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The foundations of the Atlantic alliance are shifting in ways not seen since the early days of the Cold War. Washington is no longer simply urging greater European burden-sharing: It is redefining the terms of the alliance itself. Secretary of State Marco Rubio suggested that the era of a coherent, rules-based international system has passed. Recent U.S. talk of “taking” Greenland, and “civilizational erasure” — alongside the decision to end U.S. security assistance to Ukraine — has rattled European capitals and eroded trust as they realize that U.S. support is increasingly conditioned on ideological alignment. Yet beneath the political turbulence, the transatlantic defense tech ecosystem is expanding rapidly — spanning venture capital, dual-use innovation, and cross-border partnerships. It has the potential to reshape the alliance from the ground up, even as political rhetoric stays hot.
The Trump administration’s persistent pressure on allies to spend more on defense is producing tangible results. At the 2025 NATO summit in The Hague, NATO allies committed to spend 5 percent of GDP on defense, a target that would have been unthinkable a few years ago. The number of allies meeting the original 2 percent threshold has risen from six in 2021 to 32 today. E.U. member states spent an estimated 381 billion euros ($431 billion) on defense in 2025, up from 251 billion euros ($297 billion) in 2021. The will to rearm is no longer in question. It is unfolding in real time, with many European allies on track to reach 3.5 percent or more in the coming years.
Other numbers are equally striking, especially in venture capital. European defense technology venture funding surged from roughly 200 million euros in 2021 to 2.6 billion euros in 2025, a more than 10-fold increase in four years. Across the wider Alliance, defense, security, and resilience startups raised a record $8.7 billion in 2025, up 55 percent year-on-year and nearly four times the 2020 level. U.S. investors now supply 40 to 50 percent of all capital flowing into European defense technology rounds, and the number of investors participating in European defense deals has increased nearly fourfold since 2019. Specialized defense funds — including NATO’s 1 billion euro Innovation Fund launched in 2023 — accounted for over a third of European defense rounds in 2025, nearly double their share the prior year.
Europe’s problem has never been innovation — it has been scale. The continent produces world-class research, talent, and founders, but they operate inside 27 separate procurement regimes, each with its own administrative burden, regulations, and barriers to competition. Some European companies, such as Helsing AI, Quantum, or TEKEVER, are building and deploying across the NATO ecosystem but they remain largely the exception. Less than 20 percent of defense procurement in the European Union is collaborative. For every single weapons type produced in the United States, Europe manufactures more than five variants, and over 60 percent of E.U.-produced weapons are used exclusively in one country.
One of us saw this fragmentation from inside NATO headquarters, where a dozen allies would show up with incompatible kit and duplicative systems, each optimized for a national market too small to sustain it. The other has seen it with founders up close, where the demo lands, the need is urgent, and then cross-border rules, accreditation, and contracting timelines turn momentum into grind. In Ukraine, the cost of such fragmentation has been painfully concrete. When Kyiv needed howitzers, E.U. member states sent more than 10 different models, creating a logistical nightmare that consumed time, parts, training, and lives. Estimates suggest that greater procurement cooperation could save 30 to 100 billion euros annually. Instead, 80 percent of defense spending still flows through national systems to domestic suppliers.
This is not an innovation deficit. It is a growth-stage capital gap and a market structure failure that continues to kill companies between prototype and production. NATO has become, almost by accident, Europe’s most effective workaround: the only infrastructure aligning capital, procurement signals, and operational urgency across 32 nations. Consider the trajectory: NATO’s Defence Innovation Accelerator for the North Atlantic selected 150 companies from 24 countries for its 2026 cohort, doubling intake from 2025. These companies gain access to 16 accelerator sites and more than 200 test centers across the alliance. More than 25 technologies from this effort have been adopted by allies or tested in operational environments.
Europe does not lack blueprints. It lacks plumbing. The point isn’t that everything is working. The goal is to harden an adaptable ecosystem, capable of converting urgency into operational realities, into one that has scalable pathways for future growth. What does this mean in practice? It means procurement offices writing contracts around commercially available solutions rather than specifying bespoke requirements that take years to fulfill. It means treating manufacturing scale-up as a core function of defense institutions, not something startups must bootstrap alone. And it means replacing vague expressions of interest with binding, multi-year purchase commitments, the kind of demand signal that turns a promising demo into a funded production line.
European capitals will also have to be careful about driving towards sovereign capabilities in excess. A growing trust deficit is already leading several allies to hedge, choosing capabilities made solely in Europe rather than investing in shared NATO capabilities or transatlantic co-production. That instinct is understandable, but it is strategically self-defeating. The defense tech ecosystem — talent, capital, components, and standards — is inherently transatlantic. The numbers make this plain. Between 2022 and 2023, 68 percent of E.U. defense acquisitions came from the United States, and roughly 80 percent of E.U. financial support to Ukraine was spent on non-European products. While Europe is frantically trying to correct that imbalance in the name of developing its own sovereign capabilities, layering on regulation that cuts European startups off from American AI stacks, components, and growth capital on which many already depend is not the answer. Neither are Buy European mandates that are only making fragmentation across the continent worse.
If each country in Europe continues to invest primarily in its own national defense industry, the challenges unearthed in the beginning of the Ukraine war — when it became clear that multiple countries were producing 155mm artillery to slightly different standards across different manufacturers — will only worsen. What should have been a collective asset was effectively fragmented into national silos.
Collaborative procurement, which only accounts for 18 percent of E.U. defense acquisitions today, is the clearest path forward and must be pursued both among European partners and — where strategically necessary — with the United States. But this requires pragmatism on both sides of the Atlantic. Washington should recognize that an absolutist Buy American posture, particularly at a moment when the United States has signaled ambivalence about its commitments to European security, will accelerate European efforts to build sovereign capabilities that exclude American industry entirely. The goal should be interoperability and mutual dependence, not a transatlantic industrial divorce that leaves both sides weaker. NATO and the European Union both have bigger potential roles to play in this regard. NATO’s defense planning process, which was designed for an entirely different era, needs to be reformed to incentivize Allies to break the cycle of duplicative national purchasing. The E.U. Commission should use the leverage it has through ReArm Europe and the European Defence Industry Programme more aggressively to do the same. Common defense financing must explicitly make collaborative procurement conditional.
To founders and investors building in this space, and to the procurement officials, defense ministers, and legislators whose decisions determine whether promising technologies reach the field: What is being built here is both European self-reliance and alliance maintenance through business, capital, and institutional reform. It may not look like a grand strategy. But economic interdependence stabilizes alliances in ways politics alone never can — a fact that has never been more urgent than it is today.
Wendy R. Anderson is senior fellow at the Center for European Policy Analysis. She served as chief of staff to U.S. Deputy Defense Secretary Ash Carter and, most recently, as senior vice president of national security at Palantir.
Julianne Smith served as U.S. ambassador to NATO from 2021 to 2024 and is a distinguished nonresident fellow in defense and security at the Chicago Council on Global Affairs.
Image: Midjourney
