The last time European defense budgets rose this quickly, the Cold War was still being fought. That era is, in a sense, returning. Defense spending is climbing at its fastest global rate since the fall of the Berlin Wall, and the investment opportunities that come with it are considerable.
America’s defense budget, already the world’s largest, is set to rise from $838.8 billion in 2022 to $1.7 trillion by 2030. More striking, however, is what is happening in Europe. NATO’s European members have committed to spending 3.5% of GDP on defense by 2035 – a target that would have seemed fantastical a decade ago.
The reasons are not hard to find. Russia’s war in Ukraine has shattered post-Cold War assumptions about European security. But there is a second source of anxiety: America itself. President Donald Trump has repeatedly expressed his desire to acquire Greenland from NATO member Denmark and has raised the possibility of penalizing allies over what he perceives as insufficient support during the US-Israel war with Iran. For European governments, the message is clear – Washington may no longer be the reliable guarantor of their security it once appeared to be.
The biggest spending program Europe has ever seen
The policy response is historic in scale. The ReArm Europe initiative, also known as Readiness 2030, was announced by European Commission President Ursula von der Leyen in March 2025 and could be worth up to $872 billion – a figure approaching America’s entire annual defense budget. Of that total, around $741 billion will come from activating the national escape clause of the Stability and Growth Pact, effectively suspending the Excessive Deficit Procedure that would otherwise have made such spending levels impossible. EU loans to member states will account for the remaining $131 billion.
Defense has long been kept at arm’s length from EU institutions. The ReArm/Readiness program tears up that convention, dismantling regulatory barriers that previously prevented member states from borrowing to fund defense expenditure. To unlock the program’s full potential by 2030, member states must increase spending by 1.5% of GDP – which, for those also in NATO, contributes toward the alliance’s 3.5% target for 2035.
Rebuilding the arsenal: Supply chains under pressure
The strategic logic is clear. The commercial implications are only now becoming apparent. For example, America’s tariffs on imported specialty metals such as aluminum and steel have pushed up the cost of the M1A1 Abrams tank by 10%, a vivid illustration of how Washington’s trade policy can undermine the very alliances its defense posture depends upon.
European nations are drawing the obvious conclusion. They are actively rebuilding domestic defense supply chains to reduce their reliance on American procurement and insulate themselves from future tariff shocks. For investors, this represents a structural shift rather than a cyclical uptick. The Readiness program throws open new opportunities for established European companies and non-American suppliers. The medium-term prize goes to those who can identify the European firms best placed to fill the gaps that American policy is creating.
The shield as well as the sword
Alongside ground forces and supply chains, Europe is pressing ahead with investment in missiles and air defenses. The US PATRIOT system and its updated PAC-3 MSE missile variant remain the preferred choice for many European governments, but alternatives are gaining ground – among them the French-Italian SAMP/T NG.
The most significant European initiative in this space is the European Sky Shield Initiative (ESSI), launched in 2022 under German leadership as a direct response to Russia’s invasion of Ukraine and the threat from ballistic missiles it brought with it. Its purpose is to pool procurement and ensure interoperability across member nations. Twenty-four countries have now signed up – including smaller nations such as Denmark, entering this market for the first time, and historically neutral countries such as Austria and Switzerland. The long-term procurement pipeline this creates is precisely the kind of institutionally backed, multi-decade commitment that gives investors visibility.
Drones: Fast-moving, high-risk, high-reward
No technology has been transformed more dramatically by the war in Ukraine than the drone. The numbers tell the story: approximately 10,000 drones were launched per month in 2023. By 2025, that figure had reached 10,000 per day. Ukraine has used drones to inflict damage on Russian forces and infrastructure that would have been unthinkable through manned operations – a proof of concept that every major military is now absorbing.
GlobalData forecasts that Russia and Ukraine will spend $20.2 billion and $19.4 billion respectively on military UAVs between 2025 and 2035. Yet America – despite its vast defense budget – currently holds just one contract for the production of tactical combat drones. The restraint is deliberate. Locking large-scale production into specific models risks obsolescence in a technology that is evolving faster than procurement cycles can track. Investors in front-line drone technology face the same dilemma.
The more predictable opportunity, at least in the near term, lies in counter-drone systems. Ukraine has become a world leader in this field, its capabilities forged under sustained attack by Iranian Shahed-136 drones since September 2022. As Middle Eastern countries came under attack from Iranian drones in March and April this year, Ukrainian counter-drone specialists found themselves in sudden international demand. The interest extends to the corporate job market, with major aerospace and defense companies actively recruiting counter-drone technology specialists.
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