NATO-first modernization would upgrade the alliance for the challenges of the era of Russian aggression, great-power competition, and technological disruption. Defense spending targets above the 2% threshold will further strengthen the alliance’s capabilities. Discipline and coordination in areas like procurement and investments, especially in research and development (R&D) for critical and emerging technologies, would modernize the alliance’s militaries and provide qualitative advantages. Early moves in this direction include NATO’s Innovation Fund and NATO’s defense innovation accelerator, DIANA.
Furthermore, NATO is working with global and regional coalitions to further enhance its capabilities and modernize its posture, given the challenges of global strategic competition. The alliance is collaborating with its Indo-Pacific partners, Australia, Japan, New Zealand, and South Korea, on support for Ukraine, cyber defense, and AI. The alliance’s capabilities have been boosted by the addition of highly capable members like Finland, which has adopted a comprehensive security model, a whole-of-society approach that augments its Defense Force of 280,000 active-duty and 900,000 reservists (in a country of roughly 5.5 million people). Meanwhile, regional groupings like the Joint Expeditionary Force, the United Kingdom-led, 10-nation Northern European military partnership, are taking on more prominence.
NATO remains the foremost security framework for many European countries and will likely continue to be the continent’s primary security guarantor. Greater regional and global defense cooperation could further boost the scale of Europe’s defense industries and overcome EU-level barriers to cross-border investment, trade, and capital flows.
Modernizing the NATO Alliance for today’s challenges is critical to the future of European defense. But modernizing the alliance is a generational task that would require overcoming political divisions, competing priorities and limited resources, and the perennial challenge of burden sharing.
Scenario #3: Techno-democratic partnerships
Artificial intelligence, autonomy, and industrial capacity are rapidly reshaping the character of war. But Europe lags behind the US and China in production and technological innovation, a fact that compounds its economic and security challenges. In the defense realm, key technologies include autonomous unmanned vehicles, cyber and space systems, and AI-enabled systems. Dual-use capabilities critical to modern defense are often invented, adopted, adapted, and produced at scale by the private sector.
With the right investments and alignments, a technologically-enabled industrial transformation could give Europe a chance to compete with, or even leapfrog, competitors and strengthen its security in the short term.
Europe’s defense technology sector is growing, driven in large part by commercial enterprises. From 2021 – 2024, investment into European defense technology startups increased 500% from the preceding three years. The NATO Innovation Fund (NIF), DIANA, and the European Defense Fund (EDF) have invested in Europe’s defense technology ecosystem as well. But compared to competitors, Europe’s defense technology sector is nascent for enterprises at all stages. Venture capital funding in Europe comes primarily from the US and Asia at late stages. Further investments in R&D, by the public and private sectors, can help close the gap, especially as Europe’s share of global R&D spending has fallen from 30.9% in 2000 to 20.5% in 2023.
Europe also has one of the world’s most advanced defense technology ecosystems on its doorstep: Ukraine. After more than three years of war, Ukrainians have mastered a rapid innovation cycle to adapt, test, and deploy dual-use technologies on the battlefield. Affordable first-person-view drones are produced at enormous scale of up to 5 million a year, and are now the most lethal equipment on the battlefield. Many of Ukraine’s drones use AI- and machine learning-enhanced systems to evade jamming systems, track targets, make predictions, and enhance decision-making. Additional private investments and government commitments can boost production capacity and further develop Ukraine and Europe’s AI capabilities.
The US defense technology sector is also an asset to Europe. Deeper integration with that ecosystem would strengthen transatlantic security and industry. The US is home to the world’s leading technology companies, especially in AI. And American defense technology companies have become significant global enterprises, offering cutting-edge defense hardware and software systems. The US has created models for public-private partnerships in the defense technology sector, including the Defense Innovation Unit (DIU) and the Office of Strategic Capital. Israel, the United Kingdom, and Turkey, each have robust defense innovation ecosystems as well, and are capable European technology partners.
Europe has two clear technologically powered paths to strengthen its defense technology ecosystem in the short term: The first is further engagement with transatlantic defense technology ecosystems, including integration between US and European commercial and research institutions. The second is support for and collaboration with Ukraine’s defense technology sector.
There is a critical window for this work today, as US defense production, including defense technologies, is scaling to meet increased demand. Meanwhile, Ukraine is contemplating lifting the export ban on its own defense industry. In turn, cooperation with US and Ukrainian defense technology enterprises could boost European defense primes and defense technology startups.
Technological innovation cannot solve all of Europe’s security challenges. The nature of warfare remains fixed, even as its character shifts. Legacy systems, including artillery and aircraft, remain central to modern warfare. But deepening defense technology cooperation is becoming a greater opportunity today, and a more urgent task, as Russia and its partners China, Iran, and North Korea are also learning lessons about the future of warfare from Ukraine, and deepening their own collaboration.
Conclusion
Europe faces a future where its competitive advantages could be further eroded, or where its investments made today can allow the continent to recover and modernize its historic sources of strength.
The latter path is not simple. In the last two decades, Europe’s structural economic, political, and innovation challenges have widened the gap between the continent and its partners and adversaries alike. Europe’s ability to overcome its security challenges, and to return to a path of greater economic growth, will depend on its capacity to invest in multiple priorities—its own defense, its historic alliances, and in critical and emerging technologies, including AI-enabled systems.
A stronger Europe would be a more powerful force in world affairs, aligned with the US-led security architectures, deepen connections to transatlantic defense innovation, partner with Ukraine and other techno-democracies, and invest in its own capacity to compete across the board.
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