European NATO members are increasing defense spending at a pace not seen since the alliance’s formative years in the 1950s. But the continent still lacks the industrial bandwith needed to rapidly scale production and credibly deter Russian aggression.
The European Union’s top diplomat, Kaja Kallas, said last week that despite progress in some areas such as ammunition and air capabilities, overall progress has fallen short of expectations. “Deterrence works if it is credible...we need faster and cheaper arms production.”
Europe’s defense industry, meanwhile, argues that scaling up production is technically feasible but hinges on the political will of capitals.
“Some companies, including Saab, are investing in facilities and factories that will be there for decades,” said Micael Johansson, CEO of Saab and president of the Aerospace, Security and Defense Industries in Europe. “But the backlog on high-volume products is maybe three or four years.”
In the long term, governments and industry need agreements that account not only for output — which is expected to decline from current levels, Johansson said, but also for the ability to rapidly scale up production when necessary.
A pan-European defense mindset
EU capitals are stepping up defense cooperation to reduce reliance on the United States and harness the benefits of scale. But many governments still stop short of embracing a truly European strategy for prioritizing defense technologies and suppliers within the bloc.
“The reality is that we still are in a market where governments tend to turn to their national champions,” said Camille Grand, a former senior NATO official and secretary general of the Aerospace, Security and Defense Industries in Europe. “That’s not going to change overnight.”
Because defense remains largely a national competence, political and strategic considerations often outweigh economic ones when governments decide how and where to spend their money. Still, Grand argued that the EU can help create incentives for closer cooperation through jointly funded defense projects.
Brussels has already sought to shore up Europe’s industrial base through initiatives like the €7.3 billion European Defense Fund, the €1.5 billion European Defense Industry Program and the €150 billion SAFE loan instrument aimed at supporting joint procurement and industrial investment.
But many member states are nonetheless facing a choice: continue buying from third-country suppliers to secure rapid deliveries, or prioritize greater European strategic autonomy — even if that means opting for less advanced systems or partnering with other European countries to jointly develop missing capabilities.
For industry leaders, decades of what they describe as an “unbalanced” reliance on U.S. equipment makes the case for a stronger European preference in defense procurement.
According to the latest figures from the Stockholm International Peace Research Institute, the U.S. accounted for a just 2.2% of global arms imports in 2025, compared to 6.5% for Poland and 4.9% for Germany.
Johansson argued that Europe should preserve transatlantic ties while pushing for far greater self-sufficiency. “That might need the approach of a European preference,” he said. “Otherwise, it won't happen."
By the third quarter of 2026, the European Commission is expected to review its defence procurement rules with the aim of making them faster, more coordinated and more cost-efficient.
The overhaul will also give Brussels an opening to push for a 'Buy European' preference similar to the SAFE loans. But the U.S. is lobbying hard against this approach, fearing it could shut American firms out of lucrative European contracts.
For Andreas Hatzidiakos, co-director of Europe’s War Institute, the debate comes down to priorities and a willingness to face up to hard choices.
“European systems are not yet at the same level as their American equivalents,” he said. “By forcing us to invest in our own capacities, we are going to improve our quality of materials.”
National interests before defense integration
Over the past three years, the share prices of defense giants such as Germany’s Rheinmetall and Sweden’s Saab have surged as they have secured billions of euros in orders and multiyear contracts. Even so, none of them matches the scale of U.S. defense heavyweights such as Lockheed Martin or RTX.
That fragmentation has fueled calls for greater consolidation. Earlier this year, French President Emmanuel Macron proposed developing regional European champions in key weapons sectors.
But industry executives and representatives see little appetite for large mergers and acquisitions between companies operating at the same level of the supply chain.
“I'm not sure that all European countries will be thrilled if they were told, ‘okay, for planes you go to Paris, for tanks you go to Berlin, for ships you go to Rome and for the rest, too bad for you,’” Grand said. “It's not going to work out.”
The exception might be the drone sector, as smaller companies and start-ups are increasingly providing innovative solutions for modern warfare, even winning government contracts over established defense primes. “The technology is now fairly mature, but the industry is still in the process of consolidating,” Grand said.
But overall, the idea of consolidation remains politically sensitive, as governments are wary of potential factory closures, job losses and the erosion of national industrial influence.
“France and Germany are interested in promoting integration among European companies largely because they aspire to lead that integration,” said Luis Simon, director of the Brussels-based Center for Security, Diplomacy and Strategy.
On the other hand, countries such as Italy, Poland, Sweden and the Netherlands are more hesitant to join value chains dominated by French and German firms for fear of losing technological know-how and industrial sovereignty, he added.
Those concerns complicate efforts to build a more integrated European defense industry at a time when few member states can independently develop military capabilities from research and development through full operational deployment. As a result, large-scale projects — such as a European air defense shield or joint drone initiatives — will likely depend on multinational cooperation.
Industry representatives say the most realistic path forward is through coalitions of member states willing to jointly develop specific capabilities, including artillery systems, missiles and strategic enablers. For Josep Borrell, Kallas’ predecessor, that cooperation may ultimately need to take place outside the EU framework altogether.
“My advice is to stop looking for the solution to Europe’s defense problem where it does not exist,” Borrell said during an event organized by the Cercle d'Economia earlier this month.
“If a group of European states wants to build a European defense union, they should do so through a new intergovernmental treaty — just as we did to save the euro.”
Sign up to The Parliament's weekly newsletter
Every Friday our editorial team goes behind the headlines to offer insight and analysis on the key stories driving the EU agenda. Subscribe for free here.