After the end of the Cold War in 1989, European leaders decided to ease up on defense spending, after all there was no longer an imminent threat of conflict in the region. Over the following decades, the armed forces of European countries shrank, and equipment stocks dwindled, resulting in a reduction in combat capability.
The war in Ukraine, initiated by Russia in February 2022, however, forced the continent to turn its attention – and its budget – back to its military apparatus.
The growing uncertainty about US security commitments under Donald Trump's administration accelerated this perception that defenses in the region need to be strengthened and reliance on other actors reduced.
To increase military spending, Germany even amended its Constitution in 2025 to remove borrowing limits in the defense area, the so-called "debt brake."
Last year, the 29 European members of the North Atlantic Treaty Organization (NATO) spent a combined $559 billion on defense, according to the Stockholm International Peace Research Institute (SIPRI), a reference center for studies on defense-related issues. In 2021, the year before the war in Ukraine began, that figure was $342 billion.
Germany alone spent $114 billion on its Armed Forces last year, an increase of 24% over the previous year.
Strengthening the defense industry
Europe has also sought to strengthen its defense industry to ensure self-sufficiency and security in the supply chain of critical weapon systems. To this end, several countries have joined forces in cutting-edge military projects, such as the development of next-generation fighter jets.
Per Erik Solli, senior defense analyst at the Norwegian Institute of International Affairs (NUPI), highlighted important initiatives in the European military aviation sector, such as the GCAP program, jointly conducted by the United Kingdom, Italy, and Japan, and the ecosystem under development in Sweden around the Gripen fighter and drones.
European arms manufacturers such as Rheinmetall, Thales, and Leonardo have benefited from increased military spending. But many of them face difficulties in ramping up production to meet growing demand.
The weak revenue and profit results in the first quarter of 2026 raised concerns among investors and doubts about these companies' ability to convert orders into actual earnings.
Fragmentation and divergent national interests
The European defense sector also faces structural challenges, such as a scale disadvantage compared to US companies and fragmentation across multiple countries, leading to redundancies and coordination problems.
Joint initiatives are often slower due to diverging national priorities. The Franco-German future combat air system (FCAS) project is one example. The initiative was recently canceled due to disagreements between France's Dassault Aviation and Germany's Airbus Defence and Space, a blow to European efforts for greater cooperation in the area.
The FCAS program was intended to develop a comprehensive next-generation military aviation system, with manned aircraft, drones, and a "combat cloud" for information connectivity, said Solli. Although the companies no longer develop the manned aircraft together, the fate of the drones and the combat cloud is still uncertain.
Also uncertain is the future of another long-delayed Franco-German project to develop new tanks.
Ukrainians teach war to the rest of Europe
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Multinational projects among European countries work when governments align priorities and coordinate actions, said Emil Archambault, a security and defense policy specialist at the German Council on Foreign Relations. He cited the Airbus A400M Atlas military transport aircraft as an example of a successful European defense program.
But when coordination is not done well, fragmentation occurs, he noted, pointing out that Germany, France, and Poland are taking different paths to acquire ground-based rocket artillery systems similar to the American HIMARS model. "It's not a defense industry problem. It's a problem of coordination between states," he said.
Procurement is a bottleneck
Defense equipment procurement remains a major bottleneck, hindering innovation, collaboration, and speed of purchases, experts say. "Europe's weak point is no longer financial, it's institutional," concluded a recent NUPI report.
The authors argue that defense procurement in European countries is driven by "national protectionism, risk aversion, and slow, consensus-based decision-making – exactly the opposite of what is needed now." They advocate forming coalitions among partners with aligned interests to ensure cooperation, speed, and flexibility.
Archambault has a similar view. According to him, the European Union plays an important role in standardization, but coordinating purchases among many countries remains a challenge.
One way out is to create "minilateral systems" – three or four aligned countries that join forces to develop and acquire weapon systems, then open them up to others – which would bring flexibility and gains in scale and standardization.
Experts also point to a strong tendency to favor large national manufacturers in procurement. In many European countries, defense purchases are "primarily directed to the ten largest companies," according to a report published in March 2026 by the Bruegel economic think tank in Brussels.
"The top ten contractors account for between 67% and 90% of military procurement in Germany, Poland, and the United Kingdom," the study says. The report highlighted the need to incorporate startups and small companies to drive innovation and meet modern military demands.
Defense can boost the economy?
There is also growing concern about how long European governments can sustain high military spending, given increasing pressure on public accounts and persistent low economic growth.
This has already affected the market value of major companies in the sector: the Stoxx Europe Targeted Defense index has fallen more than 15% since January, according to the Financial Times.
Choosing between investing in health and social welfare or defense "is not a simple choice," says Archambault.
Many European governments see military spending not only as security policy but also as a way to stimulate economic activity and generate jobs. Countries like Germany and the United Kingdom "hope to create and sustain heavy industry through defense spending and later through exports," he noted.
There are, however, regional variations in levels of military spending and perception of threat. For countries close to Russia, defense remains a top priority; in others, it competes with areas like social welfare.
Still, it will be necessary to increase defense spending "to protect critical infrastructure and social goods against threats such as drone incursions, sabotage, and hybrid attacks," the expert said. "That is necessary for all European countries."
