European sovereignty
European strategic autonomy also encompasses defense
In recent years, Europe has placed its strategic autonomy at the center of its concerns with major issues such as the energy transition, digitalization, and securing production chains. In the current context, particularly marked by the war in Ukraine and the strategic repositioning of the United States, Europe is compelled to strengthen its military independence after decades of reducing its defense investments.
Published on 1 July 2025
Many Member States have initiated a turning point in recent years, and this has been reinforced more recently at the European level with the Re-arm Europe plan. This programme, which is due to launch at the beginning of 2025, aims to increase spending in order to close a defense investment gap estimated at €1.8 trillion1 since the end of the Cold War. Ultimately, it will enable Europe to guarantee its own security independently of the United States.
Rearm Europe: financing to match ambitions
Since the Covid crisis, Europe has adopted an 'open' strategy of strategic autonomy, based on initiatives to develop key industrial sectors by establishing alliances in innovative fields such as batteries, hydrogen and essential medicines. However, the financial support offered has remained modest compared to that provided by the United States or China.
Main European industrial plans and amounts allocated
The €800 billion (about 6% of European GDP) Rearm Europe plan is a game-changer, rivalling the post-Covid recovery plan in terms of amount. It also aims to establish increased defense investment as a sustainable norm. Another unprecedented measure is that the European Commission is proposing to relax budgetary rules to facilitate this spending2.
The German budgetary revolution, the driving force behind European plans
After two decades of prudent strategy, in February 2025 Germany adopted a major fiscal plan to significantly increase its defense spending and public investment, including infrastructure spending.
Firstly, a new fiscal rule excludes defense spending above 1% of GDP, including spending on cybersecurity, intelligence and aid to Ukraine, from the debt ceiling. Furthermore, Germany is establishing a €500 billion infrastructure fund, equivalent to 11.26% of its 2024 GDP, to finance education, transport, decarbonisation, housing, and economic resilience.
With stable debt at around 60% of GDP, this plan could boost German and European growth by increasing public spending by an average of 2% of GDP.
Other countries will follow this dynamic. Spain has already indicated that it is increasing its defense budget to reach NATO's target of 2% of GDP, despite being far from achieving it.
A near doubling of European military spending is on the horizon
NATO is expected to set a new military spending target at the end of June 2025: 3.5% of GDP for "core" defense and 1.5% for broader security by 2030. For Europe, this would represent an additional €900 billion, including €270 billion for Germany alone.
The European defense sector is enjoying strong visibility on the stock market, as significant European investment is expected to favour local industry to some extent. In order to meet demand, production capacity will need to be increased rapidly, particularly with regard to land equipment and ammunition. European joint ventures are being established to pool technologies and achieve economies of scale. One example is the joint venture between Rheinmetall (Germany) and Leonardo (Italy) for the manufacture of tanks.
What are the consequences of this dynamic?
Shares in European defense companies outperformed the European market in 2024 and early 2025. We believe that this trend could continue, given that the €150 billion European SAFE lending facility stipulates that at least 65% of spending must be allocated to European products. Faced with rapidly growing demand, the industry must rapidly increase its production capacity.
To promote standardisation, several European companies are forming joint ventures to pool technologies and achieve economies of scale. For instance, Rheinmetall (Germany) and Leonardo (Italy) have formed an equal joint venture to manufacture tanks in response to an Italian order for armoured vehicles valued between 20 and 25 billion euros. Rheinmetall's "Panther" tanks and "Lynx" vehicles will form the basis of this venture. The joint venture also aims to facilitate exports to other partner countries. According to Armin Papperger, CEO of Rheinmetall, this initiative is the first step towards consolidating the European defense sector.
Developing electricity as a lever for sovereignty and decarbonisation
Electrification is essential for decarbonising the European economy and reducing dependence on imported fossil fuels. This process affects not only industry, but also transport, and involves increasing electricity production, including the development of data centres. It also requires the modernisation of ageing electricity networks. In Spain, for instance, substantial investment is planned to update electricity infrastructure in response to rapidly growing demand.
The European data center market is estimated to be worth 13,000 MW by 2024 and is expected to grow by 50% by 2029, driven by the development of artificial intelligence. Spain is aiming to become a major digital hub, thanks to its geographical, energy and technological assets.
Digital sovereignty on the rise
The Chips Act of 2023 aims to double the European market share of semiconductor production by 2030. While the market share has grown from under 10% in 2023 to 13% in 2025, the 20% target remains out of reach. The continent is struggling to attract advanced chip manufacturers and strengthen the entire value chain, prompting calls for a Chips Act 2.0 that places a stronger focus on R&D.
Artificial intelligence is the second pillar of the European Digital Agenda. In response to the US Stargate programme, the EU launched the InvestAI plan in 2025, mobilizing €200 billion to support start-ups, industries, and research. Of this, €20 billion is earmarked for AI Gigafactories, a sector currently dominated by China and the United States.
Conclusion
The challenge of achieving European strategic autonomy will undoubtedly be responding to all these issues while preserving the unity and values of the Union. One key to meeting this challenge is the ability to swiftly turn industrial plans into tangible results. However, the mobilization of several major countries with substantial defense, digital technology and infrastructure budgets and rapid deadlines gives hope that the pace of Europe will accelerate, which is essential to boost growth, preserve jobs and ensure the success of the climate transition.
1. Datastream and Eurostat as of 31/12/2024
2. Possibility of activating the safeguard clause for military spending over the next 4 years up to a limit of 1.5% of GDP.