Economic insights for a more integrated European defence industry
Defence sector
Fecha: julio 2025
Miguel Ángel González Simón
SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º4 (July 2025)
The European Union is the second-largest global spender on defence, but its effective military capacity has lagged. The current industrial model, marked by overlapping capabilities, limited economies of scale, and modest levels of collaborative innovation spending, has contributed to high production costs and missed opportunities for technological spillovers. Drawing on a simple modelling exercise, estimates show that full integration of the EU defence market could have raised industrial output by 22 percentage points in 2022 above observed growth, equivalent to roughly €46 billion or 14% of total EU defence spending. Most of the potential gain is tied to scale effects, with a smaller but important share linked to increased knowledge transfers. While countries with larger industrial bases would benefit most in absolute terms, smaller member states would experience stronger relative growth, supporting more balanced development. Unlocking these gains would require addressing long-standing institutional and financial barriers, and ensuring that benefits are distributed equitably across the bloc. At a time of heightened geopolitical pressure, improving industrial coordination offers a credible path to stronger strategic autonomy and more effective defence capacity.