A series of sweeping moves is underway across the European Union. In an attempt to shed its post–Cold War reliance on US defence imports, Brussels is betting that a pan-European rearmament drive could not only bolster security but also rejuvenate stagnant industrial sectors. The approach is as audacious as it is untested.
A Strategic Pivot with Uneven Impact
For years, Europe has been content to let Washington shoulder most of the burden when it comes to security. Now, the EU is turning inward. New financing tools – including a €150 billion loan facility and proposals to mobilise up to €800 billion in defence spending – are being marshalled to ensure that military equipment is increasingly sourced from European suppliers. Yet the benefits, economists warn, will be as uneven as the continent’s fortunes.
Germany, home to a once-mighty automotive industry now gasping under global competition, appears to be at the centre of this shift. Traditional manufacturers are being retooled: Rheinmetall, for instance, has begun converting car-part plants to produce tanks and ammunition, while Hensoldt is actively recruiting engineers from Bosch and Continental. German policymakers, under the incoming leadership of Friedrich Merz, have even amended the Basic Law to allow defence spending above 1% of GDP to be exempt from the debt brake – a historic departure from fiscal orthodoxy. In the process, German defence giants like Rheinmetall and Thyssenkrupp stand to benefit, while the country’s auto sector – once the pride of its industrial base – is forced to find a new purpose.
France, by contrast, has long enjoyed a domestic defence industry that supplies 90% of its military needs. Firms such as MBDA and Dassault Aviation have weathered the post-Cold War lull, yet they too now face pressure to ramp up production. MBDA, co-owned by Airbus, BAE Systems and Leonardo, is investing billions to double missile output. But such expansion is not without risk: ambitious production targets must be balanced against a shortage of skilled labour and a supply chain still partly dependent on American technology.
Italy and Spain, meanwhile, have been slower to pivot. While Italy’s Leonardo is gradually reorienting itself towards defence, domestic demand remains insufficient to support rapid growth. Spain – which once relied on a fragmented industrial base – now finds itself racing to consolidate a sector that could soon rival that of its larger neighbours.
The Broader Industrial Repercussions
For employers, the potential rewards are clear. A more self-reliant European defence sector promises to drive domestic production and stimulate technological spillovers that could benefit civil industries – from secure communications to autonomous vehicles. Economists project that if defence spending were raised from its current level to around 3.5% of GDP, overall output could rise by as much as 1.5% a year in the medium term. Yet these gains depend on more than just increased orders. Success hinges on the effective coordination of procurement across 27 disparate national markets and a sustained investment in research and development.
At the employee level, the outlook is equally mixed. On the one hand, new contracts – and higher wages – await those with skills in areas such as electronics, software engineering, and advanced manufacturing. On the other, the transition will require significant retraining, particularly for workers in sectors facing decline, such as traditional automotive production. The promise is of secure, well-paid jobs in a modernised defence sector, but the pace of change remains uncertain.
A Reckoning of Priorities
Critics argue that the rearmament drive risks crowding out other critical investments, from green technology to social welfare. With public debt on the rise and fiscal rules being rewritten, the political debate is now as much about national sovereignty as it is about efficiency. In Germany, the bold move to lift debt limits for defence spending has already sparked heated discussions in Berlin, while in the UK, calls for a closer alignment with European defence initiatives have been met with ambivalence given the country’s deep transatlantic ties.
In essence, Europe’s quest for strategic autonomy is not simply a military or economic recalibration – it is an experiment in reimagining its industrial future. For the continent’s major economies, the stakes are high. Germany might well emerge as a flagship of a retooled industrial policy, while France, Italy and Spain wrestle with the dual challenges of upgrading legacy industries and fostering new growth engines.
The outcome, as always, will depend on execution. If policymakers and industry leaders can overcome fragmentation and skill shortages, the rearmament initiative could set Europe on a new path. But if the effort falters, it may prove to be another costly gamble in a rapidly changing world.