Insights

Now Comes the Hard Part: Europe’s Defense Industrial Inflection Point

November 2026

Introduction

Europe is in the midst of its most significant security shift since the end of the Cold War. Europe’s response has been an historic rearmament push. In 2025, European allies and Canada increased defense spending by 20% year over year. All NATO allies now spend at least 2% of GDP on defense, and a growing number are making moves to reach 3.5%. It also is a genuinely exciting time for Europe’s defense industry. Momentum and private capital are flowing into European defense at a scale that would have seemed unlikely just a few years ago. In January 2026, Czechoslovak Group (CSG) completed a record-setting €3.8 billion IPO, the largest defense listing ever and Europe’s biggest IPO since 2022. Meanwhile, a new generation of European defense-tech firms has surpassed $5 billion valuations, including Helsing, a German defense AI and software company; Quantum Systems, a German manufacturer of unmanned aerial systems; and Tekever, a Portuguese British drone company. The influx of private capital is helping fuel growth, but policymakers are aiming for something broader: first, more overall production at competitive costs, and second, a “full stack” European defense industrial base (EDIB) capable of designing, producing, and sustaining more of the systems European militaries require. At the 2026 Ankara NATO Summit, Secretary General Mark Rutte called for a “defense industrial revolution,” while several allies pressed for a more explicitly homegrown industrial agenda.

Key takeaways

  • Europe’s rearmament problem has changed. Political will and capital are finally moving; the constraint is increasingly Europe’s ability to translate them into industrial output.
  • The hardest choices are political, not technical. Building at scale means deciding whose systems survive, whose factories get built, when to buy foreign, and how much fiscal and economic pain governments will tolerate in pursuit of greater autonomy. Europe must confront three fundamental tensions: scale versus sovereignty, urgency versus autonomy, and ambition versus industrial capacity.
  • If Europe gets this right, it could change more than Europe’s military balance. A larger European Defense Industrial Base (EDIB) could redistribute power within Europe, alter transatlantic industrial relations, give Europe new leverage in the Gulf and Indo-Pacific, and create a more strategically autonomous—and consequential— European actor.

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