Renowned defence expert Professor Phillips O’Brien states European defences have been starved of investment since 1990 and must urgently catch up

  • HANetf was delighted to host University of St Andrews Professor, Phillips O’Brien, on our latest defence webinar.
  • Professor O’Brien is a renowned historian and defence expert, and currently Head of the School of International Relations and Professor of Strategic Studies at the University of St Andrews.
  • Among the key takeaways was O’Brien’s acknowledgement of the chronic underspending on defence since 1990, and the subsequent need to recreate European defence infrastructure.

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June 2024, London

HANetf, Europe’s first and only independent white-label UCITS ETF and ETC platform[1], and leading provider of digital asset ETPs, recently had the pleasure of hosting renowned historian and defence expert Professor Phillips O’Brien, Head of the School of International Relations and Professor of Strategic Studies at the University of St Andrews

The webinar, NATO: Unlocking Europe’s Defence Potential, saw Professor O’Brien and Tom Bailey, Head of Research at HANetf, take a deep dive into NATO member defence capabilities against the backdrop of heightened geopolitical tensions worldwide.

Professor O’Brien highlighted the largest decline in defence spending over three decades of any large bloc in history, with chronic underfunding since 1990 leaving Europe severely weakened.

“It is hard really to compare how Europe has demilitarised for the past 30 years since 1990. The reality of what has happened to the European defence industry is that it has been deprived of funding.”

One of the greatest challenges faced by NATO since the Cold War has been the Global War on Terror (GWOT), and it has led to even further dwindling of supplies.

“The war on terror had a very serious impact on the types and kind of production that Europe spends on. Of the money Europe had left, a lot had to go on fighting GWOT. What it made Europe’s defence industry favour was a focus on exquisite over mass. GWOT by its nature was a series of low intensity conflicts over a prolonged period of time.”

By “the exquisite”, O’Brien is referring to ability to produce small batches of varied munitions, an approach that made sense for “low-intensity conflicts over a long period of time” – the force needed to fight in Afghanistan does not equal that which would be needed to fight Russia.

These already depleted resources were further affected by Russia’s full-scale invasion of Ukraine in 2022. Many NATO members redirected armaments to the Ukrainian forces in order to aid their resistance against Russia’s invasion. Coupled with further conflicts, most notably that of Israel-Hamas, stockpiles are at the lowest levels seen in decades.

It is perhaps no wonder then, that defence spending is largely on the rise. NATO members appear to have realised that the historical defence spending of the past couple of decades is no longer tenable.

“Ultimately, it comes down to how much is spent, and what is prioritised within that spend. There is definitely more money going to the system and European defence spending is on the rise, such as the UK’s recent 2.5%-of-GDP commitment.”

But, O’Brien emphasises that the way in which Europe thinks about defence will have to change. The recent conflicts have exposed the weaknesses in Europe’s defences, and future spending could potentially allow for a stark transformation.

“Looking forward, Europe will have to create a whole new defence infrastructure, from raw material sourcing and stockpiling to new plants for reproduction and technological developmental programmes. In many ways, recreating European defence, with lessons learned from the recent conflicts.”

Ultimately, technological development and mass production may need to occur without U.S. support. Former, and perhaps future, President Donald Trump has frequently espoused the view that European NATO members are failing to carry their own weight, and that this could lead to the U.S. withdrawing from the alliance altogether. While unlikely, it highlights the fact that European NATO members must ensure their collective security and create defence infrastructure independent of the U.S.

This would include new technologies, like unmanned aerial vehicles (UAVs) which have been far more widely used in the decades since the end of the Cold War. It also goes for cybersecurity, which has recently emerged as a new theatre of war – an often-unseen threat that can devastate infrastructure.

Future of Defence UCITS ETF (ticker: NATO) aims to provide exposure to NATO and NATO+ ally defence and cyber defence spending. Uniquely, the ETF includes a NATO screen, which is designed to ensure that holdings are limited to companies actively involved with, or domiciled in, NATO or NATO+ countries.

View the full webinar replay here: NATO: Unlocking Europe’s Defence Potential

 

Hector McNeil, Co-Founder and Co-CEO of HANetf, comments:

“We were thrilled to work with Professor O’Brien. Here at HANetf, we believe that the question of defence is one of the most critical for generations, especially given the massive underspending seen since the end of the Cold War. Professor O’Brien is a demonstrated expert in this field, so it was a fantastic opportunity to have him on board to talk about the defence situation in Europe, and his views on what needs to happen to ensure the collective security of European NATO members.

“Our defence ETF is unique in its exposure to NATO and NATO+ ally defence and cyber defence spending – we believe this sets the ETF apart and allows investors to gain more responsible exposure to the theme. Since its launch, it has accrued just under $400 million in assets under management (AUM), which is an impressive feat given it is only 8 months old. It appears that investors are changing their views on defence as a theme, which we believe is driven by the increasingly chaotic geopolitical landscape.”

[1] As shown in the ETF Database.

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