Latest news with #JacobFunkKirkegaard
Yahoo
3 days ago
- Business
- Yahoo
Trump Just Got Some Bad News Before the G7 Conference
Trump's chaotic, spite-filled policies on trade and aid have led traditional allies to look elsewhere and form stronger ties among themselves. The New York Times reports that traditional allies like Japan, Britain, Canada, France, and others are working more closely together as they look to build an alliance system without the United States. These new alliances are already yielding results. Canada, Britain, and the EU just made a $170 billion defense deal. Britain, Canada, New Zealand, Australia, and Norway just placed significant sanctions on two far-right Israeli cabinet members. The deals made in recent weeks demonstrate the erosion of US diplomatic legitimacy that Trump's shirking of traditional Western order has caused—a troubling message, as the G7 summit is just days away. 'These are countries that share the broad policy goal of predictable, rules-based international affairs — obviously a goal that is no longer shared by the Trump administration,' Peterson Institute for International Economics senior fellow Jacob Funk Kirkegaard, told the Times. 'America first means America first,' he added, 'even if it means America more alone.' G7 organizers have planned various meetings without the United States, as Trump will arrive at the summit at odds on trade and tariffs with essentially every other leader there. 'Should we, in some ways, talk about a G6-plus-one?' Kirkegaard said.
Yahoo
24-04-2025
- Business
- Yahoo
Europe is shifting from supplying weapons to Ukraine to funding its defense industries
The EU is providing funds to help boost Ukraine's domestic arms manufacturing. It's a strategy to make Ukraine more self-reliant and ease pressure on Europe's own stockpiles. Ukraine is a far cheaper place to manufacture weapons at scale, one expert told BI. European countries are shifting their strategy when it comes to Ukraine, aiming to boost the country's capacity to produce enough weapons for its own defense rather than handing over ready-made weapons from their own depleting stockpiles. In March, the European Union said that half of a €2 billion ($2.3 billion) aid package, taken from frozen Russian assets, was being earmarked specifically to help Ukraine boost its own artillery production, the largest package of its kind to date. It's a trend that could have wider repercussions. Military analysts told Business Insider that directing funds to grow Ukraine's defense industry can help reduce Ukrainian dependence on foreign military aid and strengthen Europe's own growing defense sector. After decades of peace, Europe is rapidly bolstering its defenses amid waning US support and renewed threats from Russian President Vladimir Putin. Even so, its armaments industry is struggling to rebuild military stockpiles while simultaneously providing Ukraine with the shells and other weapons it needs to fend off Russia. Ukraine's own burgeoning defense sector offers a solution, Jacob Funk Kirkegaard, a senior fellow at the Bruegel think tank and a non-resident senior fellow with the Peterson Institute for International Economics, told BI. "It makes imminent financial and economic sense for especially richer Western European nations to directly finance the full utilization of expanding Ukrainian production capacity," he said. Ukraine, Kirkegaard added, is a far cheaper place to manufacture weapons at scale than Western Europe, and it already has a growing and innovative defense manufacturing sector. Refocusing European arms production in Ukraine itself is a "win-win," he suggested, enabling Europe to cut costs, boost a crucial ally, and also see weaponry tested and refined on the battlefield. In the early years of Russia's full-scale invasion, Ukraine was heavily dependent on its Western allies for weapons and ammunition, and was manufacturing only a small fraction of the weapons it needed. But it's fired up old Soviet weapons manufacturing plants and now produces around 40% of the weapons it uses at the front, Ukraine's President Volodymyr Zelenskyy said this month. Ukraine is also now a world leader in the development and production of cheap UAV drones, which have become ubiquitous weapons on the battlefield. "We've become the biggest drone manufacturer in the world, drones of tactical and strategic level," Rustem Umerov, Ukraine's defense minister, said in February. And as BI's Jake Epstein reported, Ukraine's drone makers aren't just building weapons — they are rewriting the rules of modern warfare at a pace and scale that few could have imagined only a few years ago. "With the rising importance of drones, the share of Ukrainian domestic production will also rise," said Kirkegaard. Europe's defense sector, meanwhile, has struggled to boost production to keep pace with demand, with military analysts at the UK's Royal United Services Institute in April identifying regulation and a lack of coordination as factors holding it back. "Increasing the output of domestic industry takes time," Jacob Parakilas, research leader for Defence Strategy, Policy and Capabilities at RAND Europe, told BI. "Ukrainian industry, which is already much more mobilized, can be effectively supported in the short term with direct investment and targeted knowledge transfer." Parakilas said that European countries would also get a major boost from working more closely with Ukraine to jointly raise production. "These approaches can happen simultaneously, and ideally produces synergies," he added, with "Ukrainian experience informing European understanding of the state of the art, while European money supports Ukrainian industry." Several European defense firms, including Rheinmetall in Germany, BAE Systems in the UK, and the Franco-German firm KDNS, have already set up manufacturing operations in Ukraine to make military supplies, including armored vehicles. Others, such as France's Thales, have entered into joint ventures with Ukrainian companies. And cooperation between Ukraine and NATO countries on arms production is steadily increasing. According to Ukrainian media, state arms manufacturer Ukroboronprom State Concern has been working with an unspecified NATO country to manufacture ammo since 2022. The ammunition is reportedly made to the alliance's standards, further integrating NATO and the Ukrainian military. Ukraine has also been working with Poland to manufacture shells and other equipment domestically since 2023. The latest aid packages will further boost these efforts. "This trend is expected to gain pace during 2025 as the US pivot away from Europe fuels increased defense spending across the continent," Serhii Kuzan, chairman of the Ukrainian Security and Cooperation Center, wrote for The Atlantic Council in March. Parakilas projected that with more European support, Ukraine could manufacture significantly more than 40% of its equipment domestically, and move into manufacturing more complex weapons and technology, which it still relies heavily on its allies for. But this, he said, meant the sector would become more exposed to Russian attacks and would "probably require greater and more careful investment to produce resilient returns." Even so, it seems likely that Western European and Ukrainian defense sectors are moving toward closer integration. "It will over time not be sensible to distinguish between the EU/European and Ukrainian defense sectors," Kirkegaard said. "They will become one." Read the original article on Business Insider
Business Insider
24-04-2025
- Business
- Business Insider
Europe is shifting from supplying weapons to Ukraine to funding its defense industries
The EU is providing funds to help boost Ukraine's domestic arms manufacturing. It's a strategy to make Ukraine more self-reliant and ease pressure on Europe's own stockpiles. Ukraine is a far cheaper place to manufacture weapons at scale, one expert told BI. European countries are shifting their strategy when it comes to Ukraine, aiming to boost the country's capacity to produce enough weapons for its own defense rather than handing over ready-made weapons from their own depleting stockpiles. In March, the European Union said that half of a €2 billion ($2.3 billion) aid package, taken from frozen Russian assets, was being earmarked specifically to help Ukraine boost its own artillery production, the largest package of its kind to date. It's a trend that could have wider repercussions. Military analysts told Business Insider that directing funds to grow Ukraine's defense industry can help reduce Ukrainian dependence on foreign military aid and strengthen Europe's own growing defense sector. Europe struggles to produce enough shells After decades of peace, Europe is rapidly bolstering its defenses amid waning US support and renewed threats from Russian President Vladimir Putin. Even so, its armaments industry is struggling to rebuild military stockpiles while simultaneously providing Ukraine with the shells and other weapons it needs to fend off Russia. Ukraine's own burgeoning defense sector offers a solution, Jacob Funk Kirkegaard, a senior fellow at the Bruegel think tank and a non-resident senior fellow with the Peterson Institute for International Economics, told BI. "It makes imminent financial and economic sense for especially richer Western European nations to directly finance the full utilization of expanding Ukrainian production capacity," he said. Ukraine, Kirkegaard added, is a far cheaper place to manufacture weapons at scale than Western Europe, and it already has a growing and innovative defense manufacturing sector. Refocusing European arms production in Ukraine itself is a "win-win," he suggested, enabling Europe to cut costs, boost a crucial ally, and also see weaponry tested and refined on the battlefield. Ukraine boosts weapons production In the early years of Russia's full-scale invasion, Ukraine was heavily dependent on its Western allies for weapons and ammunition, and was manufacturing only a small fraction of the weapons it needed. But it's fired up old Soviet weapons manufacturing plants and now produces around 40% of the weapons it uses at the front, Ukraine's President Volodymyr Zelenskyy said this month. Ukraine is also now a world leader in the development and production of cheap UAV drones, which have become ubiquitous weapons on the battlefield. "We've become the biggest drone manufacturer in the world, drones of tactical and strategic level," Rustem Umerov, Ukraine's defense minister, said in February. And as BI's Jake Epstein reported, Ukraine's drone makers aren't just building weapons — they are rewriting the rules of modern warfare at a pace and scale that few could have imagined only a few years ago. "With the rising importance of drones, the share of Ukrainian domestic production will also rise," said Kirkegaard. Europe's defense sector, meanwhile, has struggled to boost production to keep pace with demand, with military analysts at the UK's Royal United Services Institute in April identifying regulation and a lack of coordination as factors holding it back. "Increasing the output of domestic industry takes time," Jacob Parakilas, research leader for Defence Strategy, Policy and Capabilities at RAND Europe, told BI. "Ukrainian industry, which is already much more mobilized, can be effectively supported in the short term with direct investment and targeted knowledge transfer." Parakilas said that European countries would also get a major boost from working more closely with Ukraine to jointly raise production. "These approaches can happen simultaneously, and ideally produces synergies," he added, with "Ukrainian experience informing European understanding of the state of the art, while European money supports Ukrainian industry." European defense firms set up shop in Ukraine Several European defense firms, including Rheinmetall in Germany, BAE Systems in the UK, and the Franco-German firm KDNS, have already set up manufacturing operations in Ukraine to make military supplies, including armored vehicles. Others, such as France's Thales, have entered into joint ventures with Ukrainian companies. And cooperation between Ukraine and NATO countries on arms production is steadily increasing. According to Ukrainian media, state arms manufacturer Ukroboronprom State Concern has been working with an unspecified NATO country to manufacture ammo since 2022. The ammunition is reportedly made to the alliance's standards, further integrating NATO and the Ukrainian military. Ukraine has also been working with Poland to manufacture shells and other equipment domestically since 2023. The latest aid packages will further boost these efforts. "This trend is expected to gain pace during 2025 as the US pivot away from Europe fuels increased defense spending across the continent," Serhii Kuzan, chairman of the Ukrainian Security and Cooperation Center, wrote for The Atlantic Council in March. Parakilas projected that with more European support, Ukraine could manufacture significantly more than 40% of its equipment domestically, and move into manufacturing more complex weapons and technology, which it still relies heavily on its allies for. But this, he said, meant the sector would become more exposed to Russian attacks and would "probably require greater and more careful investment to produce resilient returns." Even so, it seems likely that Western European and Ukrainian defense sectors are moving toward closer integration. "It will over time not be sensible to distinguish between the EU/European and Ukrainian defense sectors," Kirkegaard said. "They will become one."
Reuters
06-03-2025
- Business
- Reuters
Defence surge could help jumpstart Europe's flat economy
Summary Initial growth boost from defence likely limited - economists Europe's fragmented defence sector highly dependent on U.S. Local production, investments and long-term demand needed for growth boost LONDON, March 6 (Reuters) - A defence spending surge could boost Europe's sluggish economy as long as it provides a springboard for a broader industrial revival and if governments convince the sector that the funding is there for the long haul. Amid growing concerns the continent can no longer rely on U.S. protection, European leaders meet in Brussels on Thursday to approve new ways to increase defence spending and pledge continued support for Ukraine. While questions remain over whether Europe will match words with action, this week's deal between Germany's likely next coalition partners to remove fiscal caps from defence spending has boosted hopes of a wider military push that could also kickstart the region's ailing industry and technological base. "(It) will support growth, and in particular, will support European manufacturers at a time when they are particularly struggling," said Goldman Sachs senior European economist Filippo Taddei, while stressing: "It's very important that this extra spending is deployed consistently over time." EU leaders are seen broadly welcoming European Commission proposals to mobilise up to 800 billion euros ($863 billion) for European defence, including a plan to borrow up to 150 billion euros to lend to national governments. Estimates vary greatly on how much defence spending can raise wider growth in the economy. But many economists think the initial benefit is limited, with each euro of extra funding generally seen providing less than one euro of extra output. There are several reasons defence spending is typically not seen having the same spillover effect into wider growth as spending on civilian infrastructure. One is that complex military projects take time to plan and execute. Citi, for example, doesn't expect a meaningful growth impact before 2027. With only three of the world's top 15, opens new tab arms producers, Europe is heavily reliant on defence imports, meaning a lot of the benefit will flow out of its economy. Since Russia's 2022 invasion of Ukraine, 78% of EU procurement has gone outside the bloc, with 63% to the U.S., European Commission data show. A further hurdle is the fragmentation of Europe's defence industries along national lines, meaning they do not have the scale needed to maximize the benefits of spending. The question, then, is how this surge can be managed and how much of it can be achieved with domestic production. BETTER PROCUREMENT Some economists say the capital-intensive nature of defence projects mean they do not have the same job-creating benefits initially as more labour-intensive sectors. But Jacob Funk Kirkegaard, senior fellow at EU think tank Bruegel, argued that could be an advantage given Europe's shortage of skilled labour. And if, further down the line, the rise of the EV sector leads to job losses in Europe's typically more labour-intensive traditional auto sectors, then rearmament would open up a new destination for those workers with manufacturing skills. "So the timing of this is quite beneficial," he said. Analysts say that to make its money go further, Europe must invest more in defence research and innovation, where it spends less than one-tenth of the U.S. level, a 2024 report by former European Central Bank chief Mario Draghi found. Kirkegaard cited Israeli tech start-ups benefiting from innovations emerging from decades of high defence spending, while Germany's Kiel Institute concluded in a February report that in Europe, defence R&D spillovers into the private sector could lead to wider long-term productivity gains. On that basis and assuming a greater focus on domestic production, it estimated that an annual increase in defence spending to 3.5% of output from around 2% would raise overall output by 0.9%-1.5% per year - not insignificant given the euro zone's current potential growth rate estimated around 1%. While European defence firms are confident they can ramp up production, analysts say steady funding is needed to show that governments are in it for the long haul. The current European Commission proposal - a four-year exemption of defence spending from its rules limiting fiscal deficits - plus a small portion of EU lending, may not suffice. "You're not building a long-term fiscal framework conducive to long-term stability," said Sander Tordoir, chief economist at Centre for European Reform. "There's a bit of a risk here that... you don't see much progress on what matters most, which is having a much better-coordinated procurement system across the EU." An as-yet unanswered question is what ramping up defence means for other spending, from welfare provision through to other infrastructure and the green transition. "If part of defence spending is funded via cuts elsewhere, we might even see a situation in which at least in the short run, higher defence spending will have a negative multiplier," said ING's head of global macro Carsten Brzeski of the possible lagging effect on growth. Germany's coalition hopefuls, in addition to removing spending caps on defence, are also planning a 500 billion euro infrastructure fund. But French President Emmanuel Macron, facing a high deficit, has warned of tough budget choices ahead, and other EU leaders will also face the question of how a defence surge will impinge on other priorities. They may conclude, suggested Bruegel's Kirkegaard, that "none of that matters if you are not physically safe."
Yahoo
30-01-2025
- Business
- Yahoo
Going Danish: How a small Nordic country is aiding Ukraine's defense
PARIS — Denmark is better known for LEGO bricks and leading in wind energy than for military power – a possible reason why U.S. President Donald Trump might have felt he could demand the country hand over its territory of Greenland, or else. Whatever the Nordic nation's martial prowess, the Danes have made a difference in Ukraine by leading an initiative to spend Western military aid on locally produced weapons rather than foreign equipment. That's helping Ukraine rebuild and grow its battered defense industry by paying for 'Made in Ukraine' howitzers, missiles, and long-range strike drones. For countries such as Denmark that want to help Ukraine fight off Russia's invasion but lack a major defense industry or weapon supplies, financing Ukrainian production makes sense, analysts say. Buying local gets weapons to the front faster and at lower cost, and facilitates training and maintenance. It also sets up Ukraine as a potential major European defense exporter. 'It's not a coincidence that it was the Danes who started it, because Denmark has very limited domestic military industry, but they have a lot of money,' said Jacob Funk Kirkegaard, a senior fellow at Brussels-based economic think tank Bruegel, who has testified to the European Parliament about Ukraine's economic recovery. Ukraine has placed 'great hopes' on scaling up the Danish model, and expects to raise at least $1 billion via the initiative in 2025, Prime Minister Denys Shmyhal told parliament on Jan. 10. Getting more allies to join was high on President Volodymyr Zelenskyy's agenda in meetings with NATO Secretary General Mark Rutte and German Defense Minister Boris Pistorius in recent weeks. 'This Danish model is ideal, supportive to the Ukrainian defense industry and armed forces at the same time,' said Mykhailo Samus, director of Kyiv-based think tank New Geopolitics Research Network. 'We have huge room for growth and for development of this project.' Ukraine's defense industrial capacity could reach €34 billion (US$35.4 billion) in 2025, but the country needs help to get there, being able to secure €16 billion in funding independently, Defense Minister Rustem Umerov said at a European Defence Agency conference this month. To compare, the entire European defense industry reported revenues of €158.8 billion for 2023. More than two years into Russia's invasion, Denmark was the first NATO country to directly buy weapons in Ukraine, ordering 18 locally-made Bohdana howitzers in July last year. Three Nordic countries, the EU and Canada have since joined in, and Zelenskyy has repeatedly praised the initiative, singling out Denmark as one of his country's most reliable defense partners. The Danish model delivered around €590 million of locally manufactured weapons to Ukraine in 2024, the Danish Ministry of Defence says. The Danes are among the top military aid donors to Ukraine in absolute terms, behind the U.S., Germany and the U.K., according to the Kiel Institute for the World Economy's Ukraine Support Tracker. Buying in Ukraine gets around the full order books and tight supply for Western defense firms, which have seen a surge in demand as European countries rearm. The first Bohdana order was fully delivered by mid-September, when buying that many artillery systems in Europe would have taken years, according to Danish Minister of Defence Troels Lund Poulsen. Speed of delivery is probably the biggest immediate advantage of the Danish model, said Pavel Verkhniatskyi, managing partner and director of Kyiv-based business-intelligence firm COSA. Direct investment in production by foreign firms is a 'much longer and sophisticated process,' he said. 'And in the end, someone still needs to fund the procurement of the produced goods.' Allocating aid to buy from local arms makers allows them to focus on producing weapons for the frontline, rather than on exports or business survival, according to Verkhniatskyi, who said the funding mechanisms in place before the Danish model mostly helped foreign industries. Ukraine had stepped up Bohdana production to between 15 and 20 guns a month by October, from starting with several units a month in 2023 and ten units in April. By comparison, KNDS France had increased monthly production of the comparable Caesar howitzer to six in April, from two per month before Russia's invasion of Ukraine, and a target for as many of 12 of the cannons per month. The French and German defense industries still haven't achieved the pace of production required for high-intensity war, said Samus, the Kyiv-based think tank director. 'Ukraine, including its defense industry, is in war conditions, so we're thinking differently. We have a motivation that's not only financial, like profit for a normal business, we have the main task of giving everything we can to our armed forces, to stop Russians.' Ukraine has built up what Zelenskyy calls a de-facto new defense industry, after Russian bombing left much of the pre-war industrial base in tatters. Ukraine churned out 25 times more artillery and mortar rounds in the first half of 2024 than in all of 2022, while drone production capacity rose to 4 million units in 2024 from around 300,000 a year earlier, according to government numbers. The country now produces about a third of the weapons it uses, from less than 10% at the start of the war, the president says. Domestically produced unmanned aerial vehicles accounted for 96% of those used by Ukrainian forces last year, according to Umerov. 'In the longer run, it's clear that Ukraine wants to become more self-sufficient in arms so that in the future, they will not be as dependent on Western military support and goodwill,' Kirkegaard said. 'And of course, if they have a huge, very competitive, battle-tested war-weapons industry, they will have the ability to export.' Zelenskyy says his country is set to become a 'very strong player' in global arms and defense technology. The country's defense firms employ around 300,000 people, nearly half as many as the workforce of the entire European defense industry. The potential hasn't gone unnoticed in France, the world's second-biggest arms exporter. Ukraine is 'building up an extremely important defense industry, which it openly states is destined to become a major defense exporter,' Bruno Berthet, head of the international committee at French aerospace-industry lobby Gifas, told lawmakers in a Jan. 15 hearing on weapon exports. France and Ukraine in October discussed a French model for cooperation, which Zelenskyy said was different from the Danish one, with the inclusion of technology and construction of production facilities. The French model would be an opportunity to attract investment specifically in new manufacturing capacity, the president said. 'I would not expect France to be a major player in the Danish model,' Kirkegaard said. 'But if you ask the major French military producers, they will have an interest in having a presence in Ukraine – which we are seeing.' Norway discussed yet another cooperation mechanism dubbed the Norwegian model in January, after already pledging funds for the Danish initiative in November. The Norwegian Ministry of Defence said it didn't have any comment on the talks. Lower production costs give Ukrainian equipment an edge over comparable kit from France or Germany. A Bohdana self-propelled howitzer costs around $2.5 million, according to Ukrainian media reports, whereas France last year financed 12 new Caesar howitzers destined for Ukraine at a cost of about €4.2 million each. Meanwhile, drones are more profitable to make in Ukraine than anywhere else in Europe, according to Zelenskyy. 'You get much more bang, literally, for your buck', Kirkegaard said. 'If budgets overall are limited, it should be in everybody's interest, both the donor and of course Ukraine as the recipient, to have it produced in a more cost-efficient manner.' Industry wages in Ukraine averaged 22,186 hryvnia ($529) a month in the first nine months of 2024, around one-third of average wages in neighboring Poland and Romania and one-eighth of average pay in Germany, according to data from the Ukrainian and EU statistics offices. Low costs, industrial capacity and experience from the conflict with Russia will make Ukraine's defense industry extremely competitive and very efficient in the longer term, provided the country survives as an independent state, Kirkegaard said. Should Ukraine join the EU, the country would be the premier military production location in the bloc, he said. 'I like to think of Ukraine as kind of the arsenal of the EU,' the Bruegel researcher said. The Danish model doesn't exclude joint ventures, and that might actually be the best way to invest, as some allies might prefer to fund equipment manufactured by companies linked to one of their national firms, according to Verkhniatskyi at COSA. 'Allied states and their businesses can benefit from cooperating with Ukrainian enterprises in R&D and co-production,' Verkhniatskyi said. 'After the war, these jointly made products would find their way into global markets much easier. 'Designed in Ukraine' should be a competitive advantage.' Beyond the political driver of countries wanting to help Ukraine, there will be a corporate logic for European defense producers to expand in Ukraine, said Kirkegaard, citing Rheinmetall, KNDS and others investing in the country with the intent of actually manufacturing there. Rheinmetall has been one of the more proactive European defense companies in Ukraine, setting up a joint venture company with state-owned Ukrainian Defense Industry in October 2023, with the Germany company holding a 51% stake. KNDS created a unit in Kyiv a year later which it said would support cooperation with the Ukrainian government and the local arms industry. 'In the short run, it's an advantage for Ukraine to have money invested in their existing capacity, because then you can scale it up faster,' Kirkegaard said. 'In the longer run, I would expect there to be very close collaboration between Ukrainian defense producers and other European ones. There will be mergers, there will be acquisitions, there will be joint ventures.'
