The EU’s fragmented defence system, inefficiencies, and reliance on the US leave it dangerously unprepared.
Most mainstream discussions about European Union (EU) defence focus on whether NATO should set a higher military spending target than the current two percent of GDP. The prevailing assumption—largely fuelled by President Donald Trump’s frequent remarks—is that the EU has neglected its defence for decades, complacently relying on American military power.
There is some truth to Trump’s claims. During the Cold War, European NATO members routinely spent between three and four percent of their GDP on defence, but after decades of underinvestment, these levels fell to approximately 1.6 percent. One might argue that this is the luxury of peace—the ability to allocate more resources to the welfare state rather than to arms. However, in an increasingly unstable world, other global actors do not share Europe’s commitment to a peaceful existence.
Nations continue to compete for power and influence, and for the EU, it is problematic that its most powerful ally, the United States, spends roughly 3.5 percent of its GDP on defence. It is even more concerning that China and Russia have dramatically increased their military expenditure over the past few decades, now standing at around two percent and six percent of GDP, respectively. In reality, the disparity is even greater, as defence budgets in China and Russia stretch further due to lower costs.
So, yes, the EU must increase its defence budget. Much has already been done—over the past decade, European defence spending has risen by a remarkable 50 percent in real terms—and it is crucial that this trend continues.
However, framing the debate as a mere spending competition is both reductive and misguided. This approach shifts attention away from the EU’s actual military needs and places undue focus on individual member states’ financial contributions. The future of European defence does not hinge on decimal points in GDP calculations. A more productive discussion should focus on how the EU allocates its defence spending. Such an analysis exposes significant inefficiencies in the EU’s defence system—issues far more pressing than simply increasing budgets. These structural flaws, often buried in technical policy papers, deserve wider public debate if real change is to occur in Brussels.
From our perspective, three fundamental obstacles stand in the way of genuine European defence autonomy.
The first, and most significant, is the persistent issue of fragmentation. Currently, less than 20 percent of defence procurement takes place at the EU level. The prevailing system of national-level procurement results in higher costs per unit—similar to what was observed with natural gas and COVID-19 vaccine purchases. More critically, it creates an erratic and unpredictable demand pattern, hampering the defence industry’s ability to plan and scale production effectively. Unsurprisingly, when Russia invaded Ukraine in 2022, the EU was entirely unprepared. Of the approximately €75 billion in aid pledged to Ukraine, around 80 percent had to be sourced from outside Europe—of which about 80 percent came from the United States.
Supply is equally fragmented. Contrary to popular belief, most EU defence procurement does take place within Europe, with imports generally accounting for less than 10 percent of total spending. However, intra-EU defence trade remains negligible. National interests continue to dominate decision-making, as member states fiercely protect their domestic defence industries—even when doing so runs counter to broader European security interests. As a result, European defence companies remain subscale, leading to costly duplication of research and development and a lack of economies of scale. Consider the disparity in size: in 2023, the United States’ largest defence contractor, Lockheed Martin, reported revenues of approximately $68 billion—nearly five times those of Europe’s largest defence firm, Italy’s Leonardo, and roughly half the combined revenues of the entire EU defence industry.
Beyond economic inefficiencies, fragmentation has led to a chaotic proliferation of weapon types. For every single type of weapon produced in the United States—be it tanks, torpedoes, or frigates—the EU manufactures more than five times as many variations. Even more strikingly, more than 60 percent of EU-produced weapons are used exclusively in one country. This lack of standardisation has real-world consequences. When Ukraine sought military aid, EU member states provided over ten different models of howitzer tanks, complicating logistics for Ukraine’s armed forces.
The second major obstacle is the defence industry’s limited access to private capital. A 2024 study by the European Commission identified a multi-billion-euro financing gap in both equity and debt markets. Investors face the complexity of navigating 27 distinct regulatory frameworks, while many financial institutions exclude defence investments altogether due to interpretations of the EU’s Sustainable Finance and ESG regulations.
The third challenge is the use of defence spending as a social safety net. Broadly defined, defence budgets can be divided into two categories: personnel (including salaries and pensions) and equipment and infrastructure (including related research and development). In the United States and China, personnel costs account for around 25 percent and 30 percent of total defence spending, respectively. By contrast, most EU member states—including major countries such as Germany, France, and Spain—allocate between 35 and 50 percent of their defence budgets to personnel. Some, including Italy, Greece, and Portugal, spend as much as 60 percent. These figures suggest that defence budgets are often driven by political considerations rather than strategic military needs—an unsustainable approach Europe can no longer afford.
These structural inefficiencies—not arbitrary spending targets—will determine the future of European defence. If the EU genuinely seeks to reduce its reliance on US protection—a goal shared on both sides of the Atlantic—it must first abandon the simplistic obsession with numerical benchmarks and focus instead on building a more efficient, integrated, and autonomous defence system.
Andrea Napolitano is the Chief Operating Officer at Iromed Therapeutics. He writes in a personal capacity.
Danny is an Engagement Manager at McKinsey & Company. He writes in a personal capacity.