In December, the UScalled on its NATO allies to spend 5 percentof their GDP on defense. Whether 5 percent is the magic number is up for debate — last year, the US spent 3.4 percent on defense.
But what’s clear is that Europe should boost its defense spending.
The EU’s top diplomat,Kaja Kallas,said as muchin a speech to the European Defense Agency earlier this year. UK Prime MinisterKeir Starmerraided the foreign aid budget to nudgespending up to 2.6 percent. And last month, Germany’s new chancellor,Friedrich Merz, secured a billion-euro deal toboost the country’s military and infrastructure.
But without bold reform, this money risks propping up a system already under strain — slow, fragmented, and ill-suited to modern warfare.
Legacy Players, Legacy Problems
Defense remains a world dominated by legacy prime contractors who are largely insulated from competition, risk-averse, and slow. Civil servants hand contracts to these firms because there’s little alternative, locking in unconstrained costs, poor contract terms, and support packages that tie up budgets for decades.
In Europe, startups are too often overlooked, while the monopoly is perpetuated.
Another blocker is venture capital’s long-standing aversion to defense investments, often written into their Limited Partner agreements that govern how investors’ money can be used.
This hesitance might have been sustainable during decades of peace in Europe. Today, it’s dangerously out of date. Technological innovation has always shaped warfare — and Ukraine is proving it again.
Speed Wins Wars — and Innovation Fuels Speed
The innovation loop has accelerated from years to months, and now weeks or days. Drone design and manufacturing have evolved dramatically since 2022. Agile startups are iterating directly from the battlefield, adding counter-measures, counter-counter-measures, and new innovations to stay ahead.
Meanwhile, factories and supply chains have moved underground — into basements and converted supermarkets — to protect and maintain production.
Europe should not wait for crisis to force its hand. It should adopt these lessons now: grow innovation budgets, funnel capital into young companies, and protect them from being swallowed up in IP capture acquisitions — deals where large defense primes buy smaller startups, not to scale their products, but to control or shelve their intellectual property.
Defense sectors must catalyze, curate, and capitalize on this fledgling innovation ecosystem or it will die with the ceasefire.
Big Programs Need to Innovate, Too
Prime contractors have a role to play, but they must change too.
Countries across Europe must collaborate far more on defense equipment, services, and supplies. Carving up projects by nation is deeply inefficient, often delivering mediocre solutions where workshare outweighs combat capability. Europe’s collective purchasing power should drive better deals, secure efficiencies, and enhance interoperability.
A clear opportunity lies in the continent’s sixth-generation fighter programs, where two rival designs would be the worst possible outcome.
The alternative is to converge around a single platform, secure a 600+ order book, and compete toe-to-toe withBoeing’s F-47equivalent on the global stage. Governments can make this happen, but only if Airbus, BAE Systems, Dassault, and Leonardo stop looking inward.
Previous pan-European programs had challenges, but Europe no longer has the luxury of duplication and overlap. Now is the time for strategic convergence and innovation at scale — driving smarter investment that delivers more capability, faster, with better returns.
Breaking Down Barriers for Startups
Part of this transformation means breaking down barriers for small, innovative companies. Governments must create procurement environments that are transparent, competitive, and open to non-traditional players.
That means investing more in R&D, removing bureaucracy, planning for technical failures along the way, and accelerating the system overall.
To harness innovation andapply Ukraine’s lessons, governments must reform acquisition systems. And investors must overcome their queasiness about defense.
Prosperity cannot thrive without security. Ukraine is proof of that. Defense investment should sit at the top of the environmental, social, and governance principles that guide responsible investing, not the bottom. This would drive benefits across sectors, from connectivity and sustainability to disaster response, agriculture, and beyond.
Space is a perfect example. Space-based capabilities underpin almost everything on Earth, including defense. A strong defense sector means a strong space sector. And a strong space sector means a strong economy.
Building Sovereign Capability
None of this is to suggest Europe should turn its back on transatlantic cooperation. Far from it. Many European companies — in photonics, synthetic aperture radar, Earth observation, and more — are already strengthening US defense while building local capabilities.
But Europe’s first priority must be building more sovereign capability.
To do that, Europe must think like an investor: long-term, data-driven, focused, and willing to back high-upside bets.
That means moving away from cost-plus contracting and toward milestone-based funding models that reward delivery, not delay. It means backing speed, creativity, and performance over pedigree or politics.
Some will resist this shift. Europe is rightly proud of its culture of peace. But the best guarantee of peace is the ability to defend it.
And defense, at its core, demands innovation — not inertia.
Bogdan Gogulan is the CEO and Managing Partner of NewSpace Capital, one of the world’s first space-focused growth funds.
Bogdan has had a previous career in the military, where he gained insight into the crucial role of satellite technology in modern warfare.
Air Marshal Andrew Turner (CB CBE) is a member of the Industry Advisory Board at NewSpace Capital.
He is a former Deputy Commander of the UK Royal Air Force and was involved in the creation of the UK Space Command.
The views and opinions expressed here are those of the author and do not necessarily reflect the editorial position of The Defense Post.
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