Executive Summary

• Recent global conflicts in Ukraine and Iran have revealed key weaknesses in NATO’s defense industrial base.
  • Russia’s war in Ukraine and the war in Iran have shown how the modern battlefield has evolved toward autonomy, electronic warfare, real-time data fusion, and rapid integration, while much of NATO’s defense architecture remains rooted in slow procurement cycles and legacy platforms.
• Europe’s surge in defense spending represents a once-in-a-generation strategic opportunity to restore deterrence and improve real fighting power.
  • Political will and financial resources are finally aligned, but without a modernized investment strategy, new funding risks entrenching outdated force structures rather than delivering real deterrence in a new age of conflict.
  • Lessons from Ukraine and Iran demonstrate that NATO allies can no longer rely solely on conventional, centralized force structures to counter adversaries using decentralized and autonomous systems.
• Emerging technologies are central to improving defense capabilities and achieving superiority in future combat.
  • Multinational organizations that integrate existing capabilities with emerging systems such as autonomous platforms, artificial intelligence, hypersonics, resilient communications, cyber and electronic warfare, advanced manufacturing, layered air and missile defense, resilient space-based assets, and multidomain sensing will determine battlefield advantage across land, sea, air, space, and cyber domains.
  • Intensifying the adoption of AI-enabled defense production systems is essential to optimizing the allied defense industrial base for the modern era of conflict.
• European security depends in large measure on the rapid transformation of the European Defence Technological and Industrial Base (EDTIB) to produce and integrate capabilities at scale with an emphasis on: 
  • Institutionalizing interoperable multidomain systems and logistical nodes.
  • Modernizing manufacturing and developing production-surge capacity.
  • Building cross-alliance, interoperable digital infrastructure.
  • Scaling autonomous and uncrewed systems.
  • Building undersea and critical-infrastructure defense technologies.
• To drive Europe’s defense modernization, it will be essential to mobilize private capital by:
  • Streamlining export controls and innovation sharing with trusted partners.
  • Scaling joint defense-tech research consortia and testbeds anchored in NATO.
  • Reforming regulatory and environmental, social, and governmental (ESG) barriers to unlock venture and private-equity investment
  • Institutionalizing rapid public-private acquisition partnerships across the European Union
  • Reforming regulatory and environmental, social, and governmental (ESG) barriers to unlock venture and private-equity investment
• Learn from Ukraine as Europe’s most adaptive and combat-proven defense innovation ecosystem
  • Ukraine’s rapid prototyping, battlefield-driven design cycles, and low-cost scalable technologies offer allies a living laboratory for next-generation deterrence and force modernization.
• Allies must shift their mindset: Ukraine is no longer a perpetual aid recipient — it is a valuable net contributor to allied security and therefore should be integrated into NATO’s force-planning, logistics, and procurement systems.

Introduction

Russia’s full-scale invasion of Ukraine, now in its fifth year, has exposed not only the abject brutality brought about by a new age of warfare, but also key structural weaknesses in the defense industrial base of Ukraine’s most essential partners. While Ukrainian forces have adapted to this new age at unprecedented speed — integrating drones, electronic warfare, autonomous systems, and real-time battlefield innovation into its defense architecture — Europe’s defense ecosystem remains modest in capacity due to decades of reliance on the US. These capabilities are playing a critical role in the Middle East following the US bombing of Iran.

As the US deprioritizes its engagement in Europe, Ukraine’s defense will hinge largely on Europe’s long-term security guarantees and ability to scale up the European defense technological and industrial base (EDTIB) for a new dawn of modern conflict.

The difficult reality is that Europe is attempting to support a high-intensity war effort with an industrial base that is unprepared for the scale and speed that Ukraine’s — and by extension, Europe’s — defense necessitates. The result is a strategic mismatch: a 21st-century battlefield being supplied by a 20th-century defense architecture. European investment remains disproportionately weighted toward traditional defense domains and slow-moving acquisition frameworks, leaving critical innovation and capacity gaps that adversaries are racing to exploit.

Artillery, long-range precision strikes, and layered air and missile defense are still the backbone of battlefield supremacy and deterrence, and allies must continue scaling up manufacturing of traditional weapons and ammunition. Nevertheless, security and deterrence in the coming decade will not be determined solely by legacy platforms, but by dominance in emerging defense tech such as autonomous weapons systems, surveillance and defense systems, cyber and electronic warfare, resilient communications, and rapid manufacturing at scale.

Even the US, for all its might and military prowess, is learning this lesson the hard way in Iran. The war there has underscored a central reality of modern conflict: The proliferation of low-cost, highly scalable autonomous systems has fundamentally altered the economics of warfare — even for the world’s strongest military powers. Iran and its proxies have demonstrated an ability to deploy inexpensive drones at scale, forcing the US to respond with vastly more expensive conventional interceptors and air defense systems. This is not a sustainable exchange ratio, and malign actors across the globe are taking notice.

The cost ratio, however, is only part of the problem. US responses to attacks from Iran and its proxies are straining finite stockpiles of high-end munitions and air defense interceptors that are also critical to Ukraine’s ongoing defense against Russia. The reliance on conventional weapons systems is generating novel questions of strategic prioritization across theaters. This reinforces the urgency of shifting toward more sustainable solutions. Absent this shift, the US and its allies will continue to face zero-sum tradeoffs among theaters.

Meanwhile, Russia’s war and China’s parallel military modernization are also already reshaping the character of modern conflict. From the Black Sea to the Arctic, contested domains are expanding into undersea infrastructure, polar routes, space-enabled targeting, and persistent drone swarms. The Baltic Sea’s seabed, Arctic shipping lanes, energy corridors, and digital infrastructure have become frontline security assets. Rapid investment in next-generation detection, autonomy, and resilience technologies is essential for Europe to reestablish deterrence amid evolving threats, both traditional and hybrid.

At the same time, unprecedented sums are finally being unlocked for European defense. National defense budget commitments are rising with creative new EU and NATO initiatives in support. Overall, political momentum for allied rearmament is stronger than at any point since the Cold War. The strategic question is no longer whether European nations will spend more, but whether they will spend wisely and in a coordinated manner. The future of European security will depend on whether the Continent can transform innovation into sustained production, integrate private capital at scale, and build a joint multidomain interoperable capability that will deter and, if necessary, defeat adversaries in conflict.

Toward Future-Capable Defense

Europe’s historic commitment to increase defense spending creates a strategic inflection point. For the first time in decades, political will and financial resources are aligning around the need to rebuild credible European defense capabilities. But absent a clear investment strategy oriented toward the realities of modern warfare, this influx of funding risks reinforcing outdated force structures rather than delivering future-capable security. The core challenge for European policymakers is no longer simply to spend more, but to channel new resources into interoperable multidomain capabilities that will provide battlefield advantage and thereby deter adversaries in the coming decades.

In aid of building a future-capable allied defense force, CEPA’s International Leadership Council recommends the following:

1. Europe must institutionalize interoperability across platforms, data, logistics, and command architectures.

Allied procurement must have common technical standards and shared data frameworks so that platforms purchased by individual nations can seamlessly communicate, fuse intelligence, and plug into joint command-and-control systems from day one. Interoperability should extend beyond equipment to software, telemetry, targeting data, logistics, and battlefield management systems. NATO and the EU should jointly certify interoperable systems, mandate data compatibility in major defense acquisitions, and fund shared digital infrastructure to ensure that Europe’s expanding force structure functions as a unified, networked warfighting ecosystem rather than a patchwork of national capabilities.

Europe must also invest in resilient and secure networks capable of delivering real-time situational awareness across domains. A common operational picture that integrates sensor data, targeting information, and battlefield telemetry is essential to making quicker decisions and enabling coordinated action at scale. Interoperability must be matched by integrated logistics and sustainment planning. Europe should harmonize supply chains, maintenance systems, munitions stockpiles, and transportation infrastructure so forces can be reinforced, resupplied, and repaired rapidly across borders. This would ensure that fragmented national logistics systems do not bog down operations.

2. Europe must invest in rapid manufacturing capacity and cross-border industrial integration.

The war has revealed that stockpiles alone cannot sustain high-intensity conflict. Credible deterrence requires flexible production lines and the ability to surge output quickly as battlefield demands evolve. Europe’s capacity to scale defense manufacturing is hampered by industrial constraints — supply shortages in microelectronics, production delays in propellants and solid rocket motors, dependencies on imported rare earths and critical minerals, and skilled labor shortages. Addressing these constraints must become a strategic priority for European governments, requiring coordinated investment in supply chains, workforce development, and industrial capacity to ensure that defense production can expand rapidly and at scale.

Governments should favor common standards, joint procurement frameworks, and multiyear production contracts that provide predictability for allied states and private investors while enabling scale in times of crisis. Multiyear commitments are particularly critical, as surge production requires predictable procurement targets that inform industry expansion of production lines, investments in tooling, and attraction of capital. Full industrial unification is no small task and will take years to build out. Allies can jump-start this process with domain-specific consortia in the immediate term. Some essential domains that can serve as the bedrock for a unified and integrated European defense-industrial complex include:

• Artillery and munitions production
• Large-scale drone and autonomous systems manufacturing
• Electronic warfare and secure communications development
• Missile and rocket motor manufacturing

To ensure surge capacity is credible, Europe should also establish a defense mobilization framework that enables emergency fast-track procurement authorities, coordinated stockpiling of critical materials, priority access to energy and infrastructure for defense production, and predesignated dual-use industrial conversion pathways during crises. These measures should be complemented by coordinated initiatives to tool up and expand the defense workforce and secure access to critical materials such as energetics, rare earth elements, aerospace-grade materials, and advanced microelectronics.

Artificial intelligence also has a critical role to play in overcoming Europe’s industrial constraints. AI-enabled manufacturing systems can optimize production lines, forecast supply bottlenecks, automate quality control, and accelerate design and testing cycles, allowing defense firms to produce more rapidly and efficiently. Integrating AI across logistics, procurement, and industrial planning would also help governments and industry better anticipate demand, manage inventories, and coordinate production across borders.

Allies must also work to create capability requirements and set procurement standards to establish an interoperable joint multidomain force. NATO is already doing much of this work, both through institutions like the NATO Innovation Fund and the Defence Innovation Accelerator for the North Atlantic and by laying out capability requirements in regional defense plans. NATO’s Rapid Adoption Action Plan further reinforces this effort by more quickly putting emerging technologies to use, shortening the timeline between innovation and deployment across the alliance. Bridging innovation and deployment in this way is essential to ensuring that emerging technologies deliver real operational advantage at the speed required for modern conflict. To this end, the EU’s growing role in defense planning will make it a valuable partner in establishing common procurement standards and requirements.

3. Europe must invest in interoperable, NATO-wide digital infrastructure.

Future military power will depend not only on platforms and industrial capacity, but also on the digital infrastructure and advanced technologies that underpin them.

Defense manufacturing itself is becoming an increasingly attractive target for cyber espionage and disruption. Adversaries have already demonstrated the ability to penetrate industrial control systems, compromise supply chains, and exfiltrate sensitive technical data from defense contractors. Governments and industry must therefore treat cyber resilience within the defense industrial base as a strategic priority, hardening industrial networks, securing operational technology environments, and integrating cyber defense standards.

At the same time, China’s rapid emergence as a global technology leader poses a long-term strategic challenge for the alliance. Beijing has invested heavily in artificial intelligence, quantum computing, advanced semiconductors, telecommunications infrastructure, and autonomous systems — fields that will shape both civilian economic power and future military advantage. While Europe has historically lagged in scaling these technologies, the current wave of defense investment offers an opportunity to close the gap by aligning research, industry, and procurement around next-generation capabilities. Strengthening Europe’s innovation ecosystem will be essential to ensuring that critical technologies remain in the hands of trusted allies.

Europe’s growing emphasis on sovereignty in technology and defense, meanwhile, must be carefully balanced with allied cohesion. Sovereignty is not security. Efforts across Europe to close capability gaps and build state capacity are both necessary and overdue, but if pursued in isolation they risk fragmenting the very interoperability that underpins NATO’s collective strength. Sovereignty should not be defined as autonomy from allies, but as the ability to contribute more effectively within the alliance. The priority, therefore, must be to develop European capabilities in ways that reinforce cross-alliance integration — ensuring that investments in emerging technologies, digital infrastructure, and industrial capacity enhance, rather than erode, shared standards, joint operations, and collective deterrence.

4. Europe must prioritize autonomous and uncrewed systems across air, sea, and land domains.

Ukraine’s experience, as well as the US’s in Iran, has demonstrated that low-cost drones and autonomous strike platforms can impose disproportionate costs on adversaries while delivering persistent intelligence, precision strikes, and rapid adaptation at scale. These systems now sit at the center of modern deterrence, enabling everything from battlefield intelligence, surveillance, and reconnaissance (ISR) to coastal defense and critical infrastructure protection. Beyond their cost and scalability advantages, unmanned and autonomous systems allow allies to project persistent surveillance, strike capability, and infrastructure protection without exposing personnel to constant frontline risk. European investment should accelerate scalable drone manufacturing, swarm technologies, counter-drone systems, and autonomous platforms capable of operating in contested electromagnetic and kinetic environments.

Recent Russian airspace incursions along NATO’s eastern flank highlight how persistently Moscow probes allied defenses below the threshold of open conflict while straining traditional manned air patrols. Autonomous ISR platforms and rapid-response uncrewed systems offer a scalable way for allies to maintain continuous aerial presence, shorten detection-to-response times, and raise the cost of Russian airspace aggression without exhausting personnel or resources.

This shift is also particularly urgent in the maritime and undersea domain. Ukraine’s effective use of uncrewed surface and subsurface systems to degrade Russia’s Black Sea Fleet has fundamentally reshaped naval deterrence. For Europe, undersea drones and maritime autonomous systems are essential to protecting the dense web of critical infrastructure that runs across the North Atlantic, Baltic, and Black seas, all of which are increasingly vulnerable to gray-zone sabotage and coercion. Traditional naval patrols alone cannot provide consistent coverage of these environments. Networks of autonomous underwater vehicles, uncrewed surface vessels, and seabed sensors offer scalable, continuous surveillance and rapid response at a fraction of the cost of legacy platforms. Similar capabilities may prove decisive in the Indo-Pacific, where undersea autonomy is becoming central to submarine tracking, sea-lane security, and contested maritime control.

4. Europe must dramatically scale investment in Arctic and high-latitude defense technologies.

As climate change opens new sea routes and intensifies competition in the High North, the Arctic is rapidly transforming into a frontline security domain. The region is slowly becoming more accessible to uncrewed underwater vessels, submarines, and even commercial shipping. Though year-round accessibility to Arctic Sea routes will not be viable until later this century, Russia’s and China’s active positioning to control the region increases the risk of hybrid threats for NATO’s Arctic members, as undersea cables, energy pipelines, and satellite infrastructure remain vulnerable to sabotage, cyber intrusion, and electronic warfare. Cold-weather-resilient drones, autonomous maritime patrol systems, undersea sensing networks, and secure communications infrastructure will be indispensable for monitoring adversary movements, protecting seabed infrastructure, and maintaining domain awareness in extreme environments.

5. Unlocking private capital must become a central pillar of Europe’s defense strategy.

Venture capital, commercial technology firms, and advanced manufacturing startups already drive innovation in autonomy, AI, robotics, and cyber resilience. Boosting private-sector engagement in Ukrainian and European defense will require the following:

• Streamlining defense-tech collaboration across the alliance.
  As commercial technology increasingly drives military advantage, allies must modernize arms-trafficking regulations and EU export-control regimes to enable faster innovation sharing and near-automatic licensing among trusted NATO/EU partners and Ukraine. Governments should also support defense-tech research consortia linking startups, investors, and defense agencies, alongside NATO-anchored testbeds where new systems can be rapidly developed and field-tested under common standards.
• Mobilizing private capital at scale for European defense. Europe’s rearmament effort represents a generational investment opportunity that must attract venture capital and private equity alongside public funding. Policymakers should convene structured dialogues between financial institutions and defense ministries; clarify and, when needed, reform regulatory and ESG frameworks; and demonstrate that investing in allied security is both commercially viable and strategically essential.
• Closing the partnership gap between governments and industry.
  Allies should shift from slow gatekeeping toward rapid acquisition and standing public-private partnerships, particularly in cyber, data infrastructure, and autonomous systems. Formal digital defense agreements with major technology providers should institutionalize threat-intelligence sharing and coordinated response through existing networks and through new-track 1.5 dialogues. Governments can further accelerate investment through war-risk insurance, loan guarantees, and tax incentives for defense-critical sectors.

Ukraine’s Essential Role in the Future of Global Security

Ukraine has emerged as the most innovative and adaptive defense industrial ecosystem in Europe, rapidly integrating battlefield-driven advances in drones, electronic warfare, secure communications, and precision-strike systems. Its engineers and manufacturers are delivering combat-tested capabilities at a speed unmatched by traditional allied procurement cycles. Rapid prototyping cycles, flat hierarchies, and battlefield feedback have turned necessity into a national comparative advantage.

For allied defense industries, Ukraine represents a partner that delivers results under pressure — a living laboratory for technologies that will define next-generation deterrence. Thus, Ukraine’s role must be reframed. It is not merely a victim of aggression but it is a global exporter of the most capable and innovative defense technologies that are critical to US and European security.

Allies should aggressively invest in Ukraine’s defense sector, not simply for moral reasons, but to take advantage of the most innovative battle-tested defense capabilities. Ukraine has done more to enhance NATO’s security than any single ally’s budget increase could achieve. Integrating Ukraine’s combat-tested ground and air capabilities into the eastern flank of NATO would fill critical gaps in manpower, institutional learning, and operational resilience.

A Russian victory would not only extinguish Europe’s most dynamic and combat-proven arsenal — it would transfer those capabilities, technologies, and production assets directly into the hands of Moscow and, by extension, Beijing.

China’s own revisionist objectives in the Indo-Pacific undermine deterrence in every theater. Allies must embrace the reality that Ukraine is not only fighting for its own borders but for the forward defense of the alliance itself.

With Ukraine well-positioned to take on a full partnership role in frontline defense, allies must develop supply chains, maintenance capacity, logistics hubs, and training pipelines oriented not only to Ukrainian requirements, but to a shared NATO/EU forward posture. Private-sector investment will be essential to build out the infrastructure, field-maintenance capability, and in-theater support networks that anchor this new role. A Ukrainian defense-industrial base interwoven with allied deterrence architecture enables a future where Ukrainian formations and systems operate arm-in-arm with NATO forces across the Baltic and Black seas and beyond.

ILC members serve in a voluntary and advisory capacity and do not have a role in institutional governance, which is the purview of CEPA’s Board of Directors.

CEPA’s ILC members would like to thank David Kagan for his editorial and research support during this project.

CEPA is a nonpartisan, nonprofit, public policy institution. All opinions expressed are those of the author(s) alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.