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Europe surpasses U.S. in weapons spending, but structural weaknesses remain

Published: 26 Nov. 2025, 00:03

An Pyeong-eok

The author is a professor of international relations at Daegu University.

“Artificial intelligence protects democracy.”

That is the mission statement of Helsing, a German defense venture. Based in Munich, the company produces advanced drones and now exports around 1,000 units a month to Ukraine. Its HX-2 combat drone has a range of about 100 kilometers and can reach speeds of up to 220 kilometers per hour. Weighing just 12 kilograms, it carries AI-guided munitions capable of striking tanks or buildings with precision.

A handout photo made available by the UK Ministry of Defence shows British Secretary of State for Defence John Healey (R) during a tour of Helsing’s new 'resilience factory' in Plymouth, Britain, on Nov. 19. The cutting-edge facility, part of a 250 million pound ($328 million) defense growth deal, is expected to create high-value jobs, drive innovation and position Plymouth as a key hub for marine autonomy through the production of autonomous underwater miniature submarines. [EPA/YONHAP]

Helsing also succeeded in autonomous fighter-jet control this June. A human pilot typically accumulates around 5,000 hours of flight time over a career. AI, by contrast, learned millions of hours of flight techniques in just three days and was able to operate Sweden’s Gripen E fighter. The pilot sat in the rear seat, offering only backup functions similar to what happens in self-driving cars. The company expects AI-piloted fighter jets to be deployed in the field within five years.

Founded only four years ago, Helsing is valued at 12 billion euros ($13.8 billion). Several European defense firms are experiencing a similar boom. Yet the region’s fragmented national markets and the limited economic spillover of defense spending continue to present structural challenges.

An Army Tactical Missile System (ATACMS) is displayed during the inauguration of a new artillery plant of ammunition maker Rheinmetall, in Unterluess, Germany, on Aug. 27. [REUTERS/YONHAP]

The surge in defense demand is reflected in share prices. Rheinmetall, Germany’s largest arms manufacturer, produces ammunition, shells and armored vehicles. It operates six factories across Germany and five overseas, including in Hungary and Spain. It also plans to build a new plant in Ukraine. Before Russia’s invasion of Ukraine on Feb. 24, 2022, weapon demand was modest and the company had scaled back production. After the war began, it expanded aggressively. Early this year Rheinmetall’s market capitalization was 27 billion euros, but by early this month it had soared to 80 billion euros. France’s Thales, which produces missiles and radar systems, also more than doubled its market capitalization over the same period.

As European nations raise defense budgets, weapons procurement among the 27 EU member states, combined with the United Kingdom, is expected to surpass that of the United States for the first time this year. Europe is projected to spend about $180 billion on weapons in 2025 — twice the level of 2021. The U.S. is expected to spend a little over $170 billion, a figure only slightly higher than four years ago.

With no clear timeline for a cease-fire or end to the war in Ukraine, NATO members agreed at their late-June summit in Brussels to raise defense spending from the current 2 percent of GDP to 3.5 percent by 2035. They also intend to spend an additional 1.5 percent on defense-related infrastructure.

Even if the war ends, Europe will have to keep increasing defense spending. The United States, which has guaranteed Europe’s security since World War II, is expected to gradually reduce its role, forcing Europe to strengthen autonomous defense capabilities. But Europe’s defense sector faces more than just favorable conditions.

Despite higher national defense budgets, Europe’s defense market remains fragmented along national lines rather than integrated at the EU level. This makes it harder to reduce redundant investments, strengthen capabilities collectively or improve market efficiency. Security realities only deepen the problem. If Russia were to attack Europe again, NATO’s Article 5 collective defense obligations would require member states to intervene together. A unified European defense industry would allow economies of scale, reduce costs and increase competition.

The EU has taken only initial steps toward such an integrated market. The European Commission, which functions as the bloc’s executive branch, is raising a 150 billion euro defense reinforcement fund. It plans to issue a single 30-year Eurobond based on the EU’s top-tier credit rating to finance this effort.

If two or more EU members make joint weapons purchases, they will be eligible for support from this fund. The money will also support joint air-defense systems, missile acquisitions, cyberwarfare and drone-warfare preparedness and counter-drone capabilities. It is meant to build collective defense capacity through shared financing.

The EU used a similar approach in 2020 at the height of the COVID-19 crisis, issuing 800 billion euros in joint debt. Its new defense bond will further advance fiscal integration. The joint fund is also expected to offer substantial help to defense startups that struggle to access capital.

Defense-industry growth contributes to economic growth, but the short-term effect is limited. The fiscal multiplier of defense spending generally remains below one. A one euro investment produces less than one euro in economic return, meaning defense outlays are not an ideal short-term stimulus. The European Central Bank recently reported that defense spending promotes long-term growth only when governments secure upfront funding and concentrate their investments on productivity-enhancing research and development.

This photograph shows a marine mine-hunter drone at the French multinational aerospace and defense corporation Thales site in Brest, western France, on Oct. 1. [AFP/YONHAP]

Over the medium and long term, investments in transportation infrastructure, energy transition and education contribute more to growth than simply expanding military budgets. Paolo Surico of the London School of Economics estimates that if defense spending focuses heavily on R&D, increasing military expenditure by one percent of GDP could raise long-term economic growth and productivity by two percent. As of 2024, EU member states spent only 0.04 percent of GDP on defense R&D, compared to 0.62 percent in the U.S., a significant gap. Enhancing the growth contribution of Europe’s defense industry is crucial for ensuring the sustainability of rising defense budgets.

Europe is enjoying a defense boom driven by the war in Ukraine and rising military spending. But unless it confronts the core challenges of market integration and expanded R&D investment, its defense sector will struggle to sustain long-term competitiveness.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.