European Defence Spending: What It Means for Overseas Suppliers

European defence budgets have changed more in the last three years than in the previous twenty. For the first time in NATO's history, all 32 member states are now spending at least 2% of GDP on defence (NATO Annual Report, March 2026). The NATO-wide average has reached 2.76%. A decade ago, only three countries met the target.

If you sell into European defence, or are thinking about it, here is what you need to know.

The numbers

EU member states' defence spending has nearly doubled in real terms over the past decade, rising from EUR 188.5 billion in 2014 to an estimated EUR 381 billion in 2025 (EU Council, 2026). European allies and Canada collectively invested USD 574 billion in defence in 2025, a 20% real-terms increase over the previous year (NATO Annual Report 2025).

The biggest individual stories are Germany and Poland.

Germany's 2026 defence budget totals approximately EUR 108 billion when you combine the core budget (EUR 82.69 billion) with spending from the Sondervermogen special fund (EUR 25.5 billion). That fund, the EUR 100 billion one-off commitment announced in Chancellor Scholz's 2022 Zeitenwende speech, will be fully exhausted by 2027. But the path forward is secured: Germany has exempted defence spending from its constitutional debt brake and plans to reach 3.5% of GDP by 2029, which would take annual spending to approximately EUR 152 billion (Defence News, June 2025).

Poland is spending 4.48% of GDP on defence, the highest ratio in NATO, with a 2026 budget of approximately EUR 46.6 billion (Notes From Poland, August 2025). More than half of that is earmarked for new equipment. The scale of procurement is remarkable: 1,000 K2 tanks from South Korea, 250 Abrams from the US, 500 HIMARS launchers, 32 F-35 fighters, and approximately 96 Apache attack helicopters, among others.

The UK has committed to 2.5% of GDP from April 2027, three years ahead of the previous timeline (GOV.UK, June 2025). France is working through a EUR 413 billion military programming law covering 2024-2030. Italy crossed the 2% threshold in 2025 for the first time, although that relied on reclassifying some spending categories.

The Nordics are moving fast. Sweden is targeting 3.5% of GDP by 2030 (Breaking Defense, March 2025). Denmark created a DKK 50 billion acceleration fund to push above 3% immediately (Danish MoD, February 2025). Finland is targeting 3% by 2029. Norway, including its Nansen Ukraine programme, is already at 3.35%.

The numbers are significant. But what matters more is where the money is going.

Where the money is going

Three areas are absorbing the bulk of new spending: ammunition and munitions, land systems, and air defence. Each is creating supply chain demand that existing European capacity cannot fully meet.

Ammunition. Europe's 155mm shell production was approximately 300,000 rounds per year in early 2022. The target is now 2 million rounds annually. Rheinmetall alone is building a factory network across Germany, Lithuania, Bulgaria, and Hungary targeting 1.1 million shells per year by 2027 (Euro SD, January 2025). BAE Systems has achieved a sixteen-fold increase in 155mm production capacity at its Welsh facilities (UK Defence Journal, 2025). Poland is investing over USD 600 million through PGZ to build three new ammunition factories. France has restarted propellant production at Eurenco in Bergerac, having halted domestic manufacture in 2007. The bottleneck is not just shells. It is raw materials: TNT, RDX, and nitrocellulose are in short supply across the continent.

Land systems. KNDS has secured approximately 350 Leopard 2A8 orders from five NATO countries (The Defense Post, December 2025). Italy has committed to 1,050 Lynx IFVs and up to 380 KF51 Panther tanks through joint ventures with Rheinmetall, valued at approximately EUR 26 billion combined (Army Recognition, 2025). Germany and the Netherlands signed a EUR 4.5 billion joint order for 270 Boxer SCHAKAL IFVs. Poland continues to procure at pace, with over 130 contracts worth EUR 35.2 billion signed in 2024 alone.

Air defence. The European Sky Shield Initiative now has 24 member states (The Defense Post, April 2026). Diehl Defence's IRIS-T SLM has contracts from eight European nations totalling over EUR 3.6 billion (Norsk Luftvern, December 2025). Germany took delivery of its first Arrow 3 ballistic missile defence system from Israel in December 2025 under a deal worth USD 6.6 billion. Denmark signed a EUR 500 million NASAMS contract with Kongsberg.

Combat aircraft programmes are progressing, though with mixed fortunes. GCAP (UK, Italy, Japan) is moving forward with a GBP 686 million bridge contract awarded to the Edgewing joint venture in April 2026 (Defence News, April 2026). FCAS/SCAF (France, Germany, Spain) is in difficulty, with a workshare dispute between Dassault and German industry that may see the fighter element cancelled while the combat cloud continues. The F-35 remains the default choice for many European buyers, with 13 countries now operating or on order.

What this means if you are an overseas supplier

The spending is real and the demand is genuine. But accessing this market is not straightforward.

Supply chains are stretched. European primes are scaling production faster than their supply chains can follow. Rheinmetall is investing EUR 500 million in a single ammunition plant in Germany. Across the continent, there is a shortage of 150,000 to 200,000 skilled workers in defence manufacturing. Raw materials for ammunition production are in short supply. Primes need qualified external suppliers. The question is whether they can bring them in under the current rules.

The EU is pulling in two directions. On one side, there is urgent demand for more production capacity. On the other, there is a strong political push for European industrial sovereignty. The European Defence Industrial Programme (EDIP), adopted in December 2025, caps non-EU component content at 35% for projects receiving EU funding (CMS Law, 2025). It also requires that beneficiaries maintain design autonomy, which is a direct response to concerns about ITAR restrictions on European freedom to modify or re-export US-origin components.

In practice, this means US or other non-EU suppliers cannot be direct beneficiaries of EDIP grants without an EU-based subsidiary. They can participate as subcontractors within the 35% band, but only where a contractual relationship existed before the regulation took effect.

Germany has gone further. Its Bundeswehr Procurement Acceleration Act, in force since February 2026, explicitly allows contracting authorities to exclude non-EU suppliers without justification through to 2035 (Hogan Lovells, 2026).

Offsets are widespread. Most European countries require industrial participation or offset arrangements for defence procurements above defined thresholds. Poland requires teaming with PGZ. Romania mandates industrial cooperation. Norway requires industrial cooperation above NOK 50 million. Lithuania has a 30% offset rule. These are not optional. They shape how you enter the market and who you need to work with.

ITAR is the elephant in the room. If your products contain ITAR-controlled components, European buyers are increasingly cautious. Several recent tenders have explicitly specified "ITAR-free" requirements. The AUKUS ITAR exemption (effective December 2025) covers the UK and Australia only. For the rest of Europe, the constraint remains. This does not mean ITAR-controlled products cannot be sold in Europe. It means the conversation needs to happen early, and the compliance pathway needs to be clear before procurement teams will engage.

None of this means the door is closed. Poland is actively welcoming US suppliers, with Defence News describing the country as "rolling out the red carpet for US tech firms." South Korea has won billions in European orders for K2 tanks and K9 howitzers. Israel's Arrow 3 is now operational in Germany. Non-European companies are winning contracts, but increasingly through joint ventures, partnerships, and local production arrangements rather than direct exports.

How to get started

If you are considering the European defence market, the most important thing is to start the conversation early. Defence procurement is not fast. First conversations to first contract is typically 12 to 24 months, sometimes longer. Qualification requirements, offset negotiations, and security clearances all take time.

Trade shows are the best way to begin. Eurosatory (Paris, 15-19 June 2026) and ILA Berlin (10-14 June 2026) are back to back in June this year. Farnborough (20-24 July 2026) follows shortly after. MSPO Kielce (8-11 September 2026) is the key Central European defence show. DSEI returns to London in September 2027.

Local presence matters. European defence buyers expect to work with people who understand their market, speak their language (often literally), and can attend meetings in European time zones. Whether that means hiring locally, partnering with a European firm, or working with a representative, the principle is the same: you need someone on the ground.

The European defence market is larger, better-funded, and more active than it has been in a generation. The opportunity is real. But it rewards preparation, patience, and the willingness to build relationships before expecting results.

If you would like to discuss European defence market entry, get in touch. You can also read more about our European defence coverage, or explore our country guides for Germany, France, the UK, Poland, Romania, Italy, Turkey, and Spain.