Can Europe’s defence boom spark economic revival?

In a recent article, Politico highlights that with billions flowing into defence projects, there’s a hope that Europe’s military focus could fuel technological innovation, boost productivity, and revitalise its struggling economy. 

Europe’s ongoing defence projects are starting to rival the United States in scale and ambition. From continent-wide antimissile defences to low Earth orbit satellite constellations, the continent is looking for alternatives to Elon Musk’s Starlink. The aim is to create technological breakthroughs that spill over into the civilian economy, helping boost productivity in the long term.

However, while the potential benefits are high, the immediate future is uncertain. "This is about spending more, spending better," NATO Secretary-General Mark Rutte acknowledged, emphasising that while two-thirds of NATO members meet the alliance’s target of spending 2 per cent of GDP on defence, Europe still needs to do more.

The European Commission has already unlocked 800 billion euros for military spending, and Germany has revealed plans to spend 1 trillion euros to modernize its army. With defense contractors set to see rising revenues and manufacturing jobs on the rise, short-term economic growth is expected. Daniel Kral, lead economist at Oxford Economics, suggested that this could help "break Europe out of stagnation."

But not all aspects of defense spending translate into long-term productivity. Military equipment like landmines and howitzers, while vital for defense, don’t provide tangible long-term economic returns. As Europe plans to fund much of its defense upgrade through debt, the sustainability of this investment is in question.

The success of Europe’s defense spending will depend on a shift toward more innovative solutions, focusing on local industry, and fostering competition. For Europe to truly capitalize on this investment, it must encourage new, smaller companies to compete and push technological boundaries, a task that could prove challenging for traditional, slow-moving defense contractors.

By Naila Huseynova