2025 Peace and Conflict Spotlight: The Integration and Trade-offs for European Defence Spending.

ManyEuropean countries are increasing Military Expenditure as a result of the war in Ukraine. However, raw military expenditure is not the most pressing issue. 

• Europe is undergoing rising social tensions and rising distrust in its institutions. As more public funds are diverted from employment, healthcare and education toward defence expenditure, the risk of further exacerbating these tensions rises. 

• Europe’s real defence challenge lies in the absence of integration. Despite collectively outmatching Russia, European forces are hindered by fragmentation. 

• Europe’s current military expenditure is almost four times that of Russia, but its combined military capacity is only one third higher.

 • Without unified strategic vision and command systems to direct integrated military capabilities, Europe’s defence potential will remain unrealised. The efficiency and integration of its fighting forces are currently more important than increasing its absolute level of military expenditures.

The major question for Russia is the sustainability of these expenses. Russia’s GDP declined by 12 per cent to $2 trillion nominally as the economy pivoted to a war economy. When measured in PPP, the economy is estimated to remain flat at $6 trillion between 2022 and 2024. The combined economies of France, the United Kingdom, Italy and Germany are $17.5 trillion in PPP, nearly three times as large. Over the longer term it may become an economic war of attrition as Russia consumes more of its internal economy to prop up its war economy. Europe’s real challenge lies in the absence of integration. Despite collectively outmatching Russia, European forces are hindered by fragmentation. Defence policies, procurement systems and command structures remain predominantly national, leading to large-scale inefficiencies. NATO has long depended on American leadership, intelligence sharing and logistical infrastructure. With uncertainty around continued US commitment, European nations face mounting pressure to coordinate their defence capabilities. Yet without unified strategic vision and an integrated command, Europe’s defence potential will remain unrealised. The efficiency and integration of its fighting forces are currently more important than increasing its absolute level of military expenditure. Finally, nuclear deterrence remains a critical gap. Currently Russia has around 1,700 active nuclear warheads, while France and the United Kingdom have about 400. As both arsenals are enough to devastate the planet many times over, expanding nuclear arsenals is not a viable solution. The most pressing question is not one of capability, but of intent – whether either side would be willing to deploy such weapons tactically. Complicating matters further are the socioeconomic trade-offs of increased defence spending. Allocating more funds to the military often means diverting resources from essential areas like business support, health, education and welfare, or increasing public debt and taxation.

 Europe is already grappling with low productivity growth, rising costs of living and the surge of populist movements that thrive on economic discontent. Escalating military budgets in this context risks fuelling societal divides. Europe's current push toward greater militarisation is not unwarranted, but it must be strategic. Simply increasing budgets will not address the most pressing issues: lack of integration and the political-economic risks of neglecting domestic priorities. For Europe to truly strengthen its internal and external security, it must focus on building an integrated defence force while carefully balancing military needs with the wellbeing of its citizens.

The Future of Total Defense: Rethinking Resilience & Resistance in Europe.

 Europe’s security environment is undergoing a profound transformation. In response to Russia’s invasion of Ukraine and diminishing US strategic focus on the continent, European nations are increasingly diverting funds from productive sectors of the economy such as education, healthcare, business development and infrastructure, towards military expenditure and defence buildup. This is not necessarily unjustified. However, IEP analysis finds that the primary issue for Europe is less about expenditure and more about coordination. That is to say, the continent should be less concerned about increasing spending and more focused on effectively overcoming its structural fragmentation in its defence forces to build cohesive and efficient defence capabilities. Focusing disproportionately on military expenditure could undermine the very stability that defence aims to protect. Security encompasses both military capability and broader societal cohesion, economic opportunity and public trust in institutions. A militarised Europe that fails to address these internal pressures may risk undermining its own security if internal pressures are not addressed alongside external issues, which would in turn sap political resolve to meet common external threats. A greater focus on a country's international security can come at the expense of its domestic stability and security. At face value, Europe appears more militarily capable than Russia. NATO members in Europe outspend Russia on defence by a large margin. But this comparison, often illustrated using market exchange rates, obscures important realities. First, such figures do not consider purchasing power parity (PPP). In countries like Russia, where personnel and administrative costs are lower, a dollar can buy significantly more than it can in advanced economies. Western defence budgets, particularly in Europe, often allocate a substantial portion to salaries, pensions and other non-combat costs. As a result, the nominal advantage in spending by Europe may not reflect the real disparity in effective military spending and investment. It is worth noting that the values reported here reflect realised military spending and exclude long-term increases announced by European countries since the start of the Russia–Ukraine war in 2022 – many of which have yet to materialise. Spending, however, is only part of the equation. What truly matters is how efficiently resources are translated into usable military power. IEP’s 2024 report, Contemporary Trends in Militarisation, estimated real military capability through a framework that evaluates both the quantity and quality of a country's military assets, along with battlefield experience and combat readiness of its armed forces. When seen through this lens, the gap between Russia and the combined European NATO members is far narrower than spending figures suggest. Given its involvement in the largest conflict in Europe since World War II, Russia's battlefield experience and combat readiness surpass those of any European NATO member. The Russian threat is real and no individual European country comes close to Russia's military capability. Even France and the United Kingdom, Europe's two most capable militaries, each have less than a third of Russia's overall capacity. Russia has also slightly increased its overall military capability since the beginning of the Ukraine war in 2022. Over the past three years, it has lost a considerable portion of its armoured vehicles, a large number of fixed-wing and rotary-wing aircraft, and more than half of its Black Sea naval fleet. Its ability to recover from these losses highlights a massive diversion of funds toward military expenditure and a sustained commitment to maintaining an outsized military force.