In public discourse, defense still triggers familiar reflexes: images of heavy platforms, complex procurement processes, and cumbersome institutions dominate. But this understanding falls short. Modern warfare is undergoing a fundamental transformation — technologically, structurally, and strategically. In reality, defense is evolving into one of the most dynamic technology fields of our time. The central question is no longer whether technology is changing warfare, but who is developing the systems that will determine Europe’s security and capacity to act in just a few years’ time.

From Product to Capability

[related] A core problem lies in the traditional understanding of procurement. For decades, defense was oriented toward acquiring products: platforms, hardware, clearly defined systems with long life cycles. But the reality of modern operations demands something different. What is needed today are adaptive capability packages that evolve continuously. Software is becoming the central element. Systems no longer consist of self-contained units but of networked architectures — so-called “systems of systems.”

In this context, a drone system is no longer a static product but a dynamic software stack with attached hardware. It requires regular updates, rapid iterations, and immediate user feedback. Equally critical is usability: systems that are not intuitive in the field lose their value regardless of their technical quality. Those who continue to rely on the logic of traditional product procurement risk working past the requirements of modern warfare.

Structural Inertia as the Result of Political Decisions

The often-criticized slowness of existing systems is no accident. It is the result of political priorities set over the past decades. After the end of the Cold War, the deliberate focus was on stability, efficiency, and risk minimization. Today’s system meets precisely those requirements. But it is not designed for speed. With the return of geopolitical tensions and an increasingly dynamic threat landscape, however, the benchmark is shifting. Technological developments and operational requirements are changing in ever shorter cycles. Systems that think in decades are coming under pressure to adapt. The necessary acceleration is therefore less a technical question than a political and structural one.

Innovation Dynamics and Industrial Reality

Technological leaps frequently originate outside established structures. New companies can operate free of institutional baggage, iterate faster, and think consistently from the problem outward. Established players, by contrast, are geared toward stability and long-term commitments. For them, new technologies often mean far-reaching adjustments to existing business models and processes.

This does not create a contradiction but a field of tension: innovation often emerges from new players, while scaling, integration, and long-term operation remain the strengths of established structures. The strategic challenge lies in effectively connecting both worlds.

The Competition for Talent and Technology

It is precisely at this interface that a weakness of the European system becomes apparent. Many technology-driven companies developing solutions to security-relevant problems find only limited suitable conditions in Europe. Two factors are decisive: access to initial contracts and direct contact with users. Without these, innovation stalls at an early stage.

Long procurement cycles and complex procedures make it difficult for young companies to build viable business models. Other innovation ecosystems address this proactively: with rapid pilot projects, early contracting opportunities, and clear pathways to end users. The consequence: talent and companies increasingly gravitate toward locations that enable faster implementation. Europe is not losing this competition for lack of ideas, but because of structural conditions.

Systemic Filter Effects

These conditions act as a filter. Complexity, opacity, and lengthy decision-making processes favor established players, while new companies frequently fail at market entry barriers. The system thus structurally selects against speed. The very players who could contribute to adaptability through new approaches and short development cycles often find no access. At the same time, existing processes reinforce the dominance of established structures. The result is an innovation system that does not fully exploit its own potential.

From Intent to Operational Impact

Numerous initiatives show that the need for innovation has been recognized. Strategy papers, programs, and organizational units are in place. What matters, however, is operational implementation. Effective innovation requires concrete mechanisms: translating real-world needs into actionable problem statements, rapidly deploying solutions in the field, and systematically scaling successful approaches.

This is precisely the unique role of the Bundeswehr’s Cyber Innovation Hub. As a “Bundeswehr startup,” its mission is to identify and implement unconventional solutions for the troops. The approach is deliberately operational: close to the user, iterative, results-oriented. The focus is not on developing abstract concepts but on concretely improving capabilities in the field. The Hub serves as a bridge between technological innovation and military application — addressing exactly the interface where traditional systems reach their limits.

Time as a Strategic Factor

Modern warfare is increasingly defined by speed. The ability to learn, adapt, and implement quickly is becoming a decisive competitive advantage. Time is thus evolving into a strategic resource. Innovation capability in this context means not only recognizing technological developments but translating them into operational impact — under real-world conditions and within short timeframes.

New players have a central role to play here. They bring speed, new ways of thinking, and technological dynamism into a system that has traditionally been designed for stability.

Conclusion

The transformation of defense is well underway. It concerns not only technologies but also structures, processes, and mindsets. For Europe, this presents a clear challenge: to create an innovation ecosystem that enables speed without sacrificing stability. One that integrates new players without neglecting existing strengths. And one that turns ideas into impact — fast. Modern warfare is not decided on the battlefield alone, but in the capacity to adapt. Or to put it more pointedly: new players are not a trend. They are a strategic factor.

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By Prof. D. Michael Hüther

Three recent developments are shaping the discussion about how Europe can regain military strength:

1. The Stockholm International Peace Research Institute (SIPRI) reported this week that “in 2024, global arms sales reached the highest level we have ever recorded — totaling 679 billion US dollars.” The 26 European defense companies increased their revenues by 13 percent, outpacing their 39 U.S. competitors, who grew by 3.8 percent.

2. Negotiations between the EU and the United Kingdom over the latter’s participation in the €150 billion SAFE defense fund have so far failed.

3. European armies still operate roughly four times as many weapons systems as the United States — a sign of their fragmented defense market.

The rearmament drive began back in 2015 and continues to accelerate. European NATO members now face the challenge of meeting their defense needs in overheated markets while keeping spending sustainable. A major handicap lies in their inability to overcome the patchwork of small-scale contracts. Military buyers also have a preference for customization — unlike in the U.S., where standardized procurement enables economies of scale, albeit at the price of dependence on a few major suppliers. The 2024 sales figure cited above was generated by just 100 companies worldwide.

Market Order for the Defense Buildup

Europe’s ongoing armament push raises a fundamental question: under conditions of catch-up and accelerated rearmament, how should the security and defense sector be organized according to sound economic principles? Ideally, it would operate in a competitive market that offers governments multiple choices while avoiding excessive profits from strategic urgency.

In practice, defense technology creates tight interdependencies between clients and manufacturers. Production typically relies on complex partnerships and consortia, which reduce competition. Moreover, the Treaty on the Functioning of the European Union (Article 346 TFEU) exempts military procurement from internal market rules.

The EU’s Permanent Structured Cooperation (PESCO), launched in 2017, has so far failed to scale up joint defense projects effectively, as national export and transfer regulations still dominate.

Limited Cooperation So Far

Industrial partnerships — such as the Franco-German effort to develop a “tank of the future” by 2040 — remain rare exceptions and have yielded little evidence of efficiency gains, even if the European Commission granted approval relatively quickly. The EU estimates that roughly 80 percent of defense equipment is still purchased nationally. Appropriately, reforms to speed up procurement are also being advanced at the national level, as shown by Germany’s defense procurement law passed this summer.

The Case for a Common Defense Fund

The SAFE fund aims to create stronger incentives for joint procurement. But London’s participation — after years of obstructing deeper defense cooperation while still in the EU — remains elusive. Brussels’ insistence on a fair financial contribution that reflects both industrial capacity and expected economic benefit is understandable, given the rule that at least 65 percent of contracts must generate value within Europe.

From a competition perspective, that requirement can be questioned, but Europe’s need for technological resilience strongly supports it. Germany’s 2022 purchase of 35 F‑35 jets illustrates the risks of U.S. dependency, as each deal still hinges on Washington’s approval.

A Dedicated Defense Bank

One new idea gaining traction is the creation of a specialized European defense investment bank to finance arms procurement, modeled after the European Bank for Reconstruction and Development. In light of fiscal constraints across the eurozone, such an institution could pool capital contributions from member states to leverage significant lending capacity through high credit ratings. It could then finance both national buyers and defense firms, potentially bundling orders for global tenders — though this might raise concerns about strategic resilience.

Defense Capability as a Fiscal Test

Ultimately, the strain on public budgets cannot be concealed. Europe faces a political and social reckoning over how to allocate tax revenues between domestic spending and defense — a classic distributional conflict. The temporary exemption of defense spending from Germany’s constitutional debt brake cannot last indefinitely if debt ratios are to remain stable.

In the medium term, all defense expenditure must be reintegrated into the federal core budget. The fiscal groundwork for this needs to be laid now. Defense capability, after all, is not just a military issue — it is a matter of societal balance and geopolitical survival.

About the author:
Since 2004, Prof. Michael Hüther has headed the German Economic Institute (IW) in Cologne. From 1995 to 1999 he served as Secretary-General of the German Council of Economic Experts and later worked as an economist in the private sector at DekaBank. Hüther is deputy chairman of the Atlantik-Brücke.

This article was first published by Süddeutsche Zeitung Dossier.

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Following the event, he emphasized in a video interview with Atlantik-Brücke the need for increased defense spending – specifically 5% of GDP or 3.5% for military investments – in order to meet the requirements of modern warfare, especially in the areas of cyber and space, which will be central to the future. In the past, the focus was on land, air, and sea forces, Badia said, but today cyber and space operations are crucial for dominance, which is why significant financial resources are needed for holistic capability development.

Despite the differing national interests of the 32 NATO member states, Badia emphasizes the alliance’s shared values. He describes how consensus-based decision-making is based on the search for alternatives, so that a rejection (“no”) often leads to an “alternative yes.” Over his 41-year career, the security policy landscape has changed constantly – from the Cold War to German reunification and out-of-area operations to new threat scenarios. Nevertheless, the community of values of the “free Western alliance” has always remained capable of action.

Badia is optimistic that, despite tensions between national sovereignty and common alliance interests, actions will always be taken in the interests of the West and that NATO plus its 35 partners stand on a stable, value-based foundation.

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By Dr. Kim Eduard Lioe and Pia Kauer

In times of geopolitical uncertainty, reliable partnerships are more crucial than ever.  Russia’s war of aggression against Ukraine, China’s geopolitical rise, and the U.S. retreat from its traditional leadership role are forcing Western democracies to rethink their security policies. Against this backdrop, the newly signed defence partnership between the European Union and Canada marks a strategic milestone — and an opportunity to reshape security dependencies.

While Germany remains primarily focused on Russia’s war against Ukraine and Moscow’s use of hybrid warfare, Canada is also looking northward. Canada faces several emerging threats: increased Russian activity in its airspace, the regular deployment of Chinese dual-use research vessels, and a general uptick in Arctic maritime operations.

In light of Canada’s deep dependence on US military technology, a shift toward greater strategic autonomy is long overdue.

Encouragingly, this sense of urgency has already spurred several promising developments:

[related]1. Ongoing Partnership in Ukraine

Canada remains one of Ukraine’s most committed allies, having pledged $4.5 billion in military assistance since 2022, and contributing to Germany’s Immediate Action on Air Defence (IAAD) initiative, which pools resources from the international community to speed up the delivery of air defense systems for Ukraine. Both Canada and Germany lead NATO battle groups in Latvia and Lithuania, respectively, and are working to scale these up to full brigade strength.

2. Increased Military Spending

Russia’s full-scale invasion of Ukraine revealed that Europe was not prepared for a high-intensity, prolonged conventional war. Canada, like Germany, has historically underinvested in defense. However, Mark Carney’s government is ramping up its defense spending. While Justin Trudeau had promised to reach the 2% target by 2032, Mark Carney announced that it would be achieved in March 2026, up from 1.4% in 2024. At the 2025 NATO Summit in The Hague, this target was increased to 5% by 2035 in a joint agreement with European NATO members.

“The new agreement adds a parallel channel — a distinct European-Canadian defence architecture.”

3. New Procurement Initiatives

On the margins of the EU-Canada summit 2025, the High Representative of the European Union for Foreign Affairs and Security Policy Kaja Kallas, Canada’s Minister of Foreign Affairs Anita Anand and Minister of National Defence David J. McGuinty announced a new European-Canadian Security and Defense Partnership (“SDP”), which will open the door for Canada’s participation in the EU joint procurement program SAFE („Security Action for Europe“). At its core lies a deeper cooperation on military logistics, cybersecurity, and technological innovation. Until now, cooperation in these areas has primarily taken place within NATO. The new agreement adds a parallel channel — a distinct European-Canadian defence architecture. This development is more than symbolic; it reflects a genuine strategic shift, acknowledging that democracies must build new networks to confront evolving threats.

SAFE’s loans for the purchase of defense technology are only open to EU member states. However, Ukraine, EEA/EFTA countries, EU candidate nations and third countries with a Security and Defense Partnership can participate in the joint procurement process – lowering prices for all.

This is especially attractive for Canada which seeks to dramatically decrease its reliance from US defense technologies. Right now, Canada is spending around 70% of its military equipment appropriation on US-made gear.

For instance, Canada announced that it is considering buying European fighter jets in a move to reduce their dependence on US suppliers. And a trilateral letter of intent signed by Norway, Germany and Canada at last year’s NATO summit aims not only to strengthen maritime security co-operation in the North Atlantic but might also pave the way for Canada to join the existing German-Norwegian partnership, in which the two countries are deepening their strategic relationship, with a focus on addressing shared security challenges and enhancing their capabilities in key areas like maritime security and space.

While Canada not only aims to be a buyer but also a supplier under SAFE, participation comes with strict eligibility rules. To qualify, at least 65 % of the total value of a weapon system procured under SAFE must originate from manufacturers located in the EU, an EEA/EFTA state, or Ukraine.

Foreign suppliers can only be included in the 65 % threshold if their governments have a Security and Defence Partnership with the EU, and they then conclude a further bilateral agreement granting access to SAFE procurements. Since the EU and Canada have already agreed to swiftly launch negotiations on a new bilateral agreement, Canadian defence firms are optimistic that their products will soon comply with these requirements.

“Interchangeability of key equipment turns fragmented capabilities into collective strength.”

4. Increased cooperation

In addition to granting Canada access to SAFE, the Security and Defense Partnership between Canada and the EU will increase cooperation on military assistance for Ukraine and aims to enhance the compatibility of Canadian and European military equipment and the cooperation of military personnel.

Of particular promise is the deepening of defence-industrial ties. This not only opens economic opportunities but also promotes technological exchange and industrial innovation.

Both partners face similar challenges: modernizing outdated equipment, building resilient supply chains, and protecting critical infrastructure. A coordinated approach to procurement can eliminate redundancies, reduce costs, strengthen interoperability between armed forces and interchangeability of equipment.

And for Junghans Defence, a long-standing partner of Canada in the field of fuzes for various types of ammunition, business and cooperation models are evolving. Local production of interchangeable fuzes e.g. for artillery ammunition in collaboration with partners in Canada is the logical result.

Interchangeability of key equipment such as fuzes and ammunition turns fragmented capabilities into collective strength by ensuring that ammunition is not just available but usable, by anyone, anywhere, without delay. Interchangeability therefore is not just a convenience – it’s a matter of battlefield readiness.

In conclusion:

Despite its promise, the EU-Canada partnership still faces significant challenges. Implementation details are still to be worked out. Long-term success will also depend on political consistency on both sides of the Atlantic. Another question is how this partnership will coexist with NATO. How can overlapping efforts with the U.S. be harmonized? What role will post-Brexit Britain play in a landscape where it is neither fully in the EU nor closely aligned with Canada?

Yet the deepened EU-Canada cooperation sends a powerful message: that democratic nations can build resilient, innovative, and independent security structures without depending on volatile bilateral relationships. It would be naive to believe that Europe and Canada could replace the US as a protective power and supplier of military technology for each other. Nevertheless, efforts to strengthen cooperation are promising, and in the best-case scenario, they will enhance security in Europe and North America while bolstering their respective economies through friendshoring.

In a world where security is increasingly networked, technology-driven, and global in scope, this partnership is both timely and necessary. The EU gains a reliable partner across the Atlantic. Canada gains strategic autonomy and access to major markets and innovation platforms. For both, this is more than an agreement — it is a strategic promise for the future.

Dr. Kim Eduard Lioe is the CEO of JUNGHANS Defence, a global leader in the manufacture of igniters and ignition systems. He is the author of the book “Armed Forces in Law Enforcement Operations? – The German and European Perspective” and spoke on a panel at this year’s German-Canadian Conference. 

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