Europe has decided to defend itself on its own terms, after decades where military budgets were just an item of expenditure that was discreetly trimmed or ignored.
The turning point was Russia’s full-scale invasion of Ukraine in 2022, even though awareness had been ripening for years. EU defense spending rose from 218 billion euros in 2021 to some 381 billion expected in 2025, according to the European Defense Agency, an increase of 75% in just four years.
Global military spending hit a record $2.9 trillion this year, with Europe the main driver, up 14% to $864 billion (€742 billion), according to the Stockholm International Peace Research Institute (SIPRI). Germany, for the first time since 1990, exceeded the 2% GDP target set by NATO, reaching 2.3%.
Then the political machinery was put in place to make this turning point lasting. The EU’s ReArm Europe plan, officially called Readiness 2030, aims to mobilize 800 billion euros of defense investment, with the European Commission raising up to 150 billion euros on capital markets through a new instrument called SAFE, for Security Action for Europe.
The derogation clause of the Stability and Growth Pact now allows member states to increase their defense spending outside of ordinary budgetary rules. According to the Commission, an increase in defense budgets equivalent to 1.5% of GDP could release nearly 650 billion euros in budgetary margin over four years.
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While the main EU member states are working to revive lagging arms production, some industrial sectors are already reaping the benefits.
ARCHIVE PHOTO – German Defense Minister Boris Pistorius and Australian Defense Industry Minister Pat Conroy during a visit to Rheinmetall Defense in Australia, March 27, 2026 – AAP Image
The major European arms groups – Rheinmetall, Leonardo, Saab and others – are experiencing growth that would have seemed improbable ten years ago, at a time when defense actions were considered politically embarrassing.
Ammunition production capacity in the EU alone has increased from around 300,000 shells per year in 2022 to some 2 million expected by the end of 2025, a pace of industrial expansion which, according to the Financial Times and the European Parliament’s think tank, exceeds peacetime growth rates by three times.
In Germany, domestic orders linked to the defense industry increased by more than 50% at the end of 2025 compared to already high levels after the invasion.
The European Commission is now directing funding towards the extension of the production chains of large groups and the reduction of delivery times, which today reach several years for certain air defense systems.
The structural problem is that the European defense market has never been truly integrated: according to the Munich Security Conference, only 9% of public contracts have historically been awarded to suppliers of other Member States, with national companies winning more than three-quarters of the total.
It is this inefficiency that the new wave of spending intends to correct, with still limited success.
ARCHIVE PHOTO – Ukrainian soldiers from the Khartia brigade launch a drone towards Russian positions on the front line, in the Kharkiv region, Ukraine, Wednesday, May 20, 2026. – Copyright 2026 The Associated Press. All rights reserved
2. Drones
If there is one technology that Ukraine has engraved in European military thinking, it is the drone. Inexpensive, disposable, lethal, it is produced on a large scale by Russia at a pace that European industry cannot yet keep up.
The response was rapid, and costly. France has committed 8.5 billion euros to increase its stocks of munitions and drones as part of its revised military programming law, including a 400% increase in stocks of explosive drones by 2030.
In April 2026, Germany and Ukraine signed a €4 billion defense package including agreements for joint drone production, as part of a broader effort to increase European manufacturing of autonomous systems.
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The EU launched the European Defense Initiative against Drones (EDDI) at the beginning of 2026, which aims to put in place by 2027 a 360-degree, multi-layered anti-drone shield covering all member states.
The German company Quantum Systems, whose Vector drone was combat-tested in Ukraine, is establishing itself as one of the main European manufacturers of ISR (intelligence, surveillance, reconnaissance) systems, with revenues growing strongly in both the military and civilian segments.
ARCHIVE PHOTO – In this May 18, 2021 photo, a woman types on a laptop on a train in New Jersey. – Copyright 2019 The Associated Press. All rights reserved
Cyberspace is now recognized as an area of military confrontation, and European governments are adjusting their spending accordingly, even as the emphasis has shifted from simple “computer security” to the protection of critical infrastructure.
In 2025, the EU allocated 145.5 million euros to strengthening the cybersecurity of SMEs, public administrations and health actors.
On 20 January 2026, the European Commission presented a new legislative package on cybersecurity, including amendments to the NIS2 Directive, to simplify compliance and strengthen the European ICT supply chain in the face of third-country risks.
The European Investment Bank explicitly cites cybersecurity among its defense and security financing priorities. The market figures are considerable, even if the methodologies differ according to the research firms.
Cybersecurity revenues in Europe increased by 10% year-on-year in April 2026, according to Panel Europe data from CONTEXT, with identity and access management – the segment most directly linked to the protection of sensitive systems of administrations and armies – showing growth of 18%.
The dual nature of these investments – useful for both civilian and military purposes – means that defense spending drives up the entire digital security market.
ARCHIVE PHOTO – A visitor walks past tools at the Intec and Z engineering trade fairs, in Leipzig, central Germany, Wednesday, March 8, 2017. – Copyright 2017 The Associated Press. All rights reserved.
4. Industrial metals
The logic is simple: military equipment is heavy, and it is made of metal. Ships, armored vehicles, artillery systems, missile launchers: all are extremely metal-consuming, unlike software contracts or consulting services.
Goldman estimates that about 40% of the increase in defense spending in Europe will go to purchasing metal-intensive equipment, about double the usual NATO standard of 20%.
The overall effect is significant. Goldman predicts that European rearmament will increase overall demand for industrial metals in the region by 6% by 2027, a significant increase after defense only represented about 2% of metals consumption in Europe in 2023.
On a global scale, the bank estimates that this additional demand linked to defense could add 0.9% to the demand for copper, 1.3% to that of nickel and 0.4% to that of steel. Copper, present in almost all military systems – vehicles, weapons, cabling, electrical infrastructure, communications – appears to be the major beneficiary.
In its 2026 EU Sector Outlook, ING also cites metal-intensive arms production as one of the key drivers of manufacturing growth, alongside artificial intelligence and electrification infrastructure.
ARCHIVE PHOTO – Illustration of a Toshiba semiconductor. – Copyright Business Wire 2013.
5. Semiconductors
This is perhaps the most embarrassing item on this list, as the boom is partly explained by Europe’s realization of its vulnerability to disruptions in semiconductor supply chains.
Modern defense platforms – from missile guidance systems to ISR architectures and encrypted communications – rely on sophisticated and secure processors that Europe hardly produces itself.
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For decades, the continent has relied on U.S. suppliers for military-grade chips, while outsourcing manufacturing to Asian foundries. A supply chain that is effective in peacetime, but fragile in times of crisis.
The European Defense Industry Program (EDIP), a €1.5 billion cross-border procurement mechanism launching in 2026, directly addresses this problem, with funds specifically earmarked for gallium nitride semiconductors used in radar and electronic warfare systems, according to CEPA.
The head of the European Defense Agency has warned that the continent’s defense industrial base remains fragmented and dependent on non-European microelectronics.
As Global Policy magazine points out, Europe’s structural position in the global semiconductor ecosystem gives it a certain leverage, but transforming this asset into sovereign production of military-grade chips is a longer-term project.
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