European Commission President Ursula von der Leyen has recently introduced a significant defense initiative known as the “ReArm Europe Plan,” aimed at strengthening Europe’s military capabilities. This ambitious plan includes an additional defense budget of €800 million, which, if allocated effectively, has the potential to stimulate technological innovation—a critical component of modern warfare. The effectiveness of cost-efficient systems in contemporary conflicts has been widely recognized. For instance, a $1,000 drone can render a $10 million tank inoperative, and a $5 million autonomous naval vessel has the capability to threaten a $500 million submarine. These developments underscore the urgent need for European nations to prioritize defense innovation and modernize their military strategies.
Despite the growing urgency, European countries have historically underinvested in their defense capabilities, particularly when it comes to research and innovation. According to Lakeside Ventures, European governments allocate only 4% of their defense budgets toward innovation, which pales in comparison to the 14% allocated by the United States. The disparity is further reflected in defense technology investments—U.S. defense tech startups attracted $3.5 billion in funding in 2024, while their European counterparts secured just $800 million. This funding gap places Europe at a disadvantage in developing cutting-edge defense technologies and maintaining military competitiveness.
However, innovation within the defense sector cannot rely solely on increased financial investments. Meaningful institutional reforms are equally essential to foster an environment where new technologies can be developed, tested, and deployed effectively. One critical area that requires transformation is the procurement model used by European militaries. Historically, European defense procurement has followed a project-based approach, which involves issuing highly specific requirements—such as “affordable, durable, electrically conductive coatings”—and selecting companies to design tailored solutions. While this approach may fulfill immediate needs, it often results in long-term technology lock-in, limiting flexibility and stifling innovation. The National Bureau of Economic Research has highlighted how rigid procurement methods can slow down technological progress, making it difficult for startups and emerging companies to compete with established defense contractors.
A more effective alternative would be to adopt a product-based strategy, which encourages scalable and adaptable solutions rather than one-off projects. This model enables startups to develop technologies that can be used in both military and civilian markets, ensuring sustainable funding and reducing overall costs. A notable example of this approach is Portugal’s Tekever, which produces drones that are not only utilized for defense operations in Ukraine but also support search-and-rescue missions in Nigeria. This dual-use emphasis allows defense technology to remain cost-effective while accelerating innovation cycles and increasing market viability.
In addition to reforming procurement strategies, another pressing challenge is the highly centralized nature of European military procurement. While centralization can bring certain advantages—such as standardization across military forces—it also results in bureaucratic inefficiencies and heavily favors large, state-owned defense contractors. According to McKinsey, centralized procurement could save Europe between $30 billion and $100 billion annually, but these savings often come at the expense of speed and agility in acquiring new technologies.
An alternative model can be found in Ukraine’s decentralized military procurement system, which has proven to be remarkably effective in fostering rapid innovation. In Ukraine, brigade-level commanders are given the flexibility to procure the technologies they need in real time, allowing for faster adaptation to battlefield conditions. This approach has enabled quick iterations of military technology, with new solutions being developed, tested, and implemented much faster than in traditional procurement models. If Europe were to integrate elements of decentralization into its procurement systems, it could significantly accelerate defense innovation cycles and ensure that its armed forces are better equipped to handle evolving security threats.
The introduction of the ReArm Europe Plan represents an important step toward addressing Europe’s defense challenges, but financial investment alone will not be enough. Structural reforms must accompany increased funding to ensure the rapid development and deployment of new military technologies. By shifting toward a product-based procurement approach, decentralizing certain aspects of the procurement process, and fostering closer collaboration with tech startups, Europe can strengthen its defense capabilities and position itself as a leader in modern warfare technology. These changes will not only enhance military readiness but also create long-term technological advancements that benefit both defense and civilian sectors.