Learning from strategic autonomy: how European defense adapts to geopolitical tensions

The question posed by the round table organized at the Economic, Social and Environmental Council, in the context of the 14th edition of the Spring of the Economy, on Friday, March 20th is, “Is defense spending a burden or an asset for the European economy?”

Since the outbreak of the war in Ukraine in 2022, European countries have increased their military budgets. This includes France, where defense spending has escaped the budget freeze observed in recent years, as highlighted by Dorothée Rouzet, chief economist at the Directorate General of the Treasury.

The defense budget for 2026 is 57 billion euros, slightly over 2% of the GDP, an increase of 13% compared to 2025. The goal is to reach 2.6% of the GDP by 2030, the year the Military Programming Law ends, voted on in 2024.

The increase in public credits for defense is common in Europe, notably in Germany. This movement marks a deeper break with the budget choices of past decades.

It signifies the end of a post-Cold War era where defense acted as a “variable adjustment” in budget choices, with closure of barracks or the end of military service in France, relegated to the background in favor of other priorities, especially European ones.

However, with the context of relations with the United States since Donald Trump’s return to the White House, European states are accelerating the increase in their military budgets.

Last year, at the NATO summit in The Hague, it was decided that alliance countries should spend not the standard 2% of GDP, as had been the case for twenty years, but 3.5% of GDP, or even 5% if other expenses for civilian defense are included, says Julien Malizard, holder of the Defense Economy Chair at the Institute of Advanced National Defense Studies.

A level that corresponds to what France achieved during the Cold War. However, no European country, “except the Baltic countries and Poland,” has reached this level at present.

Europe is thus engaged in a rapid catching-up. It is “the region of the world where military expenditures are increasing most rapidly,” affirms Julien Malizard, citing the Swedish think tank SIPRI, specializing in armament issues.

Nevertheless, in a context of high public deficit, as is the case in France, the question of reducing other public expenses arises. “This is a matter of political choices, of political courage,” indicates Dorothée Rouzet, who also believes that margins need to be freed up by rationalizing expenses.

Regarding budgets and orders: the test of European autonomy

Beyond budgets, the question now is about concrete outcomes for the industry. Does the public shift, favorable to the defense sector, translate into tangible benefits for companies and employment?

Some firms in the sector, specializing in the manufacture of ammunition, have seen their order books significantly increase in recent years, driven by public demand, both abroad and in France, the world’s second-largest arms exporter in 2024.

However, for SMEs and ETIs, these additional orders are not yet systematic. The lack of concrete impacts from public orders still hinders hiring and access to financing.

This is the case for Factem, a Normandy-based SME with 70 employees specializing in the manufacture of microphones, headsets, radio suits, and helmets for the armed forces. “Until 2025, financing was complicated. Financial institutions had classified defense as a sector to avoid. Since a year, the situation has changed. Everyone is convinced that investing in defense is profitable over several years,” explains Alain Dulac, the company’s CEO.

Despite this delay, the CEO is not worried about employment: as soon as the order books fill up, recruitments will come, even if a training period will be necessary, he estimates.

For the CEO of Factem, the “real problem” lies in the supply of raw materials, especially rare earths and magnets from China. “The essential thing today is to be autonomous on a European scale to have access to these resources,” he insists. This dependence, according to him, raises the issue of re-industrialization in France and Europe.

This necessitates enhanced cooperation among European countries to produce and equip each other. A way to limit reliance on the United States, as some countries, like Denmark, continue to purchase their military equipment from there.