Europe's defence awakening and the industrial base it needs

You cannot ramp up ammunition, ship, and satellite production without a manufacturing base. Defence spending is industrial policy.

By VastBlue Editorial · 2026-03-26 · 16 min read

Series: The Chessboard · Episode 6

Europe's defence awakening and the industrial base it needs

The peace dividend's bill comes due

On the morning of February 24, 2022, the strategic assumptions that had governed European defence policy since the fall of the Berlin Wall were rendered obsolete in the time it took a column of Russian armour to cross the Ukrainian border. The event itself was not unprecedented — Russia had invaded Georgia in 2008, annexed Crimea in 2014, and conducted a sustained proxy war in the Donbas for eight years. What was unprecedented was the scale. This was not a limited incursion or a frozen conflict designed to destabilise a neighbour without triggering a Western response. This was a full-scale conventional land war on the European continent, involving hundreds of thousands of troops, armoured formations, missile strikes on civilian infrastructure, and a stated objective of regime change in a sovereign European-aligned state. The post-Cold War era — the era in which European governments had treated defence spending as a discretionary budget line, somewhere between infrastructure maintenance and cultural subsidies — was over.

The response was immediate in rhetorical terms and slow in industrial ones. Three days after the invasion, German Chancellor Olaf Scholz stood before the Bundestag and announced a Zeitenwende — a turning point. Germany would establish a €100 billion special fund for the Bundeswehr. It would meet NATO's two percent of GDP spending target, a commitment it had made in 2014 and systematically failed to honour for eight consecutive years. It would rearm. The speech was historic. The Bundestag gave a standing ovation. Editorials across Europe proclaimed the end of German pacifism and the birth of a new European security architecture.

Three years later, the €100 billion fund is substantially committed — but the equipment it was supposed to buy has been slow to arrive. The F-35 fighter jets Germany ordered will not be operational until the late 2020s. The Puma infantry fighting vehicles that were supposed to form the backbone of Germany's mechanised brigades suffered persistent readiness problems — during a NATO exercise in December 2022, every single Puma assigned to the drill broke down. The heavy transport helicopters the Bundeswehr has needed for two decades remain on order. The ammunition stocks that Germany donated to Ukraine — essential and morally correct — have not been fully replenished. The Zeitenwende was real in political terms. In industrial terms, it collided with a defence manufacturing base that had been systematically starved of investment, orders, and skilled labour for thirty years.

This is the story that this episode traces: not the politics of European defence — which have shifted dramatically and are now broadly aligned on the need for increased spending — but the industrial base that must translate political will into military capability. The distinction matters because it is entirely possible, and indeed likely, that Europe will increase defence budgets substantially while failing to increase defence output proportionally. Money is necessary. It is not sufficient. What matters is whether the factories, supply chains, workforces, and industrial ecosystems exist to convert euros into ammunition, ships, aircraft, satellites, and the digital infrastructure that ties them together. The evidence suggests they do not — not at the scale Europe now requires.

The arithmetic of attrition

Begin with the most elemental unit of conventional warfare: the artillery shell. The war in Ukraine has been, among many other things, a masterclass in the enduring relevance of massed fires. At the peak of fighting in 2022 and 2023, Ukrainian forces were firing between 4,000 and 7,000 155mm artillery rounds per day. Russian forces were firing considerably more — estimates range from 20,000 to 60,000 rounds per day across all calibres, drawing on Soviet-era stockpiles, domestic production, and imports from North Korea and Iran. The consumption rates stunned Western military planners, who had structured their force postures and ammunition inventories around the assumption that a European conflict, if it occurred at all, would be a short, sharp, precision-guided affair decided in days, not a grinding attritional struggle measured in years and shell counts.

~7,000/day Peak Ukrainian 155mm artillery shell consumption — At this rate, Ukraine consumed in a single month what the entire European Union could produce in roughly a year at pre-war production levels. The mismatch between consumption and production capacity is the defining industrial challenge of European defence.

The production numbers told a devastating story. In early 2022, the combined annual production capacity for 155mm shells across all European NATO members was approximately 300,000 rounds. The United States added roughly 180,000 rounds per year. Total Western production capacity was therefore approximately 480,000 rounds annually — enough to sustain Ukrainian consumption for roughly two months. Not two years. Not one year. Two months. The entire annual output of the Western defence industrial base could be consumed in sixty days of fighting by a single country on a single front. This was not a planning failure in the narrow sense — no specific general or procurement official had made a specific error. It was a systemic failure, the accumulated consequence of three decades of procurement decisions optimised for cost efficiency rather than surge capacity, peacetime consumption rather than wartime demand, and a strategic environment in which the relevant question was thought to be "how cheaply can we maintain minimum stocks?" rather than "how quickly can we produce maximum output?"

The response has been significant but insufficient. The European Defence Agency (EDA) coordinated a joint procurement initiative for 155mm ammunition, with an initial target of ramping European production to one million rounds per year by the end of 2025. The European Commission's ASAP programme — the Act in Support of Ammunition Production — allocated €500 million to accelerate production capacity expansion. Individual member states placed orders: Germany with Rheinmetall, France with Nexter (now KNDS), Norway with Nammo. Rheinmetall announced plans for new production facilities in Germany, Lithuania, and Ukraine itself. The United States accelerated its own ramp-up, targeting 100,000 rounds per month — 1.2 million per year — by late 2025.

But ramping ammunition production is not like ramping smartphone production. A 155mm high-explosive shell is a precision-engineered product containing a forged steel body, a precisely measured explosive fill (typically TNT or Composition B), a fuze assembly with electronic or mechanical components, and a brass or steel cartridge case with a propellant charge. Each component requires specialised manufacturing equipment, specialised raw materials, and specialised labour. The forging presses that shape shell bodies are not off-the-shelf industrial equipment — they are custom-built machines with lead times of twelve to eighteen months. The explosive filling lines require certified facilities that meet stringent safety and environmental regulations. The propellant manufacturing process involves hazardous chemistry that few commercial enterprises have the expertise or the willingness to undertake. Building a new ammunition production line from scratch takes three to five years. Expanding an existing one takes eighteen months to two years — assuming the workforce exists.

The peacetime defence industrial base was optimised for efficiency: small batches, just-in-time supply chains, minimal inventory. War demands the opposite: volume, redundancy, surge capacity. Europe optimised for peace and is now paying the price of that optimisation.

Editorial observation

The workforce problem is acute and underappreciated. Defence manufacturing requires a specific type of skilled industrial labour — machinists, welders, explosives technicians, quality control specialists, systems integrators — that overlaps significantly with the skills demanded by civil manufacturing. When European defence spending declined after 1991, the workers did not wait. They moved to automotive, aerospace, energy, and general engineering. The training pipelines contracted. Apprenticeship programmes were discontinued. University programmes in defence-relevant engineering disciplines — energetic materials, ballistics, armour systems — shrank or disappeared. Rebuilding these workforces is not a matter of offering higher wages, though that helps. It is a matter of recreating institutional knowledge that took decades to accumulate and was dispersed in a generation.

Beyond ammunition: the full spectrum of industrial deficit

Ammunition is the most visible symptom of Europe's defence industrial deficit, but it is not the most consequential. The deeper problems lie in the platforms, systems, and infrastructure that define modern military capability — and in the supply chains that produce them.

Consider naval shipbuilding. Europe's maritime geography demands substantial naval forces: the North Sea, the Baltic, the Mediterranean, the Atlantic approaches, and increasingly the Arctic all require patrol, surveillance, and if necessary, combat capability. NATO's northern flank — Norway, the Baltic states, Finland, Sweden — depends on sea control for resupply and reinforcement. Yet European naval shipbuilding capacity has contracted dramatically. In the 1980s, Europe had over thirty major shipyards capable of building warships. Today, the number capable of building complex surface combatants — frigates and destroyers — can be counted on two hands. Germany's ThyssenKrupp Marine Systems, France's Naval Group, Italy's Fincantieri, Spain's Navantia, and the Netherlands' Damen represent the core of European naval shipbuilding capacity. Their order books are full. Their capacity to surge — to accelerate production in response to increased demand — is limited by the same constraints that affect ammunition: workforce, supply chains, and the sheer physical capacity of the yards themselves.

30 → ~10 Major European warship-capable shipyards, 1985 vs. 2025 — The consolidation was rational in peacetime. It is a strategic vulnerability in the current security environment. You cannot reconstitute a shipyard workforce in less than a decade.

The timelines are sobering. A modern frigate — a Type 26 for the Royal Navy, a FDI for the French Navy, an F-126 for the German Navy — takes seven to ten years from contract signature to commissioning. A submarine takes longer. The German Navy's U-212CD programme, a joint project with Norway for six new conventional submarines, will not deliver the first boat until the early 2030s. If Europe decided today that it needed to double its frigate fleet — a not unreasonable ambition given the current threat environment — the additional ships would not enter service until the mid-2030s at the earliest. Naval shipbuilding cannot be surged in the way that ammunition production can, because each vessel is essentially a bespoke industrial project involving millions of components, hundreds of suppliers, and integration challenges that make automotive assembly look straightforward.

The situation in land systems is marginally better but still constrained. The main battle tank — an asset class that many Western strategists had declared obsolescent before Ukraine demonstrated otherwise — is produced in Europe by exactly three prime contractors: KNDS (the Franco-German joint venture that encompasses Nexter and Krauss-Maffei Wegmann, producing the Leclerc and Leopard 2 respectively), Rheinmetall (which is developing the Panther KF51 as a next-generation platform), and BAE Systems (producing the Challenger 3 for the British Army). Production rates are measured in dozens per year, not hundreds. The Leopard 2, the most widely deployed Western main battle tank, has not been in series production since the early 2000s. The manufacturing lines that once produced hundreds of tanks per year for the Bundeswehr and export customers have been scaled back to maintenance, upgrade, and small-batch production. Restarting full-rate production requires not just factory floor capacity but the re-establishment of an entire supply chain: armour plate from specialised steel mills, gun barrels from forges with the precision and metallurgical capability to produce 120mm smoothbore tubes, fire control systems integrating thermal imaging, laser rangefinding, and ballistic computation, and engines and transmissions from suppliers that have diversified into civil markets.

Aerospace presents its own set of challenges. The Eurofighter Typhoon — Europe's primary fourth-generation combat aircraft — is produced by a consortium of Airbus Defence, BAE Systems, and Leonardo. The production line in Manching, Germany remains active but at reduced rates. The programme's future depends on additional export orders and on decisions by consortium nations about fleet size. Meanwhile, the next generation — the Future Combat Air System (FCAS), a Franco-German-Spanish programme, and the Global Combat Air Programme (GCAP), a British-Italian-Japanese initiative — will not produce operational aircraft until the late 2030s at the earliest. Europe faces a potential capability gap in which current platforms age out before their replacements arrive, a gap that requires either life-extension programmes (expensive and of limited effectiveness) or bridge procurements from non-European suppliers (the F-35, which several European NATO members have already chosen).

The supply chain beneath the supply chain

Every discussion of defence industrial capacity eventually arrives at the same uncomfortable place: the sub-tier supply chain. The prime contractors — Rheinmetall, KNDS, Naval Group, BAE Systems, Airbus Defence, Leonardo, Saab, Thales — are visible, publicly traded, politically connected, and relatively well capitalised. They are also, in industrial terms, systems integrators: they design platforms, manage programmes, and assemble final products. But the components that go into those products — the specialised alloys, the electronic sub-assemblies, the precision bearings, the energetic materials, the optical systems, the thousands of parts that collectively constitute a tank, a ship, or an aircraft — come from a tier of smaller, less visible, and far more fragile suppliers.

This sub-tier supply chain has been under extreme stress for decades. During the post-Cold War drawdown, as defence budgets and order volumes declined, many sub-tier suppliers faced a brutal choice: diversify into civil markets, consolidate with competitors, or close. Many chose the first option and succeeded, which meant that when defence demand eventually returned, they were no longer defence-focused and had limited incentive to re-enter a market characterised by demanding specifications, extensive certification requirements, and unpredictable order volumes. Others closed entirely, taking their specialised capabilities with them. The result is a supply chain that, at the prime contractor level, appears robust, but at the sub-tier level is characterised by single points of failure, long lead times, and limited surge capacity.

The raw materials dimension adds another layer of vulnerability. Modern defence systems are heavy consumers of specialised metals and minerals: tungsten for armour-piercing munitions, titanium for aerospace structures, rare earth elements for precision-guided munitions and electronic warfare systems, lithium for military vehicle batteries, cobalt for high-performance alloys. Europe's domestic supply of these materials is minimal. Tungsten comes primarily from China (which controls approximately 80 percent of global production). Titanium comes from Russia, Kazakhstan, and China. Rare earth processing is dominated by China to an even greater degree than the raw ore supply. The strategic irony is pointed: Europe's ability to arm itself against a potential Russian threat depends in part on supply chains that run through China, a country whose strategic alignment with Russia has deepened since 2022.

~80% China's share of global tungsten production — Tungsten is essential for armour-piercing munitions, machining tools used in defence manufacturing, and high-temperature aerospace applications. Europe's defence industrial base has a critical mineral dependency on a strategic competitor.

The European Commission's Critical Raw Materials Act, adopted in 2024, sets targets for domestic extraction, processing, and recycling of strategic minerals — including several with direct defence relevance. But targets are not mines. Opening a new mine in Europe takes ten to fifteen years when environmental permitting, community consultation, and judicial review are factored in. Processing facilities take five to seven years. The timescale for achieving meaningful supply chain independence in critical minerals is measured in decades, not electoral cycles. In the interim, Europe remains dependent on supply chains it does not control for materials it cannot do without.

Defence spending as industrial policy

There is a framing of Europe's defence challenge that treats it as separate from — or even in tension with — the broader industrial policy agenda. In this framing, defence spending competes with investment in clean energy, digital infrastructure, education, and healthcare. Every euro allocated to a Leopard 2 tank is a euro not allocated to a wind turbine, a semiconductor fab, or a university research programme. The framing is intuitive, politically potent, and fundamentally wrong.

Defence spending, at the scale Europe is now contemplating, is industrial policy. It is, in fact, the most direct form of industrial policy available to a sovereign government: the state as customer, specifying what it wants built, where it wants it built, and guaranteeing demand over multi-year or multi-decade procurement cycles. The industries that defence spending supports — advanced metallurgy, precision manufacturing, electronics, software, aerospace, shipbuilding, chemical processing — are not separate from the civil industrial base. They are the same industrial base, viewed through a different lens.

The historical evidence is extensive. The semiconductor industry was created by defence demand: the integrated circuit was developed for the Minuteman II missile guidance system. The internet originated as ARPANET, a US Department of Defense project. GPS was a military navigation system before it was a consumer technology. Jet engines were developed for military aviation before they powered commercial aircraft. The global aerospace industry — including Airbus, Europe's most successful industrial programme — would not exist in its current form without the military aircraft programmes that sustained its workforce, supply chains, and engineering capabilities during periods when civil demand alone would not have justified the investment.

Defence spending is not a diversion from industrial policy. It is industrial policy — the state as customer, the factory as strategic asset, the production line as sovereign capability. Europe's failure to recognise this distinction cost it a generation of industrial capacity.

Editorial observation

The Draghi Report — the most comprehensive recent assessment of European competitiveness — made this connection explicit. It argued that Europe's defence industrial base should be treated as a strategic asset on par with its energy infrastructure and digital economy, and that defence procurement should be designed not merely to equip armed forces but to sustain and develop the industrial capabilities that underpin European technological sovereignty. The report recommended joint procurement mechanisms, common standards, and coordinated investment to reduce the fragmentation that characterises European defence markets — a fragmentation in which 27 member states operate 178 different weapon systems (compared to 30 in the United States), 17 different tank types, 29 different destroyer and frigate classes, and 20 different fighter aircraft types.

178 vs. 30 Weapon system types: EU vs. United States — European defence procurement fragmentation results in short production runs, duplicated development costs, incompatible logistics, and an inability to achieve the economies of scale that would make European defence manufacturing globally competitive.

The fragmentation is not merely inefficient — it is structurally debilitating. When France develops the Rafale and Germany co-develops the Eurofighter, and Sweden develops the Gripen, and Italy co-develops the Eurofighter while also pursuing national programmes, the result is three separate aerospace ecosystems, each producing at volumes too low to achieve the cost reductions that come with scale. Compare this with the United States, where the F-35 programme — whatever its cost overruns and delays — will ultimately produce over 3,000 aircraft for the US military and allied customers, creating a production base and supply chain ecosystem that no single European programme can match. The cost per unit declines with volume. The supply chain deepens with volume. The workforce skills sharpen with volume. Europe's insistence on national champions and juste retour — the principle that each participating nation receives industrial work proportional to its financial contribution — sacrifices all of these advantages on the altar of sovereign industrial pride.

The European Defence Industrial Programme (EDIP), proposed by the European Commission in 2024, represents the most ambitious attempt yet to address this fragmentation. It would incentivise joint procurement by offering EU co-financing for multinational defence purchases, prioritise European-made equipment over non-European alternatives, and create a framework for coordinated defence investment. The programme is a necessary step. It is also a modest one — the proposed budget of approximately €1.5 billion over the initial period is a rounding error compared to the scale of the problem. For context, a single Arleigh Burke-class destroyer costs approximately $2 billion. The EDIP budget would not cover the procurement of a single major naval combatant.

What rebuilding actually requires

If Europe is serious about rebuilding its defence industrial base — and the political declarations suggest it is, even if the budgets have not yet caught up — the task involves five interconnected challenges, none of which can be solved in isolation.

Each of these challenges is substantial. Together, they constitute a transformation of European defence industrial policy that would take a decade or more to complete, require sustained political commitment across multiple electoral cycles, and demand levels of cross-border industrial cooperation that Europe has historically struggled to achieve. The question is not whether Europe can do this — its engineering talent, industrial heritage, and financial resources are more than adequate. The question is whether Europe will do this — whether the political will that crystallised in February 2022 can be sustained long enough to translate into the factories, production lines, and supply chains that make the rhetoric real.

The war in Ukraine has provided the strategic shock. The political declarations have been made. The budgets are beginning to move. But between the political commitment and the military capability lies an industrial valley — a gap that can only be crossed by building, not by spending. Money buys intentions. Factories deliver capability. Europe has rediscovered the first. It must now rebuild the second.

Between the political commitment and the military capability lies an industrial valley. Money buys intentions. Factories deliver capability. Europe has rediscovered the first. It must now rebuild the second.

Editorial observation

Sources

  1. European Defence Agency — Defence Data 2023 — https://eda.europa.eu/publications-and-data/defence-data
  2. Draghi Report — The future of European competitiveness (September 2024) — https://commission.europa.eu/topics/strengthening-european-competitiveness/draghi-report_en
  3. European Commission — European Defence Industrial Programme (EDIP) — https://defence-industry-space.ec.europa.eu/european-defence-industry/european-defence-industrial-programme-edip_en
  4. IISS — The Military Balance 2025 — https://www.iiss.org/publications/the-military-balance/2025/the-military-balance-2025
  5. Rheinmetall — Annual Report 2024 — https://www.rheinmetall.com/en/investors/reports-and-presentations
  6. European Commission — Critical Raw Materials Act (2024) — https://single-market-economy.ec.europa.eu/sectors/raw-materials/areas-specific-interest/critical-raw-materials/critical-raw-materials-act_en
  7. RUSI Special Report — Preliminary Lessons in Conventional Warfighting from Russia's Invasion of Ukraine — https://www.rusi.org/explore-our-research/publications/special-resources/preliminary-lessons-conventional-warfighting-russias-invasion-ukraine-february-july-2022
  8. European Commission — ASAP: Act in Support of Ammunition Production (2023) — https://defence-industry-space.ec.europa.eu/eu-defence-industry/act-support-ammunition-production-asap_en