Europe faces large 'shortfalls' in its defence: report

Europe has wide "shortfalls" in its military capabilities which leave it "ill-prepared" as the war in Ukraine grinds on, a new report said Tuesday.

With the new security strategy of US President Donald Trump's administration forcing European countries to rethink defence policies, four years of war in Ukraine has spurred efforts to boost military capabilities, the International Institute for Strategic Studies (IISS) said in its annual report.

The 2026 edition of the Military Balance report by the London-based institute notes that the United States is seeking to refocus its efforts on protecting its own territory.

As a result, the US leader continues to push allies for "greater burden-sharing" in military spending, both in Europe and in the Asia-Pacific region in response to China's growing influence.

- Military spending -

In 2025, global military spending rose by 2.5 percent to $2.63 trillion, a slower pace than over the past five years.

This was partly due to a drop in the US defence budget -- a decline unlikely to last, with the Trump administration's defence spending expected to exceed $1 trillion in 2026 for the first time.

Part of that will notably fund America's "Golden Dome" missile defence shield project, the IISS said.

In contrast, military spending continued to grow at "record levels" in Europe, reaching $562.9 billion -- up 12.6 percent in a year -- driven by Germany.

NATO countries, under pressure from America and facing an increased threat from Russia, have pledged to raise national defence budgets to 5.0 percent of GDP by 2035.

But they could be constrained by their "limited fiscal headroom", the IISS warned.

- Ukraine war -

The IISS report, published on the fourth anniversary of Russia's invasion of Ukraine, said it was difficult to imagine the war would end any time soon.

"Western estimates of Russian personnel losses vary, but these may now total more than a million killed or wounded," the report added.

Despite that "Russia has been able to adapt, regenerate and maintain its capability".

Russia's war in Ukraine has driven "rapid and continuous evolution in technologies -- notably in the design and use of uninhabited systems and artificial intelligence -- as well as in tactics and defence-production cycles," according to the IISS.

But any end to the conflict will depend on "decisions taken in foreign capitals" which will "play an important role in shaping the war's trajectory".

This is especially "given both sides' reliance on external support for materiel".

- NATO's eastern flank -

The IISS report highlighted NATO efforts to reinforce its eastern flank against a potential threat, pointing to drone incursions into Poland last September.

"Unfortunately for European armed forces, (there) is a capability shortfall, leaving them ill-prepared for the kind of large scale attacks that Ukraine is facing," it said.

NATO chief Mark Rutte in June called for the alliance to hike its integrated air and missile defence by 400 percent.

Calling it an "ambitious target", the IISS concluded that "NATO has some way to go".

Moves to address these "deficiencies" were underway, including the German-led European Sky Shield Initiative, "which aims to close air-defence gaps with off-the-shelf procurement of systems".

The Baltic states and Poland have been joined by Finland in the Baltic Drone Wall programme announced in early 2025.

And the same countries have announced they are withdrawing from a key treaty, in order to potentially renew their use of anti-personnel mines along their borders.

- Iran weakened, China rises -

Iran's ambitions "have suffered major setbacks" since the October 2023 Hamas attack on Israel "and during the Twelve-Day War between Israel and Iran in June 2025," the report stated.

"It incurred significant damage to its nuclear and missile installations" during Israeli and US strikes in June 2025.

This could lead it to seek closer cooperation with China and Russia to rebuild its capabilities, the IISS said.

Iran's traditional allies in the Middle East, such as Lebanon's Hezbollah, have also been weakened by Israeli military action.

This raises "serious questions over whether Iran can sustain current levels of military spending -- and indeed its stature in the balance of power in the region -- while managing the economy and stemming civil unrest".

Meanwhile, China's "defence budget outpaces the wider" Asia-Pacific region, accounting for some 44 percent of regional spending.

A large military parade held on September 3 to mark 80 years since the end of World War II "sent both political and military-operational signals," the institute said.

For the first time it publicly confirmed Beijing's "nuclear triad" of air, submarine and land capabilities.

An anti-corruption purge in the army has also not deterred Beijing from increasing its number of incursions into Taiwan's air defence zone.