Europe at a Strategic Disadvantage: A Fragmented Defense Industry


When Russia invaded Ukraine last year, the European continent was unprepared for war. European rejection of large-scale conflict had become so deeply ingrained that many leaders were incapable of believing that Russia would conduct such an invasion despite repeated Russian warnings, such as the illegal annexation of Crimea in 2014. The end of the Cold War had led many European countries to reduce their defense budgets, and further cuts after the financial crisis of 2008 along with systemic underinvestment in the defense sector had only weakened the continent’s defense infrastructure. This, coupled with increasingly expensive defense technology, led to a reduction in national force volumes and stockpiles, which in turn limited the operational capabilities and effectiveness of European armies.

The Russian invasion has forced the European Union to reckon with these structural vulnerabilities, which undermine the bloc’s ability to defend itself in a future conflict. The war in Ukraine has also created new challenges for the defense industry, as donations to the war effort have drawn from already-limited national stockpiles, which are difficult to replenish given the current pace of production. Supply chain delays and European over-reliance on imports of the critical raw materials necessary for the development of advanced weapons systems have further delayed production timelines. This has all emphasized a fragmented European defense system desperately in need of an overhaul.

If addressed proactively, however, the war could be the catalyst that drives European countries to address the fragmentation of the defense industry and the limitations the conflict has highlighted. There are several elements that the European Union can work on to meet the growing global threats from powers like Russia and China. First, while the security analysis undertaken for the Strategic Compass for Security and Defence is a welcome effort towards defense cooperation, the European Union should determine much more specific areas of focus that can help build a path forward toward addressing common threats. Second, countries should put European strategic priorities above national political interests, a key weakness of the European Union. Third, the European Union and its allies, including the United States, should recognize that the development of a more robust European defense industry will strengthen NATO and allow the United States to devote more resources to the Indo-Pacific. Lastly, the European defense industry should leverage its strength as a group and undertake more joint policy efforts to offset individual weaknesses, especially as global threats increase.



What is Stopping Europe from Collaborating?

The European defense industry, at present, consists of a patchwork of national industries that struggle to collaborate for continental defense. For decades the European Union has acknowledged this issue, but the problem persists. Three main structural factors are at the root of the problem. First, defense issues are mainly managed at the national level, not at the European level; second, the European Union has historically lacked a common strategic defense vision; and third, the United States has discouraged the development of the European defense industry.

Much of this fragmentation dates to the early days of the European Union. The Founding Treaty of the European Union allowed member states to create isolated domestic industries, which over time developed into a system with a high degree of redundancy and duplicate efforts. Adding this provision to the treaty was crucial in advancing the European Union project because asking countries to relinquish their national security to a supranational entity would have created an impasse in negotiations. This provision, however, has enabled member states to continue to isolate their national defense industries even as the state of global security has required increased cooperation. 

A strong, unified European defense industrial base simply does not exist. The inefficiencies arising from systemic fragmentation have resulted in a shortage of products and supply. Thus, many European nations have opted to rely on existing foreign off-the-shelf solutions, such as already-developed U.S. products, or the development of domestic products at the expense of the development of new E.U. solutions. As of last year, Europe operates more than five times as many weapons systems as the United States in certain categories, including main battle tanks, fighter jets, submarines, and various munitions types. This amalgamation of systems has complicated logistics and equipment maintenance collaboration across states. Joint maintenance and interoperability would require that all European armed forces use the same weapons systems.

The second factor driving fragmentation is the lack of strategic direction by the European Union. In allowing national control of defense matters, the European Union has struggled to develop a shared vision. The E.U. Strategic Compass, published in March 2022, marked the first time that the European Union has presented a shared assessment of geopolitical threats and challenges. Formerly, each country produced an individual analysis of strategic threats.

The European Union does have in place the Common Security and Defence Policy, but, despite its title, it does not define a common defense vision. Together with the Common Foreign and Security Policy, it outlines the foreign and security policy of the European Union. The latter policy provides a diplomatic umbrella to advance and preserve European values, while the former has a more targeted mission of managing crises and extending aid to regions of interest. The overarching idea enabling the European Union to focus on these broader issues has historically been that NATO was responsible for the territorial security of Europe and dissuasion of foreign threats, while individual countries would handle their regions of interest, as France has done in the Sahel. The Russian invasion of Ukraine has forced the European Union to accept that it needs to take the reins of its territorial security rather than passively rely on NATO as its security guarantor.

The third reason behind European defense fragmentation is the United States. Since the beginning of the 20th century, but especially since World War II, Europe has grown more dependent on the United States for its security guarantees. This has given the United States considerable influence on the direction of European defense. The American government has used its influence to deter the European Union from developing defense ambitions for fear that strengthening its defensive position would devalue the power of NATO. This, in turn, would negatively affect U.S. strategic ambitions and create competition for the U.S. defense industry. Paradoxically, however, the United States has also continued to pressure European allies to increase their defense spending and contribute to the transatlantic alliance on an equal basis as the United States. 

With the fall of the Soviet Union, Western European countries drastically reduced their focus and spending on defense. In 1998, U.S. Secretary of State Madeleine Albright appeared before the NATO Council in Brussels and said that any efforts to develop European defense should not duplicate existing efforts or discriminate against non-E.U. members. In other words, European defense should not compete with the defense capabilities provided by the United States. Though her speech also included support for the development of the E.U. defense industry, U.S. officials’ repetition of her warning in the years since has resulted in a de facto policy of deference to the United States.

While Washington has since welcomed E.U. defense initiatives, such as the Permanent Structured Cooperation program, the expansion of the European defense industry fundamentally collides with U.S. defense industrial interests in Europe. American politicians whose voters rely on defense production jobs staunchly defend these interests. Thus, the message received across the Atlantic is muddled. On the one hand, the White House and Department of Defense are supportive of new European defense initiatives, but, on the other, U.S. defense industry partners and other representatives of the government appear reluctant and even hostile towards these same initiatives. As a result, the European Union is hesitant to bring forth projects without the full support of its most important ally.

The War in Ukraine Highlights Deficiencies

The full-scale Russian invasion of Ukraine has highlighted significant additional flaws in the current defense system, including the rapid depletion of stock, an over-reliance on imports for critical raw materials and semiconductors, and a delay in promised defense budget increases. 

European donations of equipment and ammunition to Ukraine have created duplicate issues for the continent. On the one hand, a renewed conventional conflict has reminded NATO countries of the supplies that such a fight requires, especially given that these countries have fought, at most, only asymmetric conflicts with significant superiority since the end of the Cold War. On the other hand, the European defense industry has been operating in peacetime for most of its existence and is currently unable to increase production sufficiently to replenish depleting stock. France, for example, sent 18 Caesar howitzers to Kyiv over the summer, a quarter of its total stock, which will take at least 18 months to replace. Annual U.S. production of 155mm artillery shells is estimated to last less than two weeks of combat in Ukraine, while Europe’s slightly higher levels of annual production would last just over three weeks. The United States has decided to dramatically ramp up its artillery production efforts, while the European Union is considering doing the same. Further, in an effort to begin restoring the national stocks donated to Ukraine, several European states have agreed to jointly procure a million rounds of ammunition, mainly 155mm shells, over an initial two-year period with the possibility of expanding the program. However, at present, the conflict has left European countries with vastly depleted stock.

The war has also highlighted that Europe is over-reliant on imports of critical raw materials and semiconductors. Europe depended on Russia and Ukraine for gas, petrol, and other critical materials. Additionally, due to the COVID-19 pandemic and the global economic crisis it sparked, international supply chains have suffered delays. The European defense industry has been unable to access critical raw materials, such as manganese, which is used for lithium batteries, given increasing wartime demand. 

The bloc has begun to address these issues. Recent shortages in the supply of semiconductors and their increasing use across industries, particularly in military weapons systems, have led to concern about the lack of diversity in their production, which is predominantly based in Taiwan. In response, the European Union formalized its proposal for a European Chips Act, aiming to reduce European dependence on foreign supply, which it estimates will double by 2030. However, much more needs to be done to ensure that the European Union can continually meet its defense needs. 

Finally, the Russian invasion of Ukraine has highlighted the rigid and slow-moving European bureaucracy. Mere days after the Russian invasion of Ukraine, Germany announced the creation of a €100 billion special fund for military procurement. It also pledged to allocate more than 2 percent of Germany’s gross domestic product to defense by 2024, a departure from a decades-long policy of political restraint on defense and security policy. Allies lauded Berlin’s decision, particularly since Germany had received strong criticism in the past for lagging behind NATO allies in defense spending despite being one of the largest economies in the European Union. Nearly a year after the announcement, however, progress is limited. Germany has not increased defense procurement and is struggling to replace weapons and munitions donated to Ukraine, let alone close the gaps that existed before the invasion. Moreover, the 2023 German defense budget shrank by €300 million, with only a small portion of the special fund paid out by the end of the year.

Political Roadblocks to Increased Collaboration 

Many of these issues could be addressed with better defense collaboration between European countries. The European Union has tried to encourage this with programs such as Permanent Structured Cooperation, which was created in 2017 by the European Defense Agency. Through this agreement, European states have created several joint projects to better integrate defense capacities at the European Union level. The most significant of these, given their size and complexity, is the European Patrol Corvette and the Future Combat Air System. 

The European Patrol Corvette project, coordinated by Italy with participation from France, Greece, and Spain, began in 2019. The project plans to develop, produce, and operate 20 ships for participating countries’ navies, the first class of which will be operational by 2030. The program has developed its own supply chain, comprised of 40 companies in 12 European countries. Naviris, an equal-share joint venture created in 2018 by the French shipbuilding company Naval Group and Italian shipbuilding company Fincantieri, leads the project. The two companies are highly complementary and most of their business areas do not overlap, which facilitates their partnership and proves that collaboration is possible in a highly fragmented environment. This is a perfect example of how defense producers in the European Union could collaborate.

Collaborations at this scale rely significantly on the political relationship between member states. The relationship between France and Italy has been positive in recent years. However, in 2017, when Fincantieri sought to acquire a majority share in French commercial shipbuilder Chantiers de l’Atlantique, the French government immediately intervened. The project raised concerns about the risk of job losses and technology transfers to China, given an established partnership between Fincantieri and China’s State Shipbuilding Corporation. The two parties eventually reached an agreement, but when the deal was finalized, the European Commission declared “that the transaction could harm competition [on a] European and global level,” alluding also to the monopolistic tendencies of the shipbuilding industry. This decision put the final nail in the coffin of the attempted merger. Therefore, while the European Patrol Corvette project has made meaningful progress, there is still the possibility that an industrial or political disagreement could pause or dissolve the project.

In contrast, the Future Combat Air System program faced problems from the beginning. Complications arose primarily due to political differences between France and Germany, the two countries leading the project. Several disagreements have delayed the program from an initial target demonstration flight by 2025 to a current goal of launching by 2028. The latest set of delays came in late 2022 when the main contractors, Airbus and Dassault Aviation, could not agree on the division of labor for the next-generation fighter jet. The group faces further challenges in development, including finalizing systems designs, and has publicly stated that it may be unrealistic to expect a fully completed program by 2040. 

To make things worse, in March of 2022, the German government announced that it would purchase 35 F-35 fighter jets to replace its fleet of Tornado strike aircraft, rather than waiting for project completion. This exacerbated diplomatic tensions with France, and the failure of the program has created further hesitancy in European defense industrial collaboration. Ultimately, the fragmentation of the European defense industry means that companies perceive each other as rivals rather than collaborators and that often member states clash over conflicting political and economic priorities. 

Steps Forward for European Defense

While these programs are a step in the right direction, they are not enough. The war in Ukraine has exposed structural vulnerabilities in the European Union’s defense industry that would undermine the continent’s ability to defend itself in a potential future conflict. However, with a few straightforward moves, the European Union could begin to address these longstanding issues of fragmentation and isolation in defense. 

First, building on the broad objectives identified in the Strategic Compass, the European Union should determine, in collaboration with member states and the defense industry, more specific areas of focus that will help streamline supply and build a path toward achieving some of the identified goals. The document highlights the need for quicker crisis responses, enhanced ability to confront threats, further investment in defense capabilities, and improved collaboration, but does not lay out a road map for how to do this. Despite welcome efforts towards collaboration, including a €500 million incentive program called the European Defence Industry Reinforcement Through Common Procurement Act, this is not sufficient to support the reforms necessary. This project merely provides a short-term solution to stock depletion and for industry collaboration, a band-aid. The defense industry requires long-term planning, especially at a time when unprecedented crises are increasingly common.

Second, member states should recognize that European strategic initiatives are more important than their individual political priorities because the strength of the European Union comes from its cohesion. The European Union has long functioned without a clear strategic direction due to a prolonged period of peace on the continent. However, now that the war in Ukraine has ended this, the European Union no longer has the luxury of operating under presumed conditions of perpetual peace. Member states should collaborate more often on a E.U. defense strategy, similar to the U.S. National Security Strategy, and should prioritize cooperation on issues of strategic importance.

Third, the United States should recognize that developing a robust European defense industry would strengthen NATO and allow the United States to devote more resources to the Indo-Pacific. The United States formally shifted focus to the Indo-Pacific with the publication of its 2017 National Security Strategy, but the war in Ukraine has usurped funds from this initiative and slowed its progress. The development of a robust and coordinated European defense industry would enable European states to focus on nearby conflicts, such as the war in Ukraine, while the United States could devote more resources to its Indo-Pacific strategy.

Finally, the European Union should leverage its strength as a group and undertake more joint policy efforts to offset individual weaknesses. The European Commission has proposed a European Critical Raw Materials Act, which aims to strengthen the E.U. value chain and reduce dependency on imports of strategic raw materials. Part of the proposal is a system of joint purchasing of processed and unprocessed materials, which would aggregate demand through the European Union and seek offers from suppliers to meet the combined demand. If successful, and not mired by bureaucratic delays, such an initiative could significantly benefit European industries. 

The European Union has long recognized the need to increase its internal collaboration on defense and has launched some efforts to do so. The war in Ukraine has highlighted weaknesses but also provides an opportunity to strengthen the system. To ensure its security, the European Union needs to fully consolidate a cohesive defense industrial base with a common strategic vision that will allow it to compete with its peers and adversaries in a multilateral world.



Paula Alvarez-Couceiro is a foresight analyst with the Strategy Division at Navantia, based in Madrid, Spain.

Image: U.S. Army photo by Pfc. Hayden Allega

Correction: An earlier version of this article incorrectly stated that the United States produces more ammunition than the European Union.