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Winnipeg Free Press
14-07-2025
- Business
- Winnipeg Free Press
Canada and its military spending quagmire
Opinion Prime Minister Mark Carney said in early June that Canada would finally meet NATO's military spending target of two per cent of GDP. Weeks later, that pledge was obsolete. At its recent summit in Brussels, the Western alliance agreed to raise the benchmark to five per cent by 2035. Canada pulling its weight among allies now means spending $150 billion annually on defence within a decade. Certain 'defence adjacent' projects — port upgrades, critical minerals development and cybersecurity initiatives — will count toward the sum. Still, today's defence budget will need to rise by at least $45 billion in under 10 years. It's a gigantic leap. And finding the money is just the beginning. Modernizing Canada's anemic military will involve navigating a maze of complex decisions and actions. Chad Hipolito / The Canadian Press The HMCS Winnipeg, a Halifax-class frigate in Victoria, 2023. Upgrading Canada's national defence doesn't just mean moving faster, Kyle Hiebert writes. It also means moving in a different direction. For one, it requires courting a variety of imperfect suppliers. An America First administration in Washington has Ottawa cosying up to Europe as the new vanguard of liberal democratic values. The defence and security partnership signed between Canada and the EU last month thus grants Canada access to the $1.25-trillion 'ReArm Europe' plan to resurrect the continent's military industrial base. The scheme may also generate reciprocal buzz for Canadian arms manufacturers. Yet jump-starting Europe's dormant production lines could take many years. And that's if it happens at all. Experts say it could also alienate American companies — whose parts are vital inputs for Canada's defence sector — if Canadian firms increasingly prioritize European buyers. Another option is to purchase off-the-shelf gear from South Korea, which has shot up the ranks of global arms exporters. A trio of South Korean companies in March submitted a secret proposal to federal bureaucrats for Canada to purchase at least $20-billion worth of new submarines and armoured vehicles. But using equipment from a non-traditional supplier often comes with novel training burdens and maintenance issues Canada's Armed Forces can ill-afford. Plus, geography still matters. Continental defence of North America will always be Canada's top national security priority, especially as the Arctic thaws. Close alignment between Canada and the U.S. on weapons systems and military supply chains must endure even amid political animosity. Another dimension of Canada's rearmament is technological. States and militant extremists are both harnessing digital platforms and expendable machines, mainly drones, to gain strategic advantages in modern warfare. And this technology is iterating at breakneck speed, almost entirely within the private sector. By contrast, Canada's broken procurement system prioritizes costly items from legacy providers (think of frigates, fighter jets and submarines) on decadeslong timelines. A serious pivot is overdue. 'The opportunity is here,' writes venture capitalist Eliot Pence, the former head of growth for Anduril, an American company that builds battlefield intelligence software and unmanned systems. 'The technology exists. Canada's tech ecosystem — startups, researchers and defence primes — can deliver if the government provides clear demand and stable funding.' Indeed, the Carney government has already doubled the budget for a DND program that supports Canadian startups to develop military technologies. Incentives to bring in institutional private investment could be another catalyst. Surging conflict worldwide has lowered the reputational risk for mainstream funders to invest in defence companies. Canada also has all the attributes to lead in cyber defence and operations — sophisticated public research facilities, huge data centre potential, enviable software engineering talent and a mature AI sector. Membership in the Five Eyes intelligence sharing alliance with Australia, Britain, New Zealand and the U.S. is another asset. But the biggest obstacle to renewing Canada's military will be sustaining political resolve. For better and worse, Canada is a federation of 13 diverse provinces and territories, each with competing interests. Meanwhile, an affordability crisis rages on. Wednesdays A weekly dispatch from the head of the Free Press newsroom. As one headline in The Globe and Mail put it: 'To up defence spending, Canada must cut deeper, tax harder and borrow more — all at once.' Public support, strong for now, may vaporize once the actual trade-offs become apparent. Similar dynamics have stalled adequate climate change actions. Few countries benefited as much from the Pax Americana years as Canada. The post-Cold War peace dividend allowed the country to become one of the richest, healthiest, most educated and freest societies on Earth. It also enabled voters and policymakers to ignore the necessity of hard power. Those favourable conditions are now gone. The world has entered a perilous and violent new era featuring a breakdown in multilateralism and withering norms around the use of force. The Carney government's imminent moves to rearm Canada will be just the start of what's necessary. That effort must continue with future Liberal and Conservative governments alike. Kyle Hiebert is a Montreal-based political risk analyst, and former deputy editor of the Africa Conflict Monitor.
New Indian Express
08-07-2025
- Business
- New Indian Express
As Europe aims to rearm, will India find it difficult to buy Rafale jets in future?
Europe is marching to a different beat these days. My time in Brussels, which saw me meet European Union officials and ex-diplomats, scholars, underlined that the unquestioned dependence on American security there is coming to an end. Europe now knows—that the party is over. This realisation came into the spotlight in early March 2025 when the European Union (EU) leaders convened in Brussels after the brutally honest message from Washington that Europe should take care of itself. Proposals to unlock hundreds of billions of euros of defence spending were supported by European Commission President Ursula von der Leyen and European Council President António Costa. The post-1945 security architecture in the EU had long been pegged on the promise of the American security umbrella always being around. This was being overturned with the move. The Russian invasion of Ukraine, which has become the biggest geopolitical stress test in the continent in decades, had a huge role to play in the shift. For years, the positive belief in American love, rather than any strategy, concealed the bitter fact: The European continent was not ready to defend itself. Major powers in Brussels now admit that European security hinges on ensuring a strong Ukraine and can no longer be delegated. The EU's ReArm Europe strategy that was launched in response in March aims to mobilise up to €800 billion, including €150 billion in defence-related loans, and is a dramatic shift in military ambition. For a bloc long seen as a normative power, this represents not only a strategic recalibration but a philosophical departure from the post-war consensus on peace dividends and social spending. The EU was after all described as a peace project. Learning from close quarters It was my return to Brussels—19 years after my first visit there—in June this year that gave me an opportunity to understand how the EU forges consensus among diverse member states and builds complex regulatory structures. There can be little doubt that the political and economic integration of the EU was a historic success. From the inception of the euro in 1999 to its expansion to more than 20 countries, the EU has bred peace, prosperity and institutional cooperation, which have never been witnessed before. A free movement of goods, services, capital, and citizens is now possible because of a single market of over 450 million citizens. The EU has managed to adjust even during the times of financial crisis, Brexit, and the growth of populism. The integrationist model of the European Union cannot be compared to other regional blocs such as ASEAN with the latter yet to reach the same magnitude of depth and cohesiveness. But beyond budgets and military hardware, the question of moral and strategic autonomy looms. Europe had long benefitted from the US security umbrella, often without the political costs that come with strategic independence. What has suddenly sprung up is the need for the transformation not just of capabilities, but of identity since the EU, as mentioned before, was essentially described as a peace project. Emmanuel Macron, the French President, who had constantly been calling to increase European defence investments, on March 2, 2025, urged the EU member states to increase defence expenditure to between 3 to 3.5 percent of GDP, with 3.5 percent to be directed to the core defence which will include the personnel, arms and munitions. President Macron came up with a proposal of a joint investment tool of 200 billion euros which can be financed by EU level borrowing or by the European Stability Mechanism. This signaled a sea change in European incrementalism and emphasised the recognition that Europe could no longer continue to under-invest in defence. Blunt Prez insists on 'Trump'ing even as cracks open up in EU Around the same time of my stay in the Netherlands, at the 2025 NATO Summit in The Hague, President Trump achieved what had long eluded past leaders: getting the allies to raise their spending from 2% of gross domestic product to 3.5% by 2035. Trump's message was blunt: either shoulder the burden or expect diminished American support. He condemned Spain for resisting the target. While the US defence spending hovers at 3.5% of GDP, the European average remains around 1.9%. Even the revised NATO target 3.5% for traditional defence and 1.5% for cyber and infrastructure faces political headwinds. Many capitals remain wary. Spain flatly refused the 5% goal, citing social obligations and there are concerns about unsustainable fiscal deficits and European Union's fiscal rules in this regard. However, expectedly, states like Poland and the Baltics, acutely aware of security threats to the east, have endorsed the higher targets. On June 27, António Costa has even suggested that increased European purchases of American weapons could be leveraged to rebalance transatlantic trade a subtle reminder of how defence and commerce intertwine. But beneath these general trends are the internal cracks that have the potential to weaken the EU cohesion. Led by Viktor Orbán, Hungary remains close to Moscow diplomatically and economically, regularly preventing or diluting EU-wide proposals regarding Russia in the statements of the EU and in sanctions. Such a position has left member states such as Poland, Lithuania, Latvia, and Estonia visibly frustrated by the apparent fact that Hungary was completely out of sync with common securitization agendas in Europe. This strategic incoherence has been stoked by the reconsiderations in the Council on the aid to Ukraine by Budapest that have led to delaying of critical decisions. In the meantime, in Slovakia, elections had swept to power a government that sounds less-than-enthusiastic about war-proofing, joining the choir of those opposed to the escalation of defence commitments. Austria too still sticks to its policy of neutrality and Italy wavers between Atlanticism and the political attitudes at home. Such inconsistent national interests are not something new, but they are growing more consequential. As Europe faces an increasingly unstable security environment, such fragmentation could weaken the EU's emerging defence ambitions. What India must prepare for In this evolving landscape, countries from global south like India have to pay close attention as these changes will be consequential. The defence partnerships with Europe, particularly France, deserve closer scrutiny. I was told by an interlocutor that India is 'a victim of its own success.' For instance, bilateral defence cooperation with France has flourished, from Rafale jets and Scorpène submarines to Safran engines and UAV collaboration. However, future engagements may require navigating EU-level frameworks such as Permanent Structured Cooperation (PESCO). Launched in 2017 under the EU's Common Security and Defence Policy, PESCO aims to harmonize European defence procurement and strategic planning. As of 2025, 26 member states participate. While PESCO does not automatically obstruct third-country partnerships, it introduces regulatory layers, particularly when EU funding is involved as with the Future Combat Air System (FCAS). For India, which values flexibility and sovereignty in defence deals, such frameworks could introduce delays or complications. PESCO is based on political vision: to be less reliant on non-EU suppliers and a strong European defence-industrial base. This would progressively motivate key partners such as France and Germany towards focussing on intra-European projects rather than focusing on external projects. India must therefore prepare for a future where bilateral ties with European states are increasingly shaped by Brussels-based structures and standardizations. Curiosity around China and Europe's future In some circles, there is curiosity about the role of Chinese-supplied weaponry in the recent four-day crisis involving India and Pakistan. Their curiosity was not limited to South Asia. Rather, they viewed the episode as a microcosm of Beijing's growing ability to shape regional conflict dynamics through calibrated arms transfers and embedded military technologies. Drones, radar systems, and precision munitions, often provided to Pakistan on concessional terms, were seen as part of a broader Chinese strategy of building tactical leverage without direct confrontation. In their eyes, it was also an opportunity to see how China could practice or perfect instruments that demonstrate its might internationally. The episode also reaffirmed to European policymakers that Chinese global presence is not only all over the economic and trade lanes of the world but indeed right in live conflict zones, and that a more comprehensive European response, premised on long-term strategic thinking, is required. The existential issue in Europe, however, is whether it will be a geopolitically effective player or will it be bound to a failing transatlantic compact. The days of the postwar party are over perhaps, but this is just the start of the new era. Europe is at a crossroads as the continent grapples with war on its doorstep, internal divisions and faltering transatlantic certainties. The way it establishes a new architecture of defence and diplomacy will determine its position in the international order and the connection it will have with the rest of the world, including Asia, in the decades to come. (The author has worked for 25 years as a practitioner, researcher and an analyst on conflict areas and violent extremism issues. He has authored two books including Across the LoC: Inside Pakistan-administered Jammu and Kashmir published by Columbia University Press.)
Business Times
07-07-2025
- Business
- Business Times
The great revival of Europe's industrials
'WE KNOW we need to do more… Europe needs to grow up and Europe needs to be able to defend itself,' said Friedrich Merz, Chancellor of Germany, in March this year. At that time, he unveiled a plan that would unlock hundreds of billions of euros for infrastructure and defence investments, breaking the prior tight controls on Germany's borrowing limit. He was planning a 500 billion euro (S$749.9 billion) infrastructure fund to invest in areas such as transportation, energy grids and digital infrastructure. This has now been approved by the German government, to be spent over 12 years. The sum is about 1 per cent of the country's gross domestic product per year. Merz also drove through a constitutional amendment to exempt defence spending that exceeds 1 per cent of Germany's GDP from the 'debt brake', a fiscal rule limiting budget deficits to 0.35 per cent of annual GDP. This means Germany's defence spending is now virtually uncapped. In addition, German states, which had been prohibited from taking on new debt, will be allowed to incur new annual debt of 0.35 per cent of GDP, the same as the federal government. In sum, we expect that Germany's fiscal boost could lift annual GDP growth by as much as 2 percentage points over the coming decade. Since Germany accounts for a quarter of the euro area economy, this alone translates into a 0.3 to 0.5 per cent lift to annual euro area growth. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up In addition, for the wider European Union (EU), the European Commission has unveiled the 'ReArm Europe' plan. This would activate a mechanism to allow countries to use their national budgets to spend an additional 800 billion euros on defence by 2030, without triggering EU budgetary penalties. Given other EU countries have a lower debt capacity than Germany, the implementation of this plan could face more hurdles. Direct and indirect beneficiaries Not all the German and European defence spending will benefit Europe. Indeed, the European Commission estimates that nearly 80 per cent of defence purchases made by EU countries since the start of the Ukraine war were from outside the EU, with over 60 per cent from the US alone. With US tariff negotiations in the background, more defence purchases by the EU from the US could be part of a trade deal. European leaders recognise, however, the need for a massive industrial production ramp-up within Europe itself to be truly capable of defending the region. The aerospace and defence industry in Europe, which comprises 26 per cent of the MSCI Europe industrials sector, would be a direct beneficiary of this increased defence spending. We expect other segments of the industrials sector – such as electrical equipment, machinery, building products and construction and engineering – to also benefit from greater infrastructure and defence spending. In total, over two-thirds of the industrials sector would benefit directly from Europe's fiscal boost, while remaining sectors would benefit indirectly from the broader uplift in economic growth. Sustained earnings momentum The industrials sector notched up a good Q1 earnings season, delivering a 7 per cent positive earnings surprise. Consensus expectations are for earnings to grow by 10 per cent in 2025, and 12 per cent in 2026. With Europe's fiscal boost kicking in especially in 2026, we expect the multi-year tailwind to support earnings momentum for the industrials sector. We are also positive on other growth trends that benefit the sector, such as civil aerospace, electrification and sustainable construction. Civil aerospace benefits from strong global air travel demand. Electrification demand is growing from urbanisation, heavy AI investments with significant power demands and the increasing penetration of electric vehicles globally. Meanwhile, global sustainability trends are driving an upgrade to sustainable construction, energy efficiency and green buildings. Overcoming risks Valuation of the Europe industrials sector is currently elevated, with consensus 12-month forward price-earnings ratio at 20x, compared to the 10-year historical average of 18x. However, we expect the elevated valuation to be sustained by the strong earnings momentum. Another risk is that the sector currently generates 27 per cent of sales from the US, which could face tariff headwinds, subject to ongoing trade negotiations. A majority of sector revenue currently originates from outside Europe as well, so a stronger euro could translate into an earnings headwind. Nonetheless, we are bullish on the sector as we expect investors to be focused on the sustained earnings tailwind and a European industrials revival from greater infrastructure and defence spending. The writer is senior investment strategist at Standard Chartered Bank's wealth solution chief investment office
Russia Today
07-07-2025
- Business
- Russia Today
NATO state issues warning over ramping up defense spending
EU nations risk 'increased debt levels and unsustainable finances' if they raise defense spending too quickly, Danish Economy Minister Stephanie Lose has warned. EU and NATO members are pushing to invest billions of euros in troops and weapons. NATO leaders agreed last month to increase the target for defense spending from 2% to 5% of GDP, with 3.5% allocated directly to the military and the remainder directed toward broader security initiatives. Brussels previously unveiled the €800 billion ($940 billion) 'ReArm Europe' program. Denmark is among 12 EU nations taking advantage of a special 'national escape clause', which allows them to bypass the EU's budget deficit rules when borrowing for military purposes. Lose told Euractiv that she does not fault countries such as France and Italy for opting out, in an interview published on Monday. 'It's good if you adhere to sound public finances... if it means that they're exploring ways to fulfill the 3.5% NATO goal without being on an unsustainable path,' she said, adding that if the reluctance indicates a lack of room to boost defense spending, 'then it's, of course, a problem.' Speaking ahead of an EU ministerial meeting that she is set to chair Monday – as Denmark currently holds the rotating presidency of the bloc – Lose cited US trade tariffs and competition from China as additional pressures limiting the EU's ability to increase military investment. European NATO members say they need to increase their defense budgets to deter the alleged threat from Russia, which has denied that it poses any threat to these countries, accusing Western officials of using fear to justify the budget increases, as well as the decline in the standard of living among their citizens. Western Europe's industrial competitiveness has fallen since EU leaders reduced Russian energy imports, which supported the region's industries for decades. The move was part of sanctions against Russia due to the Ukraine conflict. Russia considers the conflict to be a result of NATO expansion, saying the US-led military bloc presents a direct threat to national security.
Euractiv
07-07-2025
- Business
- Euractiv
Military spending splurge ‘risk factor' for EU economy, says Denmark
COPENHAGEN – The EU's push to boost military expenditure could undermine the bloc's financial stability unless EU countries curb soaring deficit and debt levels, according to Denmark's economy minister. Stephanie Lose told Euractiv that Europe must ramp up defence spending 'very quickly' to deter Russia's growing military threat, but warned this outlay may pose an additional 'risk' to the bloc's economy, which is already reeling from the twin impact of US tariffs and fierce Chinese competition. 'At the same time as there is this unrest in the economies across the world, [we] need to boost defence spending very quickly,' said Lose, whose country took over the rotating Council presidency from Poland earlier this month. 'That is a risk factor for our economies, because if we don't combine that with wise decisions on ways to a more sustainable path for public finances, then I guess it will be a problem in terms of increased debt levels and unsustainable finances,' she added. Lose's comments come after NATO members last month pledged to increase military spending to 3.5% of annual GDP by 2035, almost double the US-led alliance's previous 2% target. The 32-member military bloc – which includes 23 of the EU's 27 member states – also agreed to allocate an additional 1.5% of total output to security-related infrastructure. Spain, however, secured an opt-out allowing it to spend just 2.1% in total on defence. Sixteen EU countries – including Denmark – have also heeded the European Commission's recent call to activate the 'national escape clause," a key component of President Ursula von der Leyen's €800 billion 'ReArm Europe' plan to ward off Moscow's threat to the continent. Activating the clause allows capitals to spend an additional 1.5% on defence without contravening the bloc's fiscal rules, which limit member states' deficits to 3%. However, France, Italy, and Spain – the EU's second, third, and fourth-largest economies – have refrained from invoking the clause amid concerns about their already high budget deficits. France and Italy are also among nine EU countries currently subject to a so-called 'excessive deficit procedure," or formal reprimand, by the Commission for breaching the bloc's 3% fiscal threshold. Lose, who will attend her first meeting of European finance ministers as Council chair on Monday, said she couldn't 'judge' France, Italy, and Spain's decisions not to activate the clause, as this depends on their underlying motivations. 'On one side, it's good if you adhere to sound public finances: so if it means that they're exploring ways to fulfil the 3.5% NATO goal without being on an unsustainable path to a higher extent than they already are, then that's, of course, great news,' she said. '[But] if it symbolises that there won't be any room at all to boost defence spending, then it's, of course, a problem,' she added. (mm)
