Europe’s fragmented defense industry is a primary reason it is struggling to match the pace of U.S. and Chinese military advances.

The lack of a single, integrated European defense market leads to costly duplication, a failure to achieve economies of scale, and an inability to convert significant military spending into a unified technological advantage.

The Problem of Fragmentation 

The core issue is that Europe's defense industry is composed of national champions that prioritize domestic interests over pan-European collaboration. Each major EU country—France, Germany, Italy, Spain, and others—has its own set of defense companies, supply chains, and procurement processes.

This results in:

• Duplication and Inefficiency: Instead of one unified program for a next-generation fighter jet, for example, there are two separate Franco-German and British-led projects. This duplication of R&D and production efforts is enormously expensive and inefficient, draining resources that could be used for a single, more advanced system. An EPRS study estimated that a lack of cooperation in defense could cost Europe between €24.5 billion and €75.5 billion a year.

• Lack of Economies of Scale: Individual European countries order relatively small quantities of military equipment to satisfy their own national needs, making it difficult for European companies to benefit from economies of scale. The U.S. defense industry, in contrast, builds on a single, massive national market, allowing it to produce at a scale that lowers the unit cost of weapons systems and makes them more competitive on the global market.

• Interoperability Challenges: Different national armies use a wide array of incompatible equipment, which complicates joint military operations and training. This makes it challenging for European forces to work together effectively in a coordinated manner, especially in a high-intensity conflict.

The U.S. and China: Integrated and Unconstrained 

The U.S. and China, in contrast, have highly integrated defense industries that are not bound by the same political and nationalistic constraints as Europe's.

• The U.S. Model: The U.S. has a single, massive, and highly consolidated defense market. The U.S. government, as the largest customer, provides defense contractors like Lockheed Martin and Raytheon with consistent, multi-year funding, allowing them to invest heavily in R&D and production. This has resulted in a clear technological advantage in areas like stealth aircraft, unmanned systems, and missile defense. The U.S. defense industrial base's revenue from a single company like Lockheed Martin can almost equal the entire earnings of the EU-based defense industry combined.

• The Chinese Model: China's state-driven military-civil fusion strategy allows it to leverage its entire civilian tech sector for military purposes. Companies that are global leaders in commercial technology, like Huawei and Alibaba, are legally obligated to share their advancements in AI, robotics, and other dual-use technologies with the military. This top-down, unified approach allows China to accelerate the development of key technologies without the political or bureaucratic friction seen in Europe.

Europe’s Attempts to Consolidate 

Europe is well aware of its fragmentation problem and has created several initiatives to address it, most notably the Permanent Structured Cooperation (PESCO) and the European Defence Fund (EDF).

• PESCO: Launched in 2017, PESCO is a framework that allows EU member states to collaborate on joint defense projects, ranging from cyber rapid-response teams to a new family of unmanned ground systems. It aims to foster greater interoperability and reduce duplication.

• EDF: With a budget of nearly €8 billion for 2021-2027, the EDF provides funding for collaborative defense research and development projects. It's a critical tool for incentivizing cooperation among European defense companies and research institutions.

While these initiatives are a step in the right direction, they face significant hurdles. National procurement remains the primary method for most European countries, and disagreements over project leadership, work-share, and technical requirements continue to cause delays and threaten major projects like the Franco-German Future Combat Air System (FCAS). Europe's defense spending has increased significantly since 2022, but a large portion of this has gone toward importing military equipment from the U.S. to quickly re-arm, further entrenching Europe's dependence on American technology.