BRUSSELS – A seismic shift is underway in Europe as the continent, shaken from a decades-long slumber of post-Cold War peace, engages in the most rapid and comprehensive rearmament since the 1950s. Spurred by escalating geopolitical tensions and the stark realities of a protracted war on its eastern flank, a wave of political will is crashing through the continent, unleashing a torrent of public funds and igniting a veritable gold rush for defense contractors.
From the industrial heartlands of Germany to the shipyards of France and the aerospace factories of Sweden, companies are reporting soaring profits, expanding production lines, and embarking on ambitious hiring sprees to meet the surging demand for everything from artillery shells to advanced fighter jets. The European Union, long a bastion of soft power, is now aggressively pivoting to hard power, orchestrating a continent-wide industrial mobilization. This confluence of political urgency and financial firepower is not only reshaping Europe’s security architecture but is also forging a new economic landscape, with the long-sidelined defense sector emerging as a primary engine of growth, innovation, and intense investor interest.
The Wake-Up Call: A New Security Reality
The catalyst for this historic transformation was Russia’s full-scale invasion of Ukraine in 2022. The brutal reality of a major land war in Europe shattered the continent’s prevailing belief in the “peace dividend”—the idea that the end of the Cold War had ushered in a permanent era of stability where military spending could be safely reduced. Decades of underinvestment had left many European nations with depleted stockpiles, aging equipment, and atrophied defense industrial bases, a vulnerability that was starkly exposed as they rushed to supply Ukraine with the weapons it needed to survive.
This realization has forced a profound strategic reassessment in capitals across the continent. The new consensus is that peace can no longer be taken for granted and that credible military deterrence is a prerequisite for security. This has led to a flurry of high-level policy initiatives designed to rebuild Europe’s military might.
At the EU level, this new thinking is embodied in the European Defence Industrial Strategy, a landmark plan designed to foster greater cooperation and efficiency in the continent’s fragmented defense sector. The strategy aims to move away from a system where each member state develops and procures its own equipment, instead encouraging joint procurement programs to achieve economies of scale and ensure interoperability. A key goal is to boost the “availability and supply of defence products” from European manufacturers, a clear signal of the bloc’s desire for “strategic autonomy” and reduced reliance on the United States.
This political ambition is being backed by increasingly concrete financial commitments. The European Peace Facility, an off-budget fund used to finance military aid, has been repeatedly topped up to funnel billions of euros worth of arms to Ukraine. More significantly, the EU’s latest seven-year budget proposal includes a dramatic fivefold increase in funding for defense and space, allocating €131 billion to a new European Competitiveness Fund.
National Budgets and Booming Order Books
The most dramatic changes, however, are happening at the national level, where government treasuries have opened the taps for military spending. The most symbolic shift has come from Germany. In a historic policy reversal known as the Zeitenwende (“turning point”), Berlin has committed to a landmark increase in its defense budget, finally aiming to meet the long-standing NATO target of allocating 2% of its GDP to defense.
This has been a massive boon for German defense giant Rheinmetall, which has seen its stock price skyrocket by over 400% since early 2022. The company is now scrambling to keep up with a flood of new orders for tanks, ammunition, and military vehicles, announcing plans to build new production facilities and hire thousands of new workers.
This trend is mirrored across the continent. In Poland, which shares a border with Ukraine, the government has embarked on one of the most ambitious military modernization programs in the world, signing massive deals for tanks, artillery, and fighter jets from South Korea and the United States. In France, aerospace and defense firm Dassault Aviation is ramping up production of its Rafale fighter jet. In Sweden, Saab has seen a surge in orders for its Gripen fighters and advanced missile systems.
The demand spans the full spectrum of military technology. The war in Ukraine has underscored the critical importance of traditional hardware, leading to a desperate race to ramp up production of 155mm artillery shells. At the same time, it has highlighted the future of warfare, driving massive investment into sophisticated drone systems, electronic warfare capabilities, and cybersecurity solutions.
The Financial World Joins the Fray
Further fueling this boom is a crucial, ongoing shift in the world of finance. For years, many of Europe’s largest banks and investment funds, guided by ESG (Environmental, Social, and Governance) principles, treated the defense industry as a “sin sector,” placing it in the same category as tobacco and fossil fuels and making it difficult for defense companies to secure financing.
That taboo is now rapidly crumbling. The political establishment is now actively pressuring financial institutions to re-evaluate their stance, arguing that investing in a strong defense industry is not only socially responsible but essential for preserving peace and democracy. The European Investment Bank (EIB), the EU’s lending arm, is reportedly considering a more active role in financing the defense sector, a move that could unlock billions in additional investment for research and development of cutting-edge military technologies. This potential influx of private and institutional capital is poised to accelerate the industry’s growth even further.
This confluence of political will, government spending, and a changing financial tide is creating a powerful feedback loop. As Europe forges a new path on security and defense, its industrial base is retooling for an era of heightened uncertainty and increased military preparedness. The challenges are immense—from untangling complex supply chains to finding enough skilled labor—but the direction of travel is clear. The “peace dividend” is over, and Europe’s rearmament is just beginning.
