Europe is buying defence, but is it building an industry?

Europe is spending more on defence, but a good part of that money turns into orders placed with foreign companies. This is not necessarily a mistake. When an army needs an air defence system today, it cannot wait five years for a European factory to reach the pace required. The problem begins when urgency becomes habit and the orders never reach the companies that could manufacture here. Europe then pays to be better prepared, but not necessarily to depend less on others.

In 2025, European Union countries devoted €418 billion to defence, 20% more than the year before. Of that sum, only 27.51% went on equipment procurement. The figure invites thoughts of new factories and greater production capacity. Yet total spending also includes salaries, operations and maintenance, and part of the purchasing ends up outside Europe. A record budget does not tell us, on its own, what the continent will be able to manufacture when the next crisis arrives.

Cooperation is advancing slowly. Only 24% of equipment purchases in 2025 were made through collaborative procurement, below the collective target of 35% set by the European Defence Agency. The Commission wants four out of every ten euros spent on equipment to correspond to joint purchases by 2030, at least half of that to go to material manufactured in Europe, and defence trade between Union countries to grow. These are ambitious goals. For now, governments continue to decide a good part of their purchases separately.

And every separate decision has consequences. The Commission counts 121 different weapons systems among EU members, against 21 in the United States. Not all of those systems perform exactly the same function, but the difference illustrates the degree of fragmentation. If each country has different models of aircraft, tanks or communications, spare parts, training and maintenance are needed for every one of them. Armed forces find it harder to operate together and manufacturers receive smaller orders, with less room to bring costs down.

Europe can spend record sums and still fail to buy at the scale it needs.

I understand why governments protect their national companies. Military equipment is not a consumer good whose supplier can simply be swapped. Depending on another country to obtain ammunition or repair aircraft can become a strategic vulnerability. But protecting a national industry does not guarantee autonomy. A European company may depend on imported minerals, sensors or software; a contract reserved for a local manufacturer may cost more and take longer to deliver than a shared order. Where a company has its headquarters does not tell the whole story.

Meanwhile, American suppliers can indeed deliver some of the equipment Europe urgently needs. Between 2021 and 2025, European imports of major arms more than tripled compared with the previous five years. The United States supplied 48% of the volume of arms transfers received by Europe and 58% of those received by NATO’s European members. Those percentages measure the volume of transfers, not the value of all purchases. SIPRI highlights the American weight in combat aircraft and long-range air defence systems.

It is not hard to understand the choice of a government that needs to fill a gap in its defences now. But if everyone turns abroad whenever there is a rush, the orders that would allow European production to expand never arrive. A company needs more than a minister saying they want to strengthen the industry. It needs predictable contracts, large enough to justify investing in facilities, suppliers and staff. No firm is going to build an expensive production line in the hope that, once the emergency is over, governments will still be interested.

European industry, in any case, is already growing. The military revenues of the leading European companies rose by 13% in 2024, to $151 billion. Twenty-three of the 26 European companies included in SIPRI’s ranking recorded higher revenues. Some are expanding factories and production lines. Germany, France, Italy, Sweden and Spain have companies producing aircraft, vehicles, ships, ammunition, radars and electronic systems. To deny that industrial base would be as mistaken as to assume that it can already supply the continent.

The distance between the two becomes clear when you look at what comes out of the factories. Europe produces more howitzers than in 2022 and has raised its output of artillery ammunition. However, an analysis by Bruegel and the Kiel Institute estimates that production of battle tanks and infantry vehicles would have to increase as much as sixfold to match the pace of Russian rearmament considered in their study. It also identifies gaps in missiles and advanced technologies. Industrial capacity does not switch on like a light. Workers have to be hired, components secured and orders sustained for years.

Today’s contracts decide what Europe will be able to produce five years from now.

Nor does European industry necessarily work to cover European needs. France and Germany have large exporters, but a good part of their sales goes outside the continent. Poland, by contrast, has imported large quantities of weapons to respond to a more immediate threat on its eastern border. There are legitimate reasons behind those differences. What is missing is planning capable of connecting national orders with the capabilities that Europe as a whole needs to build.

The Commission calculates that the lack of coordination and the dependence on external suppliers carry annual costs of between €18 billion and €57 billion. I would not read that estimate as a pot of savings that will appear automatically if Europe replaces every foreign purchase with a European one. Part of the cost arises from duplicating systems, fragmenting orders and negotiating from separate positions. To reduce it, countries would have to agree common specifications and accept that the factories supplying Europe are not necessarily on their own territory. That demands political trust. It is not achieved with a new label on the contract.

The SAFE instrument tries to push in that direction. It offers up to €150 billion in Union loans to finance joint purchases. In the contracts covered, no more than 35% of the cost of components may come from outside the EU, Ukraine and the eligible countries of the European Economic Area and the European Free Trade Association. Eighteen national plans have been given the green light. It is a step towards more integrated demand, although SAFE does not hand out grants: the Commission raises the funds by issuing debt and the beneficiary states have to repay the loans.

The €800 billion figure associated with the ReArm Europe plan also needs context. It is not a common fund that Brussels is going to distribute among armed forces. It is an estimate of the resources that could be mobilised by combining SAFE, the budgetary flexibility of member states and other public and private sources. The escape clause allows defence spending to be raised temporarily under certain conditions. It gives fiscal room. It does not erase the deficit or the interest that will have to be paid.

An urgent purchase can solve a military shortfall; it does not by itself create a lasting industrial capacity.

The IMF says that the economic boost from defence spending depends, among other things, on where the purchases are made and how they are financed. If the order is manufactured abroad, part of the demand and the employment shifts to the supplying country as well. If European technology is bought, it can stimulate local production, although the result will be smaller if the critical components are imported too. The effect does not come included in the invoice.

The Fund has studied international episodes of military expansion in which the public deficit rose, on average, by 2.6 points of GDP and debt by some seven points three years later. That figure is not a forecast for Europe. It is a warning about the cost of sustaining an increase in spending for years without additional revenue or cuts elsewhere. In its specific study on EU countries, the IMF finds larger economic effects when import intensity is lower, financing conditions are better and public investment is managed more efficiently. It also warns that the current European rearmament is broader and more synchronised than the episodes of the past. We do not know whether the boost that worked then will be repeated now.

Research and development matter precisely for that reason. EU spending on defence R&D was €17 billion in 2025 and is expected to reach €20 billion in 2026. The figure is growing, but Europe still lags behind the United States in several technologies, among them drones, missiles and electronic warfare. Buying an advanced platform improves the capabilities of the army that receives it. If Europe cannot upgrade it or adapt its software, the dependence continues once the equipment has been delivered.

It seems to me that this is where the difference between acquiring weapons and building autonomy is decided. Europe does not need to manufacture every screw, nor to do without allies. It needs to know which systems are essential to the security of the continent, who can maintain them and which supply chains could be interrupted in a crisis. Where the knowledge ends up matters too. Final assembly can take place in Europe while the engine, the sensors or the software depend on external suppliers. A well-organised multinational programme, by contrast, can spread production across several countries and create a more resilient chain than a national champion sheltered from competition.

Nor should autonomy be confused with autarky. Buying abroad can be sensible if Europe has no equivalent system and needs one quickly. But that decision must come with a plan to sustain it: maintenance, spare parts, access to the software and the ability to modify it. Otherwise, the buyer is left exposed to the manufacturer, or its government, deciding which upgrades it receives and when.

If the money is spread across small orders and national designs, the continent will buy more without reaching economies of scale.

The debt Europe takes on to reinforce its security may well be justified. Defence protects something that budgets do not usually measure until it is lost. But calling every military outlay an investment does not make it a productive one. The test will be what remains once the equipment has been delivered. If there are factories able to keep up the pace, trained workers, technology that can evolve and shared contracts, Europe will have bought something more than equipment.

If, instead, most of the effort goes on urgent orders to external suppliers and each country keeps its own models, the continent will have gained time. In present circumstances, that time may be necessary. What it should not do is confuse it with having built an industry capable of defending it.