Russia’s war economy has reached a staggering scale that should alarm every European leader. Between 2022 and 2024, Moscow allocated at least $263 billion to defence outlays — approximately 7% of GDP annually — transforming a massive portion of its economy into a military-industrial complex on a scale that is unprecedented since the Cold War. Meanwhile, China just tightened its grip on rare earth exports, giving Beijing the power to potentially veto European defence production. These aren’t hypothetical threats — they’re today’s reality, and Europe’s response has been far too slow.
The numbers tell a sobering story. While European NATO members collectively spent approximately €343 billion on defence in 2023, this was spread across 27 nations with fragmented procurement systems and slow adoption of emerging technologies. Russia, with an economy smaller than Italy’s, has weaponized its entire industrial base with ruthless efficiency. The asymmetry isn’t just in spending — it’s in speed, focus, and willingness to embrace disruptive innovation.
Europe now faces a critical choice: continue relying on legacy defence contractors operating with decades-old procurement timelines, or rapidly embrace the technological revolution reshaping modern warfare. The evidence from Ukraine is unambiguous: AI-powered drone swarms, autonomous systems, and software-defined platforms are determining battlefield outcomes. Yet European governments remain hesitant to buy from the innovative startups building these capabilities.
The Scale of the Challenge
In our newly published European Resilience Roadmap, we outline why defence technology represents Europe’s single largest growth opportunity and potential path to renewed European prosperity through dual-use innovations, as well as its most critical strategic imperative. European defence spending is projected to grow from €285 billion in 2021 to €970 billion by 2030 — a 3.4x increase driven by NATO’s push toward 3.5% GDP commitments.
But money alone won’t protect Europe. If capital flows primarily to legacy contractors building yesterday’s systems, Europe will remain dangerously exposed. The modern battlefield demands autonomous drone swarms, AI-powered command and control, responsive space-based surveillance, and distributed manufacturing that can operate even under attack.
Consider this contrast: Ukrainian forces operating containerized 3D printing facilities near front lines can design, print, and deploy drone countermeasures within hours. Traditional European defence procurement cycles measure timelines in years, sometimes decades. This disconnect isn’t just inefficient, it’s strategically dangerous.
Breaking Critical Dependencies
China’s recent export restrictions on rare earth elements expose another vulnerability. Beijing controls approximately 90% of global rare earth magnet production — materials essential for commercial technologies such as iPhones, medical equipment, MRI machines and electric vehicles but also for defence use cases including fighter jets (the F-35 contains over 400kg and a Virginia class submarine requires more than 4,000kg) and electronic warfare systems. Left unchecked, China’s new restrictions will almost certainly slow U.S. and European defence production within months.
Europe’s over-reliance on Chinese manufacturing and American defence technology has created dual dependencies that undermine strategic autonomy. Breaking these requires massive investment in advanced industrial manufacturing, from additive manufacturing facilities operating in combat zones to autonomous factories capable of 24/7 production surges.
European founders are already building solutions, with companies like SAEKI in Switzerland pioneering on-demand additive manufacturing, or Germany’s RobCo providing modular robotic systems. But they need government customers willing to buy at speed and scale.
Learning from America
The United States spends approximately $877 billion annually on defence, more than the next nine countries combined. American defence technology companies benefit from the Department of War as an anchor customer willing to take risks on innovative startups through programs like Small Business Innovation Research (SBIR).
Europe cannot match U.S. spending dollar-for-dollar. But it must match America’s willingness to embrace innovation. The most successful European defence companies will serve both European governments and the Department of Defense (DoD), leveraging transatlantic partnerships. Our portfolio company Auterion demonstrates this: founded by Europeans, deployed in Ukraine, scaling globally through partnerships with both European and American contractors.
Five Critical Domains
As we detail in our European Resilience Roadmap, five technology domains will determine Europe’s defence future: physical autonomy across air, land, and sea; aerial defence; AI-powered command and control; space sovereignty; and advanced industrial manufacturing. European startups are innovating across all five — from ICEYE’s all-weather surveillance satellites to cost-effective aerial defense systems from Cambridge Aerospace and Tytan Technologies to ARX Robotics’ modular ground robots.
What Governments Must Do
European nations must fundamentally reform defence procurement:
- Accelerate timelines from years to months for proven technologies
- Create SBIR-equivalent programs providing non-dilutive R&D funding
- Enable cross-border procurement so innovations scale across NATO allies
- Mandate interoperability standards ensuring systems work together
- Reserve budgets specifically for non-traditional defence companies
Most critically, governments must recognize that innovation increasingly comes from unexpected places — companies that started in commercial markets and bring fundamentally different approaches than legacy contractors.
The Bottom Line
Russia has restructured its entire economy for sustained military production. China controls critical materials essential for modern defence. The United States maintains overwhelming technological superiority but with increasingly unpredictable commitments. Europe can no longer afford to outsource its security or delay embracing the innovation revolution reshaping warfare.
The companies being founded today will define Europe’s defence capabilities for 30 years. At Bessemer, we’re backing European defence innovators for the long term, connecting them to global markets, and providing patient capital. The question is whether European governments will match that commitment with procurement reform and the urgency this moment demands.
The defence innovation race is already under way. Europe needs to start running.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
