European Defense and the 800B Re-arm plan

Gianluca Luke Caccamo
Mar 12
4 min read

Updated: Apr 7

European defense spending has undergone significant transformation in recent years, driven by geopolitical shifts and concerted efforts to enhance collective security. This report synthesizes key trends, metrics, and major industry players shaping Europe’s defense landscape.

Historical Trends and Recent Surges

The below chart illustrates the year-over-year defense spending trends in Europe from 2014 to 2024. It presents data from three distinct sources:

NATO: The North Atlantic Treaty Organization, an intergovernmental military alliance.
EDA: The European Defence Agency, an agency of the European Union focused on defense matters.
SIPRI: The Stockholm International Peace Research Institute, an independent research institute.

Line graph showing European defense spending trends (2014-2024). NATO (blue), EDA (orange), SIPRI (green) lines rise sharply post-2022. — *Estimates* of the total military expenditure of European Countries according to NATO, EDA and SIPRI.

Each line represents an estimate of the total military expenditure of European countries. It's important to note that none of these organizations are directly "spending" the money themselves. Instead, they are tracking and estimating how much European countries are allocating to their defense budgets.

Key Observations:

Overall Increase: All three data sets show a general upward trend in European defense spending over the decade. However, the rate of increase accelerates notably after 2022.
Pre-2022 Trends: Prior to 2022, the spending trends are relatively gradual.
Post-2022 Surge: A significant surge in defense spending across all data sources occurs starting in 2022. This inflection point likely correlates with the Russian invasion of Ukraine, which prompted many European nations to increase their defense budgets substantially.
Data Source Divergence: The SIPRI data consistently reports higher overall spending compared to NATO and EDA, due to broader inclusion criteria and methodologies. While all three show similar trends, the absolute values differ, reflecting variations in what each organization includes within its defense spending calculations.

Defense Spending by Country Key Metrics (2023–2024)

Different sources. Germany leads Europe in defense spending for 2023, followed closely by France and Italy, according to the latest data.

Sectoral Allocation

Procurement: Accounted for 80% of investments (€61B in 2023, rising to €90B in 2024).
R&D: Grew to €13B in 2024 (+18% from 2023).
Inefficiencies: Fragmented national spending costs Europe €18–57B annually in lost efficiency.

Major European Defense Companies

Europe’s defense industry is dominated by both transnational corporations and national champions:

Diagram showing European defense companies' 2024 focuses: Rheinmetall, Leonardo, Saab, Airbus SE, BAE Systems. Purple umbrella graphic.

Future Outlook

ReArm Europe Plan: €800B initiative to achieve 2.5% GDP spending in the euro area by 2027.
Economic impact: Projected €50B annual GDP boost from defense investments (fiscal multiplier: 0.5).
Collaboration push: The EU aims to reduce duplication through joint procurement and cross-border R&D, potentially saving €57B annually.

This trajectory reflects Europe’s pivot from austerity to rearmament, balancing national priorities with collective security imperatives. Persistent challenges include aligning NATO’s 2% targets with industrial capacity and addressing technological gaps in areas like AI and hypersonic systems.

Forging Alliances: The Future of European Defense Collaboration

The likelihood of seeing increased partnerships between major European defense corporations is high. Several factors are driving this trend.

Factors Increasing the Likelihood of Partnerships

Rising Defense Budgets & Demand: As illustrated in the defense spending chart, many European nations are increasing their military budgets in response to heightened security concerns. This creates a larger pie, incentivizing companies to collaborate to capture a greater share of the growing market.
Need for Economies of Scale: Developing advanced weapon systems and defense technologies is incredibly expensive. By pooling resources and expertise through partnerships, companies can achieve economies of scale, reduce development costs, and increase their competitiveness.
EU Initiatives & Collaboration: The EU is actively promoting closer defense cooperation through initiatives like the European Defence Fund (EDF) and Permanent Structured Cooperation (PESCO). These initiatives encourage cross-border collaboration in defense research, development, and procurement, making partnerships more attractive and often a requirement for accessing EU funding.
Technological Complexity: Modern warfare demands increasingly sophisticated technologies, such as AI, cyber warfare capabilities, and advanced sensors. No single company possesses all the necessary expertise. Partnerships allow companies to combine their specialized knowledge and develop comprehensive solutions.
Geopolitical Considerations: European governments often prefer to support domestic defense industries. Partnerships among European firms can create stronger, more competitive entities that can better compete with larger US and Chinese defense companies, ensuring European strategic autonomy.
Standardization and Interoperability: As European armed forces work more closely together, there's a growing need for standardized equipment and interoperable systems. Partnerships among defense companies can facilitate the development and production of such standardized solutions.

Speculation on Specific Partnerships:

Based on current industry trends and known capabilities, here are some potential partnership scenarios (purely speculative):

Rheinmetall (Germany) & Thales (France): Collaboration on land systems and artillery, combining Rheinmetall's manufacturing expertise with Thales' advanced sensors and electronics.
BAE Systems (UK) & Leonardo (Italy): Continued cooperation on aerospace and electronics, potentially expanding into unmanned systems and cyber warfare.
Saab (Sweden) & Airbus (Multinational): Potential collaboration on next-generation fighter aircraft programs, combining Saab's Gripen experience with Airbus' broader aerospace capabilities.
MBDA (Multinational) & Various SMEs: MBDA, a missile systems company, partnering with smaller technology companies across Europe to integrate cutting-edge AI and sensor technologies into its products.

Purple infographic on European defense partnerships; Rheinmetall, Thales, BAE, Leonardo, Saab, Airbus, MBDA, SMEs; text on collaborations.

Conclusion

Overall, the trend toward increased partnerships between major European defense corporations is very likely to continue. The combination of rising defense budgets, EU initiatives, technological complexity, and geopolitical considerations creates a compelling environment for collaboration. While challenges exist, the benefits of partnerships in terms of cost savings, innovation, and competitiveness are too significant to ignore. We can expect to see more joint ventures, strategic alliances, and other forms of collaboration among European defense companies in the coming years.