For decades after the Cold War, European governments prioritized defense low on their agendas, leading to reduced budgets and declining readiness. However, Russia’s 2022 invasion of Ukraine prompted a significant shift in this paradigm, further intensified by uncertainty over US security under President Trump.
In the past year, NATO’s 29 European members spent a total of $559 billion on defense, with Germany’s budget rising by 24% to $114 billion, even amending its constitution to eliminate borrowing limits for military expenditures.
Despite increased spending, serious challenges remain. European arms manufacturers are facing production scaling issues, and their Q1 2026 earnings disappointed investors, causing the Stoxx Europe Targeted Defense index to drop over 15% since January.
Additionally, collaborations such as the Franco-German FCAS next-generation fighter program have faltered due to disagreements. Germany, France, and Poland are each pursuing similar rocket artillery programs independently. A NUPI report highlights that Europe’s primary weakness has shifted from financial to institutional.
Source: SIPRI, NUPI, Bruegel, Financial Times, DW
So What
Funding issues have largely been resolved, but coordination remains a major challenge. Increased spending cannot replace the need for coherent procurement and aligned industrial policies.
The collapse of the Future Combat Air System (FCAS) illustrates this problem. Misalignment between Paris and Berlin’s aerospace industries poses significant risks to European defense integration. Current procurement systems favor large national firms, sidelining smaller companies crucial for modern warfare.
A potential solution is forming coalitions of three to four aligned states working together. This flexible approach avoids lowest-common-denominator politics but requires consistent discipline from European governments. Without it, Europe risks spending large amounts but still lagging in developing necessary capabilities.
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