The long-running burden-sharing dispute has transformed into a trial by fire for Europe. NATO 3.0, introduced in early 2026 as a European-led concept of transatlantic partnership, envisages European allies not only contributing 5 per cent of GDP to defence and security but also ensuring their own conventional defence by gradually replacing US forces and strategic enablers. The 2026 Ankara Summit put the Alliance’s collective seal on this forced Europeanisation. Washington’s years of warnings to its European partners, reluctant to spend on their own defence and long spoiled by American protection, have now hardened into policy. This May, the Trump administration announced the withdrawal of 5,000 troops from Germany. It also scaled back the assets pledged to the NATO Force Model, reportedly including fighter jets, refuelling aircraft, submarines, warships and strategic bombers. Pressure intensified at the June meeting of NATO defence ministers, where US Secretary of War Pete Hegseth announced a six-month review of US force posture and basing in Europe, which assesses each ally’s contribution.

For Europe, this amounts to an attempt to cut the umbilical cord that has long tied its conventional defence to the US. The main question, then, is whether Europe can turn its NATO 3.0 moment into genuine operational autonomy.

From burden-sharing to speed-sharing

The return of full-scale war to the continent forced member states to act urgently. The cautious language of the 2022 Strategic Compass gave way to the Commission’s 2025 White Paper for European Defence and its call for readiness by 2030, reflecting the first signs of emerging strategic autonomy. European defence expenditure reached a record €418 billion in 2025, with expectations of €454 billion in 2026. Twenty-three member states met or exceeded NATO’s former 2 per cent of GDP benchmark, while defence investment rose to an unprecedented 32.2 per cent of total spending, according to European Defence Agency Defence Data. Yet the spending surge has not resolved the transatlantic dispute. The rapid progress demanded by Washington remains difficult for Europe to meet given its fiscal and institutional constraints. Collaborative procurement accounted for only 24 per cent of equipment spending, showing that spending more does not equate to spending better or together.

The European Defence Technological and Industrial Base (EDTIB) faces a mismatch of clocks. Fragmented cooperation, delayed co-financing and long R&D cycles slow the passage from research to procurement, leaving critical capability gaps unresolved and limiting EU uptake of Ukraine’s battlefield-tested innovation at wartime speed. This inertia is reinforced by limited access for smaller, innovative firms. In Germany, Poland, and the UK, less than 30 per cent of order volumes go to firms outside the ten largest contractors, while established giants such as Thales, Rheinmetall, and Polish Armaments Group are booming.

The EU’s 2025 Defence Industry Transformation Roadmap called for greater speed and agility in defence capability development, as well as faster procurement and greater openness to new entrants, drawing on lessons from Ukraine. To this end, several measures have been introduced at the EU level. In little more than a year, Europe has begun to plug into Ukraine’s battlefield feedback loop. Without a doubt, Ukraine is now a world leader in low-cost drone technology. Kyiv created the BRAVE1 Defence Technology Cluster, bringing DefenceTech companies, military officials, government, voluntary organisations and the media together so that new solutions can materialise into battlefield innovations at speed. This indispensable knowledge is being integrated into EU defence programmes through the joint BraveTech EU project, which incorporates Ukraine’s rapid exchange between soldiers and innovators into Europe’s defence innovation ecosystem.

Under the European Defence Industry Programme (EDIP), which entered into force in late 2025, the FAST financial instrument is designed to improve access to debt and equity finance for SMEs and small mid-caps involved in defence manufacturing and supply chains. The recently announced €115 million Agile and Rapid Defence Innovation (AGILE) Programme, expected to become operational in early 2027, is intended to address the problem at its most visible point — time. Its lab-to-field approach aims to shorten the path from technological development to military use while facilitating the participation of SMEs, start-ups and scale-ups in the EDTIB.

At the NATO level, the Rapid Adoption Action Plan, endorsed in 2025, aims to shorten the path from identifying a technological need to acquiring and integrating a solution to no more than 24 months. Meanwhile, NATO’s ambition to address the financing and scaling gaps has materialised in the newly launched Innovation Scale-Up Package, which is to provide what young firms have lacked, namely credible demand, access to private capital and manufacturing capacity.

The EU can bring companies together and finance ambitious defence R&D, but it cannot guarantee that a promising technology will be bought, scaled or fielded. The Commission’s own interim evaluation of the European Defence Fund exposes this broken handover. By March 2025, the Fund had committed €5.4 billion to 162 collaborative projects. Yet procurement remains a separate national decision, with no automatic customer waiting at the end of the EU-funded pipeline. Industry stakeholders reported to the Commission that not a single EU-funded defence project had a complete co-financing framework in place when its grant was signed. In some cases, national funding was still missing several years after work had begun, causing serious delays. The memoranda needed to unlock national contracts can themselves take more than two years to negotiate, as governments often struggle to settle intellectual property and user rights.

The problem, then, goes beyond slow bureaucracy and lies in Europe’s long-standing Achilles heel – fragmentation. Member States continue to prioritise national champions and protect domestic defence industries, which is backed by Article 346 TFEU, allowing them to derogate from EU single-market and procurement rules where necessary to protect essential security interests. It is worth noting that each state also has different levels of resources, threat perception, and regional defence priorities, shaped, among other factors, by its geographic closeness to Russia. The gap in NATO commitments illustrates this well, with Poland and the Baltic states, for example, already moving far ahead in terms of defence expenditure, spending up to 4 per cent of GDP even before the new 5 per cent benchmark was announced, while Spain, Czechia and Slovenia remain at around 2 per cent. In practice, frequent reliance on Article 346 helps preserve nationally segmented markets, with most contracts still going to domestic suppliers and competition among European firms remaining limited. Karlsrud and Reykers therefore suggest that the way around this gridlock may lie in coalitions of like-minded and willing states, which will pool demand and procure capabilities together, without waiting for consensus among all twenty-seven member states.

New players are still not fully in the game

Pooling demand is only one side of the scale challenge. The EU must also connect new defence firms with established production networks. Since 2022, the EU has sought to lower their entry barriers through the European Defence Innovation Scheme (EUDIS), which provides business acceleration, matchmaking services and coaching. The 2026 EDF work programme alone allocated €65 million to non-thematic SME calls. Support at the innovation stage, however, does not ensure equal access to defence contracts or information about the operational requirements of armed forces. An SME may emerge from an accelerator with a working prototype but still struggle to secure its first military customer, obtain the necessary certification or survive a protracted tendering process. Established defence companies, by contrast, already possess the customer relationships, specialised staff and resources needed to navigate this system, creating “an uneven playing field”. EU institutions should therefore facilitate the participation of established defence contractors able to provide certification, systems integration expertise and pathways towards industrial scaling, while preserving smaller firms’ independent role in experimentation and rapid technological development.

The planned cooperation between the Estonian advanced energy-storage company Skeleton Technologies and the major defence contractor KNDS France illustrates how such a division of roles could work. In June 2026, the companies signed a Joint Declaration to explore the integration of Skeleton’s supercapacitor-based power systems into KNDS military vehicle platforms, with potential projects involving 40 CT medium-calibre remote weapon systems and power-system development for main battle tanks. If successfully implemented, the cooperation could provide a practical model for combining technological agility with industrial capacity.

As NATO 3.0 takes shape, it is particularly clear that Europe’s main defence challenge is converting budgets into fielded capabilities at speed. This depends on rapid testing, learning through failure and iteration. EU funds, standards and initiatives are increasingly in place, but the funding and procurement architecture remains largely geared towards multi-year development cycles. Prime contractors hold growing order books, while demand signals weaken down the supply chain, leaving smaller companies without the certainty needed to invest and scale. Greater openness among national ministries towards new entrants, combined with the closer integration of smaller companies into prime contractors’ production networks, could contribute to a more diverse and adaptable defence ecosystem. In parallel, flexible cooperation among smaller groups of states may accelerate procurement by concentrating compatible demand and capabilities. Whether such coalitions can turn complementary national strengths into faster procurement without reproducing fragmentation at another level remains an open question.