Can Higher Defence Spending Strengthen Europe’s Economy?

For decades, Europe treated defence as a secondary budget priority. That assumption has collapsed. Russia’s invasion of Ukraine, rising geopolitical uncertainty and doubts about the long-term reliability of American protection have pushed European governments to rearm at a speed not seen in years. The security logic is obvious. The economic one is less clear. Can higher defence spending make Europe safer while also making its economy stronger? The answer is yes — but only if Europe spends differently, not just more, as shown by recent NATO defence expenditure data and the European Commission’s defence strategy.

The numbers already show a sharp shift. According to the European Defence Agency’s latest defence data report, EU member states spent €343 billion on defence in 2024, up 19% from 2023, and that figure is expected to rise to €381 billion in 2025, or about 2.1% of GDP. NATO data also shows that far more European allies now meet or exceed the alliance’s spending benchmark than a decade ago. Defence is no longer a niche policy area. It is becoming a central part of Europe’s economic and industrial strategy.

There is a strong economic case for this shift. Defence spending can support manufacturing, skilled employment, logistics and research. It can also generate technological spillovers. Many innovations with civilian value — from aerospace systems to communications and cybersecurity tools — have roots in defence-related investment. At a time when Europe is searching for new sources of industrial dynamism, rearmament could strengthen sectors that have long suffered from underinvestment and fragmentation. The European Commission’s White Paper for European Defence – Readiness 2030 explicitly frames defence not only as a matter of deterrence, but also as a way to build technological capacity and industrial resilience.

Yet the optimistic view comes with serious limits. Defence spending does not automatically create broad-based growth. Tanks and missiles are not the same as ports, schools or transport networks. Public money spent on defence cannot be spent elsewhere, and that trade-off matters, especially in countries already facing high debt and pressure on health, housing and pensions. If defence budgets rise through deficit financing without stronger coordination, Europe could end up with more fiscal strain but only modest economic gains. As Bruegel argues in its analysis of European rearmament, the continent needs to spend more, but it also needs to spend in a way that avoids waste and duplication.

That duplication problem is crucial. Europe still has a fragmented defence market, with national governments often buying separately, producing small orders and protecting domestic champions. This weakens economies of scale and raises costs. Put simply, Europe may be spending more without becoming proportionally stronger. If each country rearms alone, the result may be political symbolism rather than real efficiency. Joint procurement and cross-border industrial cooperation are therefore not technical details; they are the difference between defence spending as a growth-enhancing investment and defence spending as an expensive patchwork.

There is also the question of who actually benefits. More spending sounds like a boost for European industry, but that is not guaranteed. A significant share of recent European military purchases has gone to non-European suppliers, especially the United States. That may solve short-term capability gaps, but it weakens the argument that higher defence budgets will rebuild Europe’s own industrial base. If Europe buys security from abroad, the jobs, technology and long-term gains may also remain abroad. In that case, rearmament strengthens defence capacity, but not necessarily Europe’s economy, as Bruegel’s work on Europe’s dependence on US military sales makes clear.

This is why the real debate is not whether Europe should spend more on defence. That question has largely been settled by events. The more important question is whether Europe can turn military necessity into economic strategy. Higher defence spending can support innovation, industry and resilience, but only if it is coordinated, efficient and tied to a stronger European production base. Otherwise, Europe risks paying more for security while gaining too little in productivity, autonomy and growth. As both the European Commission and Bruegel suggest in different ways, rearmament may be unavoidable. Economic benefits are not.