Defense spending is estimated to reach at least 3% of the gross domestic product of the European Union member states by 2040, against the background of escalating security challenges, which require an increased budgetary effort, according to the Deloitte study “The Future of Defense 2040. Four scenarios for Europe's future security architecture”. In 2025, the defense budgets of EU member states reached 2.1% of GDP (approximately 381 billion euros), according to the latest data from the European Defense Agency.
Beside increasing defense spending, another trend identified by the study, considering the demographic evolution, is military personnel crisis. Professional armies are already experiencing difficulties in reaching the necessary numbers, which will cause a fundamental rethinking of their operating model.
Automation and artificial intelligence (artificial intelligence – AI) are also among the trends highlighted by the study. AI will play a central role in the operational efficiency of defense forces, and automation has the potential to increase the speed and efficiency of the armed forces, but industry leaders are carefully weighing the benefits of integrating these technologies against the ethical implications and risks of relying on external technology providers.
At the same time, outer space becomes a new battlefieldthe study shows. Satellites are already critical for communications and target identification, so without developing their own space capabilities, European armed forces are exposed to significant vulnerabilities in contemporary conflicts.
The study draws attention that critical supply chains are increasingly becoming a matter of national security, especially in the case of semiconductors and rare metals or minerals, and even more so when sources of supply are concentrated in regions that may become unstable or hostile.
Another trend highlighted by the study is the need to society to take greater responsibility in national defense – from personal digital security, to using critical thinking to actively combat disinformation.
“The current geopolitical context and the major uncertainties, which are no longer manifested only in the short term, create the need to identify solutions capable of responding in the long term to the security and resilience needs of states. The transition to dual-use infrastructure (military and civil) stands out as such a solution, approached as a strategic direction at the European level, with multiple benefits for states, citizens and economic actors. Companies that see this evolution not only as a necessary adaptation, but as an opportunity, by aligning with these standards and integrating into strategic value chains, they can access consistent financing for large-scale projects and generate sustainable competitive advantages, with a significant impact on the economy, and the study offers some suggestions in this regard,” said Alexandru Reff, Country Managing Partner, Deloitte Romania and Moldova.
The study analyzes four possible scenarios for 2040, which take into account various levels of European integration (versus national sovereignty) and various types of conflict domains – conventional versus new (cyber, space) – and formulates recommendations for each category of actors. Regardless of the scenario that will materialize, decision makers should build flexible institutional structures that allow for coordinated national and European action and ensure that defense decisions respect democratic values and are transparent, the study indicates. Also, European companies should invest in adaptable systems and identify dependencies on foreign suppliers, exploring expansion into areas such as drone production, secure communications or AI-based targeting systems. And as for armed forces, they should also prepare for hybrid threats.
“Romania is well positioned to benefit from the current context, which offers companies access to a financing mix consisting of grants, low-cost loans and guarantee schemes – SAFE (Security Action for Europe), funds for research and innovation, such as EDF (European Defense Fund), procurement and industrial development programs, such as EDIRPA (European Defense Industry Reinforcement through common Procurement Act), ASAP (Act in Support of Ammunition Production) and OEDIPUS (European Defense Industry Programme), complemented by EIB (European Investment Bank) financing and InvestEU guarantees. Overall, this financial architecture reduces the cost of capital, lowers investment risks and increases the attractiveness of projects, facilitating the expansion, innovation and integration of companies in strategic European value chains”, said Alin Chitu, Partner, Fiscal Services, Deloitte Romania, Leader of consulting services for the defense sector.
The study uses a complex scenario modeling methodology based on an extensive process that combines interviews with defense and public sector experts with analysis of 90 social, technological, economic, environmental and political influence factors.
Deloitte provides global audit, tax and legal advisory, consulting, financial advisory and risk management services to approximately 90% of the Fortune Global 500® companies and thousands of private sector companies. The firm's experts help deliver measurable and lasting results that help build confidence in the capital markets that enable companies to transform, thrive and pave the way for a stronger economy, a fairer society and a sustainable world. With a history of more than 180 years, Deloitte covers more than 150 countries and territories. Its objective is to create a visible impact in society with the help of approximately 470,000 professionals worldwide.
Deloitte Romania is one of the largest professional services firms in our country and offers, in cooperation with Reff & Asociații | Deloitte Legal, audit services, tax consulting, legal services, consulting and risk management, financial consulting, service solutions and technology consulting, as well as other related services, through 3,300 professionals.
To learn more about the global network of member firms, please visit Deloitte.ro.
Article supported by Deloitte Romania
