European arms manufacturers lack funds despite record global military spending

European defense companies face a critical financing gap of up to 2 billion euros ($2.1 bn), threatening innovation in the arms industry.

Oct 31, 2024 - 16:00

European arms manufacturers lack funds despite record global military spending

Rheinmetall

Small and medium-sized defense companies in Europe are grappling with significant financial challenges, even as global military expenditure reaches an all-time high of $2.44 trillion in 2023, according to a Reuters report.

The ongoing Russian war against Ukraine has increased geopolitical tensions and military spending, yet created a complex financing environment for European defense SMEs.

While the war has highlighted the urgent need for defense modernization and expanded military capabilities, traditional financial institutions remain cautious about investing due to ESG concerns and the inherent risks of the defense sector.

The Stockholm International Peace Research Institute reports that military spending increased by 6.8% from the previous year, marking the highest level since 2009.

European defense sector firms are struggling to access critical financing needed for innovation and production expansion, Reuters reported.

A 2024 European Commission report reveals a financing gap, estimating that small and medium-sized enterprises (SMEs) in the EU defense sector face a debt financing barrier between 1 billion and 2 billion euros (up to $2.1 bn).

This funding shortage is driven by multiple factors, including banks’ hesitancy due to environmental, social, and governance (ESG) regulations.

Managing Director of the Defence and Security Industry Association of the Czech Republic, Jiri Hynek, said that most of the problems in recent times in the defense and security industry have continued or deepened.

The United States dominates venture capital funding in defense, securing 83% of investments among NATO allies since 2018.

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