European Commission President Ursula von der Leyen has unveiled an ambitious defense strategy known as the ReArm Europe Plan, a bold initiative aimed at strengthening Europe’s military capabilities through technological advancements. This plan, which includes an additional €800 million in defense funding, represents a critical step in modernizing European defense systems to address the evolving security landscape. The significance of this investment cannot be overstated, as modern warfare increasingly favors cost-effective, adaptable technologies over traditional, expensive weaponry. A $1,000 drone has the potential to disable a $10 million tank, while a $5 million autonomous naval vessel could effectively challenge a $500 million submarine. These examples illustrate the pressing need for Europe to prioritize defense innovation to remain competitive in an era where technology dictates battlefield success.

Despite the urgency, European defense investments remain significantly lower than those of the United States, particularly in innovation. According to data from Lakeside Ventures, only 4% of European defense budgets are allocated to innovation, compared to 14% in the United States. This disparity is evident in funding for defense startups, as U.S. defense tech companies secured $3.5 billion in investments in 2024, while their European counterparts attracted only $800 million. Such a gap not only places Europe at a technological disadvantage but also limits the growth of domestic defense tech ecosystems, making European nations increasingly dependent on external suppliers for critical military technologies.

To bridge this gap, increased funding must be complemented by institutional reforms that foster innovation. One of the fundamental changes needed is a shift from a project-based procurement system to a product-based approach. Traditionally, European military procurement has relied on highly specific project-based contracts, where governments define precise requirements for defense contractors. While this ensures that immediate operational needs are met, it often results in technological lock-in, preventing newer, more efficient solutions from being developed and adopted.

A product-based procurement strategy, on the other hand, would encourage startups and private-sector firms to develop scalable solutions with both military and civilian applications. This dual-use model allows for faster innovation cycles, reduced costs, and access to alternative revenue streams, making the defense industry more attractive to investors. A notable example of this approach is Portugal’s Tekever, a company producing drones that are deployed in both Ukraine’s military efforts and Nigeria’s search-and-rescue operations. By designing flexible, scalable technologies, Tekever has demonstrated the benefits of a market-driven defense strategy that extends beyond military applications. If European defense agencies prioritize this model, they could stimulate private-sector investment, accelerate the development of new technologies, and build a more resilient defense ecosystem.

Another critical aspect of defense innovation lies in decentralizing military procurement to enable faster adoption of new technologies. In Europe, defense procurement remains highly centralized and bureaucratic, often favoring large, state-owned contractors at the expense of smaller, more agile defense tech firms. While centralization can drive standardization and efficiency—potentially saving $30 billion to $100 billion annually, according to McKinsey—it also stifles innovation by limiting competition and creating long, complex approval processes for new technologies.

A more decentralized approach would allow military units to procure cutting-edge technologies tailored to their immediate needs, much like Ukraine’s brigade-level procurement system. In Ukraine, local military units have the flexibility to test, iterate, and deploy new technologies rapidly, ensuring that forces on the ground receive timely, effective solutions. This model has facilitated the rapid integration of drones, AI-driven surveillance tools, and cyber warfare technologies, proving that decentralization leads to faster innovation cycles and more adaptable defense strategies. If European defense ministries adopt a more flexible, decentralized procurement system, they could empower military units, drive greater efficiency, and create a more dynamic defense technology market.

Beyond procurement reforms, public-private collaboration must be strengthened to ensure that startups and emerging tech firms can successfully enter the defense sector. Unlike the United States, where close cooperation between government agencies, venture capital, and defense tech firms fuels rapid innovation, Europe’s defense ecosystem remains fragmented. Several barriers prevent private-sector firms from engaging in defense innovation, including complex regulatory frameworks, lengthy approval processes, and a lack of financial incentives for venture capital to invest in military technologies.

To address these challenges, European policymakers must create specialized funding programs that facilitate faster adoption of defense technologies. In the United States, the Defense Innovation Unit (DIU) plays a crucial role in bridging the gap between startups and the military, enabling rapid prototyping and procurement. Europe could establish a similar Defense Tech Acceleration Fund, providing grants, equity investments, and streamlined procurement pathways for startups developing AI-powered defense tools, next-generation surveillance systems, and autonomous military hardware.

Additionally, existing NATO innovation initiatives, such as the Defense Innovation Accelerator for the North Atlantic (DIANA) and the NATO Innovation Fund, should be leveraged more effectively to support European defense startups. By reducing regulatory barriers, introducing fast-track approval processes, and providing government-backed investment incentives, Europe can attract more private-sector engagement in defense innovation, fostering a more competitive and self-sufficient military technology sector.

The ReArm Europe Plan represents a significant step toward enhancing Europe’s defense capabilities, but funding alone is not sufficient to ensure success. To build a resilient, technologically advanced military force, Europe must embrace new procurement strategies, decentralized innovation models, and stronger public-private collaboration. By shifting to a product-based procurement approach, empowering local military units with decentralized procurement authority, and removing barriers for private-sector firms, European nations can accelerate defense innovation and reduce reliance on external military technology suppliers.

The future of warfare will be shaped by speed, adaptability, and technological superiority. If European defense leaders seize this opportunity to modernize their approach, they can position Europe as a global leader in defense innovation, capable of addressing emerging threats and securing long-term military readiness.