying, if everyone jumps on this proposal, if everyone does anything that they could possibly want, then perhaps they would aim to add, what, the 1. 5 percentage points to their defense budget as a proportion of their GDP. It's well obfuscated and practically quite meaningless. That's not to talk down the importance of the proposals, but I think getting caught up on the way that they were initially unveiled would be a mistake. That being said, and I've got plenty to come back on my champion of Europe is not as bad as it sounds, but I think it's relevant to what we're talking about right now. I think a couple of days ago, we had the first impact of Rearm Europe in the wild, and strangely it was one that we were discussing amongst ourselves the other day. It was Spain had not passed a budget for two years so it's still operating on the 2022 to'23 budget. And Spain has two days ago announced a massive 11 billion euro additional chunk of funding for defense. And this is with the aim of jumping to 2% of GDP. My calculations say that's not quite enough yet, but digging into how they're going to fund this without breaking the political deadlock that's stopped a budget being passed for two years is I think Rearm Europe. So if you filter past lots of the ambiguities and overoptimistic thinking, which says something like, we don't need to pass a budget for this chunk of spending because it will be fiscally neutral because it's coming from savings and economic overperformance, and you say things like that to me and I get very skeptical and in fact dig down into the small print. And you find a part of it that says, " The European Commission is expected to launch additional financing mechanisms as Spain has requested." So that suggests to me very much that this 11 billion euros just in 2025, which is a big deal for Spain, will come from or they're hoping it will be financed through Rearm Europe or some subsidiary profit. So I thought that was quite interesting that it was a country that was fiscally bound by its politics and presumably its fiscal environment using Rearm Europe as a escape route from its political situation to say, " You know what? We think that we need to overrule our normal political process." And by the way, these things are really annoying for a budget analyst when a country says, " Oh yes, we've got our budget, that's not enough. We also have this black box over here, which we're not going to describe to you, but within it we're going to fix our funding problems." Countries seem to be increasingly doing that across Europe. It's very annoying if you want to know what they're actually going to spend on, but it could be a successful way to escape these political binds that countries find themselves in.

Sean Corbett: Okay, great. Just hold that thought because we are... The next question is going to be next person, but one is going to be in there, okay, how on earth do you guys know this? But let's continue the positive theme in terms of I think certainly the paper has identified not unexpectedly the lessons from particularly the Russian invasion of Ukraine where the gaps are, so as it expect, artillery, ammunition, air defense systems, drones, mobility, but also training and even access to space. So I think in terms of the what, I think it's quite well- founded. I think the question though for me is that what are the constraints about achieving them? So you've got nations that seem to be quite positive about this and clearly want to do it politically, but what are the actual physical and industrial constraints in doing that? Perhaps a slightly unfair question, but it's an important one. Who's going to take that one on? Go on, Guy.

Guy Anderson: Thanks, Sean. Well, to answer that in three words, capacity, capacity, capacity. This is something the European Union's tried to address. So we look back at the ASAP program, 2022, so this was, I think it was half a billion euros, and it was really back to basics of munitions production. So explosives, powder and the like, shells, missiles, testing, calibration. We've seen 42 programs to expand ammunition, munitions production. That's a whole list of countries. So they are looking to expand capacity. Even the UK obviously outside the EU has started to look to increase capacity. And the big issue up to now is that industry was very, very willing to expand. Obviously you then run into problems like whether you need a skilled workforce. Where do you get them? How quickly can you train them? But there's always that standoff between, well, yes, industry will do it, but where's the money? How can you spend the money unless there's anything to spend the money on? So we are starting to get through that breakout, that standoff at this point. In terms of domains, it's often said industry will always follow the money. If there is a contract there, if there's a terms of business agreement that if you have a contract over a prolonged period which gives you the basis to borrow, to invest, to actually hire people, then that will come. In fact, in terms of technical gaps or technological gaps, if we look at what Europe's been investigating in a big way and really building a capacity, and it's almost back to basics. It's of a Cold War feel to it. It's not as, say, we suddenly need to make vast advances in AI, which are a separate issue anyway, but it's we're looking at programs in ammunition, air and missile defense, a replacement of legacy land platforms. So yes, back to capacity.

Sean Corbett: Yeah, that's great. I think to add that, I'd probably add two slightly smaller things. One is the intellectual property. There are some quite innovation stuff that's happening in Europe, but also the US tends to lead on these things just because it has more money. And with the present climate, how much of that technology transfer is going to happen now with arguably the reduction in trust between the US and Europe now? That's an interesting one as well. And then of course there's supply chain resilience. And then there's the natural competition between certainly the big industrial players with potentially a national interest as well as just the European interest. So all that I think adds up. Anyway, we need to move on now. So the big question for me is there's some really good analysis. That you guys have done and I've read your papers and I've also read the actual paper several times, but I would never have extracted everything that you have from that. So here's the$ 3 million question then. How are you able to come up with a detailed level of analysis that's absolutely essential objectively in saying, " Okay, what this really means is X"? Go ahead, Andrew, I'll start with yourself.

Andrew McDonald: Sure. So I think you touched briefly on it earlier, but what we do, although it's very different to what a imagery intelligence would be doing in terms of OSINT, we're not dual- locating blast radiuses of missile strikes or impact patterns or anything like that, but we are very much doing OSINT. It is a slightly different kind of OSINT, but my team in particular, where I always think that we add value into the space that we operate in, we're half national security, half industry. So in terms of our customer base, so lots of our customers are interested in defense budgets as a market sizing exercise. And what we bring to the table, I always think, is a assurance because our sources and sourcing is probably the most important thing that we do and that we do differently to people who do the same thing but less well. We focus primarily on government sources. So when you're looking at our data, you're looking, at least in the past before we're forecasting, you're looking at direct recording of government legislation. So if we're not reading from a law, we are reading from an open data system, from a ministry of finance or a state official statistics or final accounting or kind of audit office type organization. So what we are showing you at least up until 2025 and in some cases up until 2028, lots of governments provide official forecasts. But what we are bringing to the table is the word of the law. So sometimes people like to ask, and I'm quite right about where we're getting this information from because they've read a news article and they know that X is we're saying X is 30 million and they're saying it's 100 million, but what we are referring to is a legal authorization to spend. So I think that's quite valuable. So as well as of course, we're not just writing things down that other people already released. We are ingesting the most detailed sources that we can find in order to make accurate summarizations, re- categorizations because we, on defense budgets, we don't just tell you one figure for each country for each year. We break that down by function, which is probably the most important thing that we do. But we also break down by service. So if you want air force procurement in France in 2022, we can just give you a figure for procurement that's not available from anywhere in France because they don't report to procurement. We align our categorization to US style standards. So the P1 M1 O1, all those documents that I'm sure lots of our listeners are familiar with. We take them as a standard and we try and align other countries reporting to that. That's quite a big task, but it's quite an important task because if you were to do a five, 10- minute Google search, I'm sure you could find a number for our defense budget for a given year. But if you want to know how much of that is accessible to industry or how much it is going to development of capabilities rather than pensions or wages or animal feed or property maintenance, office furniture, then you need to really dig down into the details. Because lots of those things I've just described, some quite boring things that are not going to increase your country's capability to defend itself from an aggressor, necessarily though they are, are often included in large umbrella categories like capital expenditure, development expenditure, something that if you only have a team that has limited capability to look at defense budgets and defense budgets is a large, large portion of what my team does, hence the name, you'll miss these things if you are not digging down into the details, finding the right source for each country for each year, because there will be dozens. If you're not interrogating the data at the very most detailed level available in order to filter out the stuff that if you were just looking at the surface, you wouldn't notice. So yeah, I could go on, but that's probably the most important aspect of what we do.

Sean Corbett: That's excellent. Thanks, Andrew, and comprehensive. Guy, anything to add on that?

Guy Anderson: I'm partly going to echo Andrew's excellent answer. So we've got the iron guard rails of Janes' trade craft. There are certain standards to meet in terms of corroborating sources. What material do you use? Primary secondary, of course they're treated in very, very different ways. In terms of how we do this, so when it comes to the modeling, it would be a case of we always, we dig deep into the academic literature that's pre- existing of what is the best practice? What are the relevant factors? How is this done? The modeling techniques, obviously we adapt them to our own use, but they are, again, from the academic world. But when it comes to understanding something like Rearm Europe, the short answer is a lot of academic drudgery and long hours at a desk going through some of the driest, most obscure foundational primary documents. So if he's going through this stuff line by line, seeing that, comparing that with the press release, it is what has gone out to the world, what is actually there in, say, 100- page document that is the one that the politicians themselves or their representatives are going to go through. So what is claimed? What is actually committed?

Sean Corbett: Great answers. Thanks for that. So as ever, time is starting to run away with this. But before, if you've listened to the podcast before, I always always ask you both at some stage after the next question what your one key takeaway from this is. But one of the things we like to do is predictive intelligence, which is a really important element of it, brackets crystal ball gazing if you like. But where do we see five and 10 years time? Is this initiative going to actually result in moving and dial forward in terms of European defense capability, or are we going to have a discussion about this in a year's time, two years time that says, well, the money is still available but it's not being spent or it's being spent the on the wrong way? Now, predictive intelligence is notoriously difficult to do, but if anybody can do it successfully, it's you, guys. So Andrew, I'll come to you first. Where do you see European defense capability in two to five years time, and then maybe a little bit further?

Andrew McDonald: Sure. Well, so I think Rearm Europe is inextricably part of something that is already happening that has to a certain extent already happened. Another question we get asked a lot of is what's the methodology for your forecasting? How do you work out what defense budgets are going to be in 10 years time? And the most powerful thing that you have access to as an analyst is what has already happened. And I've already told you how we gather that in some detail and we have high degree of confidence in that data. So just to reprise my role of championing Europe as a place that isn't quite as bad in a defense budget sense as it has been portrayed, this is part of something that has been going on for a long time. It's escalated and it's escalated successively. But really the first turning point for European defense funding was the Russian invasion of Ukraine. It was that prompted the NATO Cardiff declaration where 2% of GDP was agreed as a target. It's after 2014 that we see the European defense budgets start to grow. So that's 2005. European defense spending was about $ 290 billion. At the end of that decade, in 2015, European defense spending was about $ 290 billion. So completely flat. Between 2015 and 2021, so before any impact of Russia's full- scale invasion, spending grew by$ 60 billion to$ 350 billion. Investment spending, which is we consider to be procurement and research and development expenditure together, expanded from 50 billion to almost 90 billion. So that's a growth of more than 70%. So big things were underway in the mid to late 2010s. Obviously, there's a massive escalation in 2022. So European defense spending growth spiked in 2022 to a record high of 12%. This was of course mainly due to Ukraine's budget growing by something like 400% that year. But even if you exclude Ukraine and just look at the rest of Europe, growth jumps above 7% in 2023, record levels at the time. But it takes until 2024 to reach a peak of 11%. These are things that are still underway but they have happened. And the step change that we've seen in European defense funding because of the first invasion of Crimea and Donbas in 2014 and of the full scale invasion in 2022 completely changed the strategic environment. And that has had profound impacts on European defense expenditure of which Rearm Europe is a part, an enabler of. But that, and I'm sure other initiatives, proposals will emerge and be taken advantage of to lesser or greater degrees. But I think what we're looking at is something that's more important than this single initiative. And that is a strategic shift that we can't go back from. So although we have are forecasting a slowdown in growth from what have been over the past couple of years record levels, and I've been updating a lot of reports lately and I find myself typing the words fastest growth on Janes record an awful lot. So I thought I had to check for this podcast. So 16 of the 33 European countries we cover in Janes defense budgets have implemented their fastest ever rate of growth in the years since 2022. So these are also disproportionately the largest budget. So the UK, Germany, France, Ukraine, Spain, Poland, Netherlands, Sweden, Denmark, and Norway have all recently broken budget expansion records. So that's budgets accounting for 85% of European defense spending have increased at faster rates than ever recorded. So this is something that's underway. It's going to happen. The coming 10 years will look a lot different to the previous 10 years.

Sean Corbett: That's nice to hear actually, some positivity. Guy, over to you.

Guy Anderson: I agree with Andrew's comments. So obviously it is going to be a slightly mixed picture in Europe. Let's be honest, Ireland and Austria aren't probably going to suddenly become superpowers anytime soon. I think the other thing to remember is what keeping us grounded in some of the economic realities, but at the risk of sounding like a Cassandra, in Europe, we have low growth, very low growth, and a low growth outlook. And that was even before the current turbulence. Think of the tariff situation that is going to hit global growth. It's certainly likely to hit European growth. We're coming at this immediately after COVID, so European countries in the main, they have elevated debts. They have continuing deficits. So my point is that yes, I agree with Andrew's comment, this is going to happen, but it's not going to be cost- free. Of course they're going to be trade- offs. It isn't all going to be new money. And Europe, I think that some of the external realities, the threats we face as a continent, are going to clash into domestic political realities. So there is likely to be some very, very difficult spending choices. Whether that moves the needle politically in some countries remains to be seen. I personally think it will. So domestically, I don't think it's going to be entirely plain sailing. It is there are going to be challenges. There's partly political, but certainly economic.

Sean Corbett: Yeah. Thanks, Guy. And I don't think anybody would disagree with that actually. Of course, so that's a really balanced argument actually. I think the proof of the pudding is going to be in terms of, this is for another podcast actually, okay, what capabilities will actually come about. Money is one thing. You can put as much money into a project as you like, but if it doesn't come out, then think at the other end. And one of my favorite sayings is the UK's 2 point whatever percent it is now that includes my pension, which is not quite as large as people think it is, but how is that helping towards capability? So it's what they spend on. And I think the other point I would make is that whilst the strategic shock, and I would call it strategic shock from the recent months, it has been absolutely essential to catalyze political minds in Europe, I don't think we should or could completely decouple from the US and its mighty defense industrial base. Interoperability still absolutely critical for coalition warfare. Of course it is. An exchange of ideas, technology tactics, techniques, and procedures is also essential. So we need to make sure that we don't completely decouple from the US. So the final question then, and time has moved on significantly, and I will start with yourself Andrew. Briefly, what is your one takeaway from this subject in this discussion that you would like the listeners to take?

Andrew McDonald: So I'm sticking to my guns here. I think Europe can achieve things when it sets its mind to it. And to take an example of that, we've been dancing around the 2% of GDP target. And by the way, you mentioned as just as a brief aside, you're worried that your pension was included in that. Of course, it is included in that. But the other part of the NATO goal is to spend 20% of your defense budget on investment activities. And that's actually far more so than the overall 2% goal been broadly met. So I think it's just Portugal right now that doesn't meet that. So if we're moving on to meet the 2% of GDP, don't worry. A fifth of that will be going to real capabilities. But my takeaway point, so it took quite a long time and quite a large war to get there. But the 2% goal, I think, has been a success. And I think if that is increased, it will, as certain countries, by the way, have suggested that it will be soon. Sweden recently said it expects a 3 to 3.5% target soon, and that's why that's driven some of its choices. But to judge Europe's ability to make progress, to regain some strategic autonomy. In 2014, two countries in Europe, in NATO, met the 2% of GDP target. That has increased to 16 in 2025. And by 2028, we expect it to be 18%. By the way, the target was to move towards 2%, not to meet it. So if you want to be pedantic about it, you could say they've been more successful. In terms of that, the only country that spends a lower amount of its GDP in 2025 than 2014 is America.

Sean Corbett: Right. Thanks, Andrew. Okay, Guy, briefly, what's your one takeaway from this?

Guy Anderson: Okay, I'm entirely agreeing with Andrew's points. I would stress that the economic fundamentals are absolutely critical. I think it was Cicero's comments, something along the lines of war, infinite treasure. It is ultimately fundamentally underpinned by the economic realities.

Sean Corbett: Excellent, thanks. And so for me, I think thinking of this problem set as an intelligence challenge from an analytical and process perspective is incredibly helpful in getting through what are good political headlines, but to the understanding of what the initiatives such as this actually mean, what impact they will have, and how that impacts decision making. So for me, it doesn't really matter what the problem set is. If you apply an analytical process from it, from a deep understanding perspective, you'll get down to the so what and is, which is great. So gentlemen, thank you very much for your time. It's been a fascinating discussion actually. That's all we have time for on this episode. So it just remains for me to say, again, a big thank you to both Guy and Andrew for their expert analysis. As ever, if you have any questions or comments on what we've discussed so far, or if you vehemently disagree or even subjects that you would like us to see cover in future episodes, please do get in touch through the contact information that will be provided on the bottom of this link. Gentlemen, thank you very much.

Guy Anderson: Thank you.

Speaker 1: Thanks for joining us this week on The World of Intelligence. Make sure to visit our website, janes. com/ podcast, where you can subscribe to the show on Apple Podcasts, Spotify, or Google Podcasts. So you'll never miss an episode.