To decouple from the United States and

# Source: Wall Street Insights

By Yang Chen

Europe is accelerating the rebuilding of its military-industrial complex to reduce dependence on the United States. Analysts believe that although Europe has now surpassed the US in artillery and tank production capacity, it still remains heavily reliant on the US in critical fields such as stealth fighter jets, long-range missiles and satellite intelligence. To completely replace US military capabilities, Europe would need to invest approximately $1 trillion.

Faced with threats from Russia and disagreements with the US, Europe is speeding up the reconstruction of its defense industry to achieve military independence. However, analysts point out that Europe currently relies heavily on the US for key equipment including stealth fighters, long-range missiles and satellite intelligence. A full replacement of US military capabilities would require an investment of around $1 trillion from Europe.

US President Trump’s recent remarks about acquiring Greenland are prompting NATO countries to re-examine whether Europe can independently produce sufficient weapons to fight on its own. Data from the International Institute for Strategic Studies (IISS) shows that the cost for Europe to replace US military equipment and personnel would amount to roughly $1 trillion.

The surge in European defense spending is driving this process. According to estimates by Bernstein analysts, European defense expenditure reached approximately $560 billion last year, double the level of a decade ago. By 2035, its equipment spending will account for 80% of that of the Pentagon, compared with less than 30% in 2019.

If this shift continues, it could impact the US defense industry. Data from UK research firm Agency Partners indicates that the European market accounts for 10% of US defense manufacturers’ revenues.

## Capacity Expansion Accelerates

European defense contractors are expanding production at the fastest pace in decades. Rheinmetall of Germany has opened or is building 16 new factories since Russia’s invasion of Ukraine in February 2022.

Leonardo, Italy’s defense giant, has increased its workforce by nearly half to 64,000 employees over the past two years and more.

By the spring of last year, MBDA, Europe’s largest missile manufacturer, had boosted its monthly production of the short-range Mistral air defense missiles from 10 units before the Ukraine war to 40 units, while its anti-tank missile output doubled to 40 units per month.

In certain areas, European production capacity has already overtaken that of the US. Rheinmetall produces 1.5 million 155mm artillery shells annually, exceeding the combined output of the entire US defense industry.

Europe has almost complete self-sufficiency in the supply of armored vehicles, with Germany’s Leopard tanks being the most popular tank model globally. The region also independently manufactures all its warships and submarines, which enjoy higher global sales than their US counterparts.

Clemens Kürten, CEO of Munich-based Twentyfour Industries, founded a company selling drones to European militaries in late 2024. Within a year, the company has sold hundreds of devices. He stated that this rapid launch was made possible by European investors now being willing to fund defense enterprises, talent being ready to join the sector, and accelerated government procurement.

## Key Gaps Remain

Despite the progress, Europe still faces gaps in certain critical equipment. The continent faces numerous challenges in developing indigenous stealth fighter jets. Multiple European countries rely on purchasing F-35 fighter jets from the US to maintain their fleet sizes.

Europe lags behind the US in satellite intelligence, and the cloud computing required for battlefield data management is mainly dependent on US companies.

Meanwhile, although Germany invented ballistic missiles more than 80 years ago, Europe has almost no production capacity for such key weapons or other types of ultra-long-range missiles. US long-range missile defense systems remain the preferred choice for European nations.

Roberto Cingolani, CEO of Leonardo, stated that the obstacle to rapid rearmament lies in fragmentation. "Every country wants to have its own tanks, aircraft and warships. This dispersion in investment, research and development, and procurement is certainly not conducive to Europe’s rearmament efforts," he said in an interview.

## Strategic Shift Emerging

There are signs that some European countries have begun to choose indigenous weapons over US-made alternatives. Between 2020 and 2024, 79% of Denmark’s defense imports came from the US. Last year, as Trump increased pressure on Denmark over the sale of Greenland, more than half of Denmark’s weapons procurement came from Europe.

Several European countries are working to address their shortcomings. The UK recently established its own military satellite system, having previously relied on the US. Other European countries are also increasing their space deployments. French President Emmanuel Macron recently stated that two-thirds of Ukraine’s satellite intelligence now comes from France.

Matthew Savill, Director of the Royal United Services Institute (RUSI) think tank, said that Europe can arm itself but it will still take time. Pieter Wezeman of the Stockholm International Peace Research Institute (SIPRI) noted that the watershed moment for Europe’s decoupling from the US has not yet arrived. However, the substantial increase in military spending and the renewed focus on research and development are bringing the capability for independent operations increasingly closer.

At the same time, these marginal changes are not insignificant for US defense contractors. Agency Partners pointed out that Europe can contribute up to 10% of US defense manufacturers’ revenues. If Europe continues to raise the proportion of domestic supply, the market space for US companies in Europe will be squeezed.

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