Is Europe ready to lead its own defence if US pulls back? Analysis by FT

The Financial Times has published an article focusing on the evolving landscape of Europe’s defence sector, which has become a key area of investment and growth following years of underfunding.

The sector’s resurgence is driven by geopolitical tensions, particularly the ongoing war in Ukraine and the shift in U.S. foreign policy under President Donald Trump. Europe, which had long relied on U.S. military support, is now working to increase its defence capabilities and reduce its dependence on the U.S. This shift has come at a time when European defence groups are experiencing a surge in demand, with new government orders fueling record-high backlogs.

For more than 30 years, European military budgets were constrained due to competing priorities. However, in response to the threat posed by Russia and the U.S. President’s calls for European nations to take more responsibility for their own security, European governments have pledged to unlock hundreds of billions of euros to mobilize the continent’s industrial base.

The war in Ukraine has highlighted vulnerabilities in various defence areas, including air defence, intelligence, surveillance, missile systems, and ammunition. The U.S. played a crucial role in supporting Europe with advanced defence systems, but a potential pullback in U.S. military assistance has raised concerns about the continent's capability gaps.

The article examines how defence groups across Europe, such as Germany’s Rheinmetall, Britain’s BAE Systems, and French company Thales, are benefiting from increased government spending. Some companies have seen their stock values soar, with shares in some defence groups up by as much as 40% since the start of the year. Industry analysts point to a "global defence supercycle" fueled by the geopolitical situation and the war in Ukraine. The shift away from U.S. dominance in European defence could provide a significant boost to the region’s defence manufacturers, particularly those involved in land warfare, missile systems, and air defence.

In terms of air defence, there is a significant push to develop European alternatives to the U.S.-made Patriot system. European defence companies like Eurosam, a joint venture between Thales and MBDA, are well-positioned to provide missile systems like the SAMP-T, which could be sent to Ukraine as part of their defence efforts. Analysts also suggest that the growing need for ammunition in Ukraine could benefit European manufacturers, including Rheinmetall and France’s Nexter. Additionally, manufacturers of explosives and propellants like Britain’s Chemring and France’s Eurenco are expected to see continued growth.

Intelligence, surveillance, and reconnaissance (ISR) have also become a priority for Europe. The war in Ukraine has underscored the importance of ISR capabilities, which have largely been reliant on the U.S. in the past. European defence companies, including Munich-based Hensoldt, which is working on surveillance systems for the German armed forces, could play a significant role in filling this gap. Sweden’s Saab, known for early warning systems and anti-tank capabilities, is another company poised to benefit from the increase in defence spending.

Satellite communication and the integration of data across the battlefield is another area where Europe has depended on the U.S. Europe is now looking to bolster its own capabilities in this area, and companies like Eutelsat, a French satellite operator, are in discussions with European governments about providing additional satellite connectivity to Ukraine. Eutelsat’s growth is notable, with its share price surging as the company moves to address satellite communication needs amid concerns over U.S.-based services like Elon Musk's Starlink potentially scaling back their support.

As the nature of warfare evolves, Europe is also expected to invest heavily in emerging technologies, such as artificial intelligence (AI), cybersecurity, and autonomous systems. The article highlights how companies like Thales, which is a leader in cybersecurity, and Italy’s Leonardo, which specializes in sensors and radar, are well-placed to benefit from these developments. Additionally, startups in the AI and drone sectors are expected to see increased demand as European governments seek to diversify their defence capabilities. A notable example is the German AI startup Helsing, which has committed to producing drones for Ukraine as part of Europe’s growing demand for autonomous weapons.

The article concludes by discussing how the EU’s shifting defence strategy presents both challenges and opportunities for European manufacturers. It suggests that as European governments increase defence spending, there is an opportunity to bring in commercial technology companies and startups to meet evolving defence needs.

With this new focus on rearmament, Europe’s defence industry is poised to experience significant growth, not only in traditional military hardware but also in emerging technologies that will shape the future of warfare.

By Tamilla Hasanova