Europe has decided it wants to defend itself on its own terms after decades of treating military budgets as a line item to quietly trim or ignore.
The turning point was Russia’s full-scale invasion of Ukraine in 2022, though the reckoning had been building for years. EU defence spending rose from €218 billion in 2021 to an estimated €381 billion in 2025, according to the European Defence Agency, or a 75% increase in just four years.
Global military spending hit a record $2.9 trillion that year, with Europe as the main driver — up 14% to $864bn (€742bn), according to the Stockholm International Peace Research Institute (SIPRI). Germany, for the first time since 1990, exceeded NATO’s 2% of GDP target, reaching 2.3%.
Then came the political machinery to make it permanent. The EU’s ReArm Europe Plan, formally Readiness 2030, aims to unlock €800bn in defence investment, with the European Commission raising up to €150bn on capital markets through a new instrument called SAFE, the Security Action for Europe.
The escape clause in the Stability and Growth Pact now allows member states to increase defence spending outside normal fiscal rules. A 1.5% GDP increase in defence budgets, the Commission estimates, could create nearly €650bn in fiscal space over four years.
As top EU members move to revive their previously lagging military production, a handful of industries are reaping the rewards.
1. Defence-adjacent manufacturing
Europe’s traditional defence contractors — Rheinmetall, Leonardo, Saab and their peers — are having a moment that would have seemed implausible a decade ago, when defence stocks were considered politically awkward investments.
EU ammunition production capacity alone rose from around 300,000 rounds per year in 2022 to an estimated 2 million by the end of 2025 — a pace of industrial expansion that, according to the Financial Times and the European Parliament Think Tank, exceeds peacetime growth rates by a factor of three.
In Germany, domestic orders linked to defence industries rose by more than 50% in late 2025 compared with already-elevated post-invasion levels.
The European Commission is now channelling funds specifically toward expanding production lines at major contractors and reducing delivery lead times, which currently stretch to several years for some air defence systems.
The structural problem is that Europe’s defence market was never properly integrated to begin with — according to the Munich Security Conference, only 9% of tendered contracts have historically been awarded to suppliers from other EU member states, with domestic firms winning more than three-quarters of the total.
That is the inefficiency the new spending wave is trying to fix, with limited success so far.
2. Drones
If there is one technology that Ukraine has burned into European military thinking, it is the drone. Cheap, expendable, lethal — and produced at scale by Russia at a pace Europe’s own industry cannot yet match.
The response has been swift and expensive. France has committed €8.5bn to expand its ammunition and drone stockpiles under its updated military planning law, including a 400% increase in explosive drone stocks before 2030.
In April 2026, Germany and Ukraine signed a €4bn defence package that included agreements on joint drone production, part of a broader push to scale up European autonomous systems manufacturing.
The EU launched the European Drone Defence Initiative (EDDI) in early 2026, aiming to build a multi-layered, 360-degree counter-drone shield across member states by 2027.
German firm Quantum Systems, whose Vector drone was battle-tested in Ukraine, has emerged as one of Europe’s most prominent ISR manufacturers, with revenue streams compounding across both military and commercial segments.
3. Cybersecurity
Cyberspace is now a recognised domain of warfare, and Europe’s governments are spending accordingly — though the focus has shifted from “IT security” to the protection of critical infrastructure.
In 2025, the EU allocated €145.5 million to strengthen cybersecurity across SMEs, public administrations and healthcare providers.
On 20 January 2026, the European Commission proposed a new cybersecurity package including amendments to the NIS2 directive, aimed at simplifying compliance and strengthening the EU’s ICT supply chain against third-country risks.
The European Investment Bank lists cybersecurity explicitly among its defence and security financing priorities. The market numbers are large, though methodologies vary across research firms.
European cybersecurity revenues rose 10% year-on-year in April 2026, according to CONTEXT’s Panel Europe figures, with Identity and Access Management — the segment most directly tied to protecting sensitive government and military systems — growing at 18%.
The dual-use nature of cybersecurity investment means defence spending is pulling commercial security spending upward with it.
4. Industrial metals
The logic is straightforward: military equipment is heavy, and it is made of metal. Ships, armoured vehicles, artillery systems, missile launchers — all of them are metals-intensive in ways that software contracts and advisory fees are not.
Goldman estimates that around 40% of Europe’s defence spending boost will flow into the procurement of metals-heavy equipment, roughly double NATO’s typical 20% norm.
The aggregate effect is significant. Goldman projects Europe’s rearmament will lift the region’s overall demand for industrial metals by 6% by 2027 — a striking increase given that defence represented only about 2% of Europe’s metals use in 2023.
Globally, the bank estimates the defence-driven bump could add 0.9% to copper demand, 1.3% to nickel, and 0.4% to steel. Copper, which runs through nearly every military system — vehicles, weaponry, wiring, power infrastructure, communications — stands out as the clearest beneficiary.
ING’s 2026 EU sector outlook also flags metals-heavy defence manufacturing as one of the main drivers of manufacturing sector growth, alongside AI and electrification infrastructure.
5. Semiconductors
This may be the most uncomfortable item on the list, because the boom is partly a result of how exposed Europe realised it was to disruptions in semiconductor supply chains.
Modern defence platforms — from missile guidance units to ISR architectures and encrypted communications — run on sophisticated, secure processors that Europe largely does not build.
For decades, the continent relied on US suppliers for defence-grade chips, while outsourcing manufacturing to Asian foundries. A supply chain that was efficient in peacetime but brittle in a crisis.
The European Defence Industry Programme (EDIP), the €1.5bn cross-border procurement vehicle launched in 2026, directly addresses this, with funding specifically earmarked for gallium nitride semiconductors used in radar and electronic warfare systems, according to CEPA.
The European Defence Agency’s chief has warned that the European defence base remains fragmented and reliant on non-European microelectronics.
As the Global Policy Journal notes, Europe’s structural position in the broader semiconductor ecosystem gives it leverage, but converting that into sovereign defence-grade chip production is a longer-term project.