Introduction
After the Cold War, defense priorities shifted from maintaining extensive industrial capacities to emphasizing technological advancement and platform complexity. This transition reduced attention to production volume, reserves, and ammunition stockpiles, redirecting investments toward advanced platforms. Concurrently, as platforms became tools for technology races, supply chains became increasingly complex and fragile. Recently, Russia’s ongoing war in Ukrainian and the 12-day war between Iran and Israel have demonstrated that operational success continues to rely on robust production capacity, rapid ammunition resupply, and resilient supply chains. These cases highlight the risks associated with over-reliance on technology and negligence of production capacity during protracted or high-intensity conflicts.
These recent developments have raised concerns about Europe’s capacity to sustain a prolonged, high-intensity conflict. While Russia rapidly transitioned to a war economy and expanded ammunition and rocket production, NATO and EU member states continue to operate fragmented and peacetime-oriented defense industries. This fragmentation results in significant delays in delivering ammunition and equipment to Ukraine. This was an alarm for the whole European defense ecosystem.
The European Union’s first European Defense Industrial Strategy (EDIS), introduced in 2024, seeks to address these challenges by ensuring the timely availability of appropriate equipment in sufficient quantities and locations. The strategy establishes targets such as sourcing at least 50% of defense procurements from within the EU by 2030, increasing intra-EU defense trade to 35%, and procuring a minimum of 40% of equipment through joint orders.
Over the past four years, European defense spending has increased substantially. In 2024, EU member states allocated approximately 88 billion euros ($104.41 billion) to defense equipment, with projections indicating that future expenditures will exceed 100 billion euros ($118.63 billion). This represents a significant escalation rather than a marginal adjustment.
However, increased defense budgets do not necessarily translate into greater quantities or lower costs of weaponry. Affordability is influenced by the organization of demand, the efficiency of supply chains, and procurement regulations. Costs tend to decrease with large, consistent orders and accumulated experience, but increase when markets are fragmented, products are highly customized, or orders irregular.
What ‘cheap weapons’ actually mean in a European procurement system
In defense economics, the term “cheap” encompasses multiple definitions. Within the European Union, policy debates frequently conflate at least four distinct meanings, influenced by the fragmented market and the tendency of each member state to prioritize national procurement preferences. Recognizing these different meanings is essential to understand part of the European defense cost problem.
The first meaning refers to low unit price, defined as the basic cost of an item such as a munition, drone, or vehicle. This metric can be misleading, as it frequently excludes fixed costs like R&D, tooling, and compliance, as well as additional expenses for training and maintenance. In the EU, Article 346 of the Treaty on the Functioning of the European Union (TFEU) permits member states to bypass EU public procurement rules for defense contracts on national security grounds. Consequently, only 9% of contracts are awarded to other EU suppliers and domestic preferences often elevate unit prices by restricting competition.
The second meaning, low cost-per-effect, refers to the expenditure required to achieve a specific military objective, such as striking a target or denying airspace. This concept underscores the utility of affordable interceptors and drones, which can substitute for more expensive missiles or scarce ammunition. Achieving low cost-per-effect in the EU is challenging due to fragmented demand across 27 member states and stringent regulations that hinder the adoption of new, cost-effective solutions.
The third meaning, affordable surge capacity, denotes the ability to rapidly increase production without significant price escalation. When factories and supply chains are unable to meet rising demand, prices increase and delivery timelines are extended, resulting in higher costs even for basic items like artillery shells. Since 2022, the EU and its member states have struggled to scale 155 mm ammunition fast enough for a high-intensity war. The European Commission reported that annual EU production capacity had reached around 1 million shells/year by January 2024 and projected at least ~1.4 million/year by the end of 2024, while instruments such as Act in Support of Ammunition Production (ASAP) (to relieve supply-chain bottlenecks) and European Defence Industry Reinforcement through common Procurement Act (EDIRPA) (to incentivize joint procurement) were introduced to accelerate the ramp-up.
The fourth meaning, strategic affordability, assesses whether a country can sustain wartime expenditures without excessive financial strain. This factor relies more on long-term contracts, consistent investment, and standardization than on annual budgets. EU initiatives such as the European Defence Fund (EDF, ~8 billion euros for 2021-2027) and the European Defence Industry Programme (EDIP, 1.5 billion euros for 2025-2027) support joint procurement and cooperation to reduce long-term costs. Studies estimating the cost of non-European procurement in defense suggest that fragmentation and limited economies of scale can impose annual efficiency losses on the order of tens of billions of euros.
In practice, strategic affordability is constrained not only by industrial capacity but also by fiscal regulations and public willingness to prioritize defense spending over social expenditures. Consequently, predictability and cost-sharing are as critical as the magnitude of any single year’s defense budget.
These different interpretations of “cheap weapons” within the EU highlight key challenges in defense procurement, including national exemptions, market fragmentation, and limited production flexibility. These obstacles frequently prevent the EU from achieving cost efficiencies at scale, even with initiatives such as the EDIS. The primary barriers are not technical but rather stem from internal issues such as inadequate coordination and excessively risk-averse contracting practices.
Structural reasons Europe struggles to mass-produce ‘cheap’
A primary factor contributing to this issue is fragmented demand. Although European governments share similar defense requirements, procurement, and planning processes remain largely independent. According to the European Parliamentary Research Service, this lack of coordination results in annual losses between 18 billion euros and 57 billion euros, underscoring the significant opportunity cost of not achieving economies of scale.
The proliferation of diverse equipment types and variants significantly worsens this challenge. In contrast to the U.S., European armed forces operate a greater number of unique models of tanks, aircraft, and ships, complicating interoperability and cost efficiency. National preferences for customized features and divergent certification standards often fragment what could be a unified product line into multiple smaller ones. Even when countries procure the same system, separate testing procedures, maintenance tools, documentation, and spare parts frequently result in parallel programs, thereby increasing both development and production costs.
The United States also influences Europe’s capacity to control defense costs. Since 2022, EU member states have frequently addressed urgent requirements by procuring equipment from the U.S., particularly in the domains of air and missile defense. This practice diminishes demand for European suppliers, despite the EDIS objective that half of all purchases originate within the EU. In sectors such as artillery and drones, the interplay between U.S. and European policies – regarding standards, export regulations, and joint production – can either facilitate or hinder mutual interests. Continued division of procurement between the EU and U.S. during crises is likely to sustain elevated prices for munitions. Conversely, adherence to NATO standards and the establishment of stable, long-term demand across both regions could enable shared economies of scale rather than eroding them through competition.
Procurement rules and national security exemptions are another factor. The EU has rules for buying defense and sensitive security items, but these rules are not always used the same way. Countries often claim exemptions for national security. The Commission has stated the need to reduce the use of these exemptions, especially the security one, but this is not yet achieved. Because of this dilemma, the market is neither fully competitive to lower prices nor unified enough to benefit from shared demand.
A further complication arises from the misalignment between military requirements, political objectives, and industrial practices. Armed forces prioritize high performance, robust protection, and operational flexibility. In contrast, policymakers emphasize job creation, support for domestic industry, and broader economic benefits. Simultaneously, defense companies must manage investment risks, expand production capacity, and comply with regulatory frameworks. These challenges are worsened by short-term contracts, volatile demand, and a prevailing preference for customized solutions over standardized, large-scale production. It’s worth mentioning that this challenge is typical and present in any other defense ecosystem as well, but it’s more present in Europe due to reasons such as its fragmented sovereignty structure, the persistence of nationally segmented procurement systems, and entrenched work-share logic that prioritize political balance over industrial efficiency.
To address these challenges, the Commission now supports longer-term, joint procurement initiatives and larger industrial projects through programs like ASAP. For instance, in 2024, Rheinmetall received over 130 million euros from ASAP for six projects across Germany, Hungary, Romania, and Spain to boost 155 mm shell production. This funding provides companies with greater contractual security and reduces costs by ensuring larger, more predictable orders. Similar principles underpin the 500 million euros ASAP fund and the broader EDIP, both of which seek to align incentives and gradually lower prices.
Another issue arises from collaboration itself which can unintentionally increase costs if it prioritizes equitable distribution of work among countries over efficiency or specialization. Large-scale projects frequently encounter protracted negotiations regarding work-share allocations, which delay decision-making and introduce additional administrative burdens.
France and Germany exemplify this in the Future Combat Air System (FCAS), a 100-billion euro next-generation fighter program launched in 2017 with Spain. Dassault Aviation (France, leading the manned fighter) has demanded up to 80% workshare and design authority, citing national security and expertise, while Airbus (Germany/Spain, handling drones and cloud) and IG Metall pushed for expulsion, sparking ministerial crises in 2025, including threats of German withdrawal and indefinite delays past original 2027 demonstrator targets. Such juste retour arrangements foster duplicate production lines, complex management, and slower progress, all eroding affordability.
Industrial bottlenecks that make ‘cheap’ physically impossible
Europe’s challenges in controlling costs extend beyond political factors to include the need for a reliable supply of critical raw materials and components. A great example is the case of chemicals and materials required for large-scale munitions production during high-intensity conflicts.
Artillery shell production, for instance, is severely constrained not by metal casings but by propellants and explosives like nitrocellulose – a nitrated cotton derivative essential for gunpowder – which Europe produces at only around 4,500–10,000 tons annually, against estimated combined European and Ukrainian needs of roughly 20,000 tons – a shortfall of up to 14,000 tons per year. Heavy reliance on non-EU imports, including from China (despite dual-use export bans to Russia), exposes vulnerabilities exacerbated by sanctions, regulatory hurdles for new plants, and feedstock shortages from cotton linters, even with ASAP funding for facilities in Poland and Czechia (not fully functioning until 2026+), output lags EU's 2 million shell target.
Europe also encounters challenges in producing sufficient quantities of TNT and maintaining a stable supply of high explosives. Reports indicate that supply chains are highly concentrated and heavily dependent on non-European sources, prompting plans for new TNT production facilities in the Baltic region. Poland’s capacity to fulfill large TNT orders for the United States demonstrates that domestic production does not necessarily ensure availability for European militaries, as contractual obligations and national interests may redirect output elsewhere.
Poland’s Nitro-Chem, currently the sole major TNT producer in Europe, recently secured a $310 million contract to supply TNT for U.S. artillery shells over multiple years. This case illustrates that even when TNT is manufactured within the EU, it may not be prioritized for European armed forces. In a constrained market, long-term export agreements and alliance commitments can divert production to non-EU buyers, complicating efforts to control costs and maintain adequate supplies within Europe.
To address these supply security gaps, Europe is pursuing strategies of vertical integration and capacity expansion. For example, in April 2025, Germany's Rheinmetall – a leading NATO ammunition supplier – acquired Hagedorn-NC GmbH (Osnabrück, Germany), converting its civilian nitrocellulose production (employing approximately 90 staff) to military-grade propellant. This initiative aims to alleviate strategic bottlenecks and reduce dependence on non-EU sources like China.
Similarly, in January 2026, the Czechia-based Colt CZ Group finalized its acquisition of Synthesia Nitrocellulose a.s. (Pardubice, Czechia), one of the world’s leading producers of energetic nitrocellulose, for approximately CZK 22 billion (~ 870 million euros). By securing an initial 51% stake through a combination of cash and shares, Colt CZ Group aims to vertically integrate medium- and large-caliber ammunition production and strengthen NATO resilience. These actions support greater self-sufficiency in line with EDIP priorities.
These supply bottlenecks contribute to increased and unpredictable weapon costs. Material shortages, particularly of propellants and explosives, intensify competition among factories and countries, thereby driving up prices even for basic munitions. This trend is especially evident in the artillery shell market, where prices have risen substantially since before 2022.
What is changing in Europe’s affordability equation
As explained above, Europe is actively revising its procurement strategies and industrial policies, although the pace of progress varies among member states.
At the national level, certain countries are implementing measures to alleviate peacetime bottlenecks. For instance, Germany’s procurement reforms have increased bidding thresholds, permitted waivers in urgent situations, and relaxed select environmental regulations for military construction. These changes reflect a heightened emphasis on speed and production volume.
When it comes to supply chains, European companies and governments now see defense as part of a bigger industrial system, not just about factories. This change means there is more focus on securing propellants, explosives, and raw materials, not just on final assembly.
Europe is also trying to build closer innovation links with Ukraine. In 2024, the EU opened an “EU Defence Innovation Office” in Kyiv to connect Ukrainian needs and skills with European organizations and industries, showing that being able to adapt quickly is now very important success of EDIS, EDIP, and related national reforms could be judged against a small set of hard indicators rather than political declarations.
On the demand side, these include the share of defense procurement conducted through genuinely joint programs (the 40% target), the percentage of equipment sourced from EU industry (50%), and the depth of intraEU trade in key categories such as ammunition, drones and air defense. On the supply side, meaningful metrics include sustained annual output of NATOstandard 155 mm shells and equivalent loitering munitions, available European production of nitrocellulose, TNT and other energetics. It also include average contract duration and order regularity for “commodity” munitions and the number of distinct platform variants in core capability areas. If, by the early 2030s, Europe can raise output and reduce variant complexity without driving unit prices higher, then the current shift from exquisite platforms to affordable mass will begin to succeed in practice, not just on paper.
In summary, these developments demonstrate that Europe can enhance the affordability of weapons by prioritizing repeatable processes, standardization, and consistent demand. Effective management of costs related to explosives, propellants, and regulatory delays is also essential. The principal challenge remains political: collaboration reduces inefficiencies but necessitates trade-offs concerning employment, national interests, and the allocation of responsibilities. However, collaboration that is driven more by political considerations than by economic or industrial logic tends not to be sustainable in the long run. While this approach has previously enabled the production of high-quality systems, it has also impeded the rapid and cost-effective manufacture of large quantities of "good-enough" weapons.
