European Defense Procurement — How the Ukraine Conflict Reshaped European Arms Markets

Executive Summary

The full-scale Russian invasion of Ukraine on 24 February 2022 shattered three decades of European defense complacency. The post-Cold War “peace dividend” — which saw European NATO members’ combined defense spending fall from 2.8 percent of GDP in 1990 to 1.4 percent in 2014 — has been decisively reversed. European defense expenditure surged from EUR 240 billion in 2021 to an estimated EUR 350 billion in 2025, a 46 percent increase in four years. The rearmament wave has fundamentally reshaped European arms markets: order books are at historic highs, production lines are running at maximum capacity, procurement timelines have collapsed from decades to years, and the Franco-German-Italian defense industrial triumvirate that dominated European procurement is facing new competition from Korean, Israeli, and Turkish suppliers who can deliver faster and, in many cases, cheaper. This briefing assesses the structural transformation of European defense procurement through a French lens, quantifying France’s market position, analyzing the competitive dynamics reshaping the industry, and evaluating the EU’s emerging institutional framework for joint procurement.

The headline finding: France has benefited disproportionately from the European rearmament wave — French defense exports reached EUR 19.2 billion in 2025 (up from EUR 11.7 billion in 2022), making France the world’s second-largest arms exporter behind the United States. The Rafale fighter, the CAESAR howitzer, and the Scorpene submarine are the flagship export platforms. However, France faces a strategic dilemma: the surge in export demand competes with domestic procurement needs under the ambitious LPM 2024-2030, and the defense industrial base is struggling to serve both masters simultaneously.

The Scale of European Rearmament

Defense Spending Surge

The standout performer is Poland, which at 4.12 percent of GDP now spends more on defense as a share of its economy than any other NATO member except the United States. Germany’s increase to EUR 58.2 billion is impressive in absolute terms but has been criticized for arriving slowly — the Sondervermogen (EUR 100 billion special defense fund) announced by Chancellor Scholz in February 2022 was not fully committed until late 2024, and disbursement has been hampered by Bundeswehr procurement bureaucracy.

Order Backlogs

European defense companies reported record order backlogs at end-2025:

The aggregate backlog increase of approximately 50-160 percent across major European defense firms represents 4-8 years of production at current rates — a historically unprecedented situation that is simultaneously a commercial bonanza and an industrial bottleneck.

France’s Defense Export Boom

Export Performance

France’s rise to second-place global arms exporter (passing Russia, which has been constrained by sanctions and the diversion of production to its own military) reflects several structural advantages:

1. Full-spectrum capability: France is one of only three countries (with the US and Russia) that designs, develops, and produces the full range of conventional military equipment: fighters, tanks, submarines, satellites, missiles, warships, and military electronics. This allows France to offer integrated packages rather than individual platforms.

2. No ITAR constraints: French defense equipment is free of US International Traffic in Arms Regulations (ITAR) restrictions, meaning buyers can operate, modify, and export French equipment without requiring US government approval. This is a decisive advantage for customers who want strategic autonomy — India, Saudi Arabia, the UAE, and increasingly European allies seeking to reduce dependence on US supply chains.

3. Political willingness to export: The French government has historically been more willing than its European peers to authorize arms sales to controversial buyers (Saudi Arabia, Egypt, UAE). This pragmatism — criticized by human rights organizations and some domestic political actors — has built long-term customer relationships that are now generating repeat orders.

Rafale Export Pipeline

The Dassault Rafale has become the dominant European export fighter, filling the gap left by the Eurofighter Typhoon’s limited export success and the political complications surrounding F-35 sales:

The Saudi Arabia contract (54 Rafale F4, signed 15 December 2025 during Crown Prince Mohammed bin Salman’s Paris visit) was the largest single Rafale export deal and France’s largest-ever defense contract. The deal includes weapons, training, maintenance, and technology transfer provisions valued at an additional EUR 4.6 billion beyond the platform cost.

Naval Exports

France’s naval defense exports have been equally strong:

• Scorpene submarine: India (6 units, all delivered); Brazil (4 units, 3 delivered); Malaysia (2 units, operational). A potential contract with Poland (3 units) is under negotiation.
• FDI/Belharra frigate: Greece (3 units, contracted October 2022, EUR 3.5 billion); Saudi Arabia (reportedly in advanced negotiations for 4 units); Indonesia (evaluation phase).
• Gowind corvette: Egypt (4 units, all delivered); UAE (4 units, contracted 2023, deliveries 2026-2028).

Naval Group’s order backlog reached EUR 28.4 billion at end-2025 — a record that strains the company’s production capacity across its yards in Lorient (surface combatants), Cherbourg (submarines), and its international partnerships.

European Joint Procurement: Institutional Evolution

EU Defense Industrial Initiatives

The Ukraine crisis triggered an unprecedented wave of EU defense institutional innovation:

The SAFE instrument — proposed by the European Commission in March 2025 and endorsed by the European Council on 21 March 2025 — is by far the most significant: EUR 150 billion in EU-backed financing (primarily loans, with a grant component of approximately EUR 15-20 billion) available to member states for defense procurement. The key condition: at least 65 percent of SAFE-funded procurement must be from EU-based defense companies. This “European preference” clause is designed to prevent a repeat of the post-2022 experience, when European governments rushed to buy American and Korean equipment — spending an estimated EUR 78 billion on non-European defense purchases between 2022 and 2024.

The “Buy European” Problem

The tension between immediate capability needs and long-term industrial policy has been the defining challenge of European defense procurement since 2022:

The F-35 Lightning II remains the dominant non-European platform. Thirteen EU member states have ordered or committed to the F-35 (Belgium, Czech Republic, Denmark, Finland, Germany, Greece, Italy, Netherlands, Norway [non-EU], Poland, Portugal, Romania, and potentially Spain). Each F-35 order reduces the potential market for European alternatives (Eurofighter Typhoon, Rafale, Gripen) and deepens dependency on US supply chains — a structural concern that France has consistently raised in EU Council discussions.

The Korean Challenge

South Korea’s emergence as a major defense exporter to Europe is the most significant market disruption of the post-2022 era:

• Poland: K2 Black Panther tanks (1,000 units ordered, including 180 direct from Korean production and 820 to be manufactured in Poland under license), K9 Thunder self-propelled howitzers (672 units), FA-50 light combat aircraft (48 units). Total Polish-Korean defense deals: approximately EUR 15 billion.
• Romania: K9 Thunder (54 units, contracted 2023).
• Norway: K9 Thunder (24 units, contracted 2022).
• Estonia: K9 Thunder evaluation underway.

Korean advantages: speed of delivery (Hyundai Rotem and Hanwha delivered the first K2 tanks to Poland within 6 months of contract signature, compared to 24-36 month lead times for European equivalents), competitive pricing (K2 unit cost approximately EUR 8.5 million vs. EUR 10-12 million for Leopard 2A7), and willingness to transfer technology and establish local production lines.

French response: KNDS (the Franco-German land defense champion) has accelerated its Leopard 2 / Leclerc platform offerings and is developing the “Main Ground Combat System” (MGCS) — the Franco-German next-generation main battle tank — as a counter to Korean competition. However, MGCS is in the concept study phase and will not produce a vehicle before 2040 at the earliest, creating a decade-long window for Korean market penetration.

Market Structure and Competition

European Defense Industrial Landscape

The European defense industry is undergoing rapid consolidation, driven by the need for scale to compete with US primes and Korean challengers:

The French defense industrial base — Dassault, Thales, Naval Group, MBDA (French-led), KNDS (French co-lead), Safran (engines and optronics), Airbus (partially French) — represents the most diversified and capable national defense sector in Europe. France’s share of European defense industrial output is approximately 28 percent, ahead of the UK (24 percent) and Germany (18 percent).

Ammunition: The Immediate Crisis

The most urgent procurement challenge across Europe is ammunition reconstitution. The Ukraine conflict consumed European stockpiles at rates not seen since World War II:

The EUR 500 million ASAP regulation (2023) and its successor, the EUR 1.5 billion EDIP ammunition component, have accelerated production expansion — European 155mm shell production has roughly tripled since 2022 — but remains well below the consumption rate in Ukraine and the levels needed to reconstitute stockpiles to Cold War-era readiness. France’s role in ammunition production is significant but not dominant: Nexter Munitions (now part of KNDS) and MBDA are the primary French producers, but the Rheinmetall (Germany), Nammo (Norway/Finland), and BAE Systems (UK) are larger in aggregate volume.

France’s Strategic Positioning

Strengths

1. Export machine: France’s defense export apparatus — centered on the Direction generale de l’armement (DGA), supported by dedicated trade promotion (Team France Defence), and backed by government-to-government political engagement — is the most effective in Europe.

2. ITAR-free: French equipment’s freedom from US export controls is an increasingly valuable differentiator as geopolitical tensions make buyers wary of supply chain dependencies.

3. Nuclear deterrent credibility: France’s independent nuclear deterrent (290 warheads, SSBNs, air-launched cruise missiles) is unique in Europe and underpins France’s claim to strategic leadership within EU defense.

4. Full-spectrum capability: The ability to offer integrated solutions — aircraft, ships, missiles, electronics, space assets, and cyber capabilities — from a single national industrial base is a rare competitive advantage.

Vulnerabilities

1. Capacity constraints: The defense industrial base is running at or near maximum capacity. Dassault cannot produce more than 38 Rafale per year. Naval Group’s Lorient yard can handle two major surface combatant programs simultaneously but not three. MBDA’s missile production ramp is constrained by explosive precursor and specialty electronics supply chains.

2. Franco-German friction: The SCAF/FCAS fighter program and the MGCS tank program — the two flagship Franco-German defense industrial cooperation projects — are both experiencing significant delays due to work-share disputes, IP disagreements, and divergent strategic cultures. If either or both programs collapse, France will need to pursue national alternatives that will be more expensive and less politically legitimate at the EU level.

3. European preference enforcement: France is the strongest advocate for “buying European” but has limited leverage over sovereign procurement decisions by other member states. The F-35’s continued market dominance and Korean penetration of the land systems market demonstrate that EU-level aspirations do not automatically translate into European industrial orders.

4. Workforce: The French defense industry needs to recruit approximately 25,000 additional workers by 2030 (across all companies) to meet production targets. Competition for engineers, technicians, and skilled production workers from the nuclear restart program, the battery gigafactory cluster, and the tech sector is intense.

Outlook

The European defense procurement landscape in the next 12 months will be shaped by:

1. SAFE implementation: The EUR 150 billion EU defense financing instrument, if ratified by the European Parliament (expected Q3 2026), will be the single largest demand signal in European defense history. The 65 percent European preference clause will benefit French industry significantly, but enforcement mechanisms remain under negotiation.

2. Ukraine trajectory: Any ceasefire, peace negotiation, or escalation in Ukraine will reshape procurement priorities. A negotiated settlement would not reduce European defense spending (the political consensus for rearmament is now self-sustaining) but would shift emphasis from immediate replenishment to long-term capability building — favoring programs like SCAF, MGCS, and the PA-NG aircraft carrier over ammunition production.

3. US-Europe defense relationship: The Trump administration’s emphasis on burden-sharing and transactionalism in defense relationships creates both risk (potential reduction in US security guarantees) and opportunity (stronger European demand for European-made equipment to reduce dependency). France’s strategic position — nuclear-armed, ITAR-free, full-spectrum capable — makes it the most credible advocate for European defense autonomy, but advocacy must be matched by industrial delivery.

4. SCAF/FCAS decision: The contracting of SCAF Phase 2 by late 2026 remains a critical milestone. Failure would be a blow to Franco-German defense cooperation and would force a reassessment of European defense industrial strategy — potentially to France’s benefit if it pursues a national next-generation fighter, but at the cost of European cohesion.

The structural shift is clear: Europe is rearming, the rearmament will continue regardless of the Ukraine outcome, and France is positioned to capture a disproportionate share of the resulting industrial demand. The constraint is not demand but supply — scaling French defense production to meet the order book is the challenge that will define the next decade of French defense industrial policy.

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