Europe Unites... Opportunities for K-Defense Industry [Yang Nakgyu's Defence Club]

Europe is uniting. Former President Trump made remarks suggesting that NATO member countries could be encouraged to counter Russia's invasion, prompting efforts to strengthen military capabilities. There is also an assessment that a united Europe would be advantageous for 'K-Defense Industry.' However, many challenges remain to be resolved.

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If former President Trump returns to power, intense tensions over defense cost-sharing are expected among NATO member countries. During his tenure, Trump even mentioned withdrawing from NATO over defense spending issues. In response to the possibility of Trump's return, Europe has begun to move. France, Germany, and Poland are discussing the revival of the 'Weimar Triangle Alliance.' The Weimar Triangle Alliance was originally established to support Poland's departure from the Soviet sphere. However, discussions were halted as its functions overlapped with NATO.

The foreign ministers of France, Germany, and Poland have actively brought out the long-dormant Weimar Triangle Alliance card. On the 12th (local time), Donald Tusk, Poland's Prime Minister, met consecutively with French President Emmanuel Macron in Paris and German Chancellor Olaf Scholz in Berlin, emphasizing the alliance. The intent is to strengthen Europe's own security capabilities. The three countries currently hold a positive stance toward the triangle alliance.

▲Will a Large-Scale European Defense Market Open?= If the three countries, which are increasing their defense budgets, unite, a large-scale defense market will open in Europe. In 2017, the first year of Trump's presidency, only 4 out of 29 NATO member countries met the defense spending target of 2% of Gross Domestic Product (GDP). With the prolonged Ukraine-Russia war, more than half are expected to exceed 2% this year.

According to the World Military Balance report published by the UK International Institute for Strategic Studies (IISS), NATO allies have sharply increased their defense spending. Since Russia's annexation of Crimea in 2014, defense spending has expanded by 32%. This accounts for half of the world's total defense expenditure. Last year, global defense spending rose 9% from the previous year to $2.2 trillion (approximately 2,930 trillion KRW).

The number of European allies meeting the defense spending target of '2% of GDP' increased significantly from 2 countries in 2014 to 10 countries last year. Russia, engaged in war with Ukraine, reportedly invested over 30% of government spending in defense last year.

▲Is 'K-Defense Industry' Advancing?= Domestic defense companies, which have achieved success in European and Middle Eastern markets, saw significant revenue growth last year.

Hanwha Aerospace recorded an operating profit of 701.7 billion KRW last year, an 86% increase compared to the previous year. Hanwha Systems also achieved an operating profit of 92.8 billion KRW last year, a 137.5% increase, reflecting a multifunctional radar export contract for Cheongung-2 to the United Arab Emirates.

Hyundai Rotem's operating profit increased by 42.4% year-on-year to 210 billion KRW last year, boosted by the first export contract of K2 tanks to Poland. Defense sector sales nearly doubled (49%) to 1.5781 trillion KRW. LIG Nex1's operating profit rose 4.1% year-on-year to 186.4 billion KRW, thanks to the export of the Korean ballistic missile defense system 'Cheongung-II' worth $3.2 billion (approximately 4.25 trillion KRW) to Saudi Arabia.

However, there are obstacles. One is the amendment of the Korea Export-Import Bank Act (KEXIM Act). The financial support capital limit of the Export-Import Bank is 15 trillion KRW, but recent defense export performance has exceeded 30 trillion KRW, making policy financial support urgently needed. It is uncertain whether the amended law will pass in the current National Assembly before the general election. Some suggest considering methods such as commercial banks or guarantees.

A government official said, "As the global defense market grows, various government support measures should be poured out, but the reality is not so."

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