One year after Nato members pledged to significantly increase defence spending, the alliance is now facing a new challenge: ensuring the defence industry can produce enough weapons to match growing military demands.
As leaders of the 32-member alliance prepare to meet in Ankara next week, discussions are expected to focus on converting higher defence budgets into practical military capabilities.
“Cash is crucial, but you can’t stop a missile or a tank with a dollar or a euro,” Nato Secretary General Mark Rutte said.
“We need to turn the cash into combat-ready capabilities, and fast. This is our shared priority.”
Defence spending across Europe and Canada increased by $90 billion last year, but production has struggled to keep pace with demand. At the Ankara summit, leaders are expected to sign defence industry agreements worth billions of dollars during a dedicated industry forum.
The production challenge has been evident since Russia’s invasion of Ukraine exposed Europe’s limited capacity to manufacture ammunition and military equipment quickly enough. More recently, US military operations against Iran have also reduced American stockpiles, highlighting the pressure on defence manufacturers to replenish supplies.
European governments are seeking to strengthen their own defence industries as they work to reduce dependence on the United States amid concerns about Washington’s long-term security commitments and warnings that Russia could pose a broader threat in the coming years.
“We’ve learned how to raise additional funds. We still need to learn how to spend them in an effective way in order to outproduce, out-innovate, outgun Russia,” said EU Defence Commissioner Andrius Kubilius.
Industry representatives say progress is being made after decades of underinvestment.
“Many manufacturers are investing in significantly greater production capacity,” said Camille Grand, secretary general of the European defence industry association ASD.
“But does that mean we’re exactly where we should be? Probably not.”
Analysts warn that Europe could rapidly exhaust critical weapons supplies if a major conflict erupted today.
According to researchers at the European Council on Foreign Relations (ECFR), “In some critical areas, Europe’s current production capacity would be overwhelmed within days.”
They noted that while annual ammunition production has increased from 300,000 artillery shells in 2022 to a target of two million, it would still be insufficient for a prolonged war.
Structural challenges continue to hinder Europe’s defence industry. Although the European Union has introduced several initiatives to strengthen cooperation, the defence market remains fragmented, with member states continuing to prioritise domestic manufacturers.
“In the European Union we have 27 defence markets, 27 sets of rules – and so the defence industry still has many obstacles,” Kubilius said in a recent speech.
Experts also argue that national procurement policies discourage competition and investment. Guntram Wolff, a defence economics specialist at the Bruegel Institute, said governments increasingly favour local defence companies.
He noted that the share of German defence contracts awarded to domestic firms had risen from about 30pc in 2020–2021 to around 60pc in 2025–2026.
Ukraine has emerged as an example of how wartime innovation can rapidly expand military production. Despite enduring years of Russian attacks, the country has developed a large-scale defence manufacturing sector, producing millions of drones.
“European defence industry produces ‘haute couture’ defence products,” Kubilius said.
“Products that are technologically advanced, but difficult to make, expensive and hard to scale up.”
“Ukrainian industry produces weapons for wartime conditions, to perform on the battlefield.”
European defence companies are increasingly partnering with Ukrainian firms to benefit from their battlefield experience, while policymakers are calling for deeper integration of Ukraine’s defence industry into Europe’s security framework.
The ECFR said, “Ukraine’s defence-industrial integration should be treated as a present-day security investment: its battle-tested innovations, from drone warfare to intelligence fusion, are assets Europe needs now.”
