ANALYSIS: The European defense boom hits a production wall

What CNBC’s Analysis Reveals

According to CNBC’s analysis, the real obstacles are neither budgetary nor political, but industrial: supply delays, fragmented national programs, shortages of skilled labor, and strained supply chains are hampering Europe’s ability to rebuild an industrial base weakened by decades of underinvestment in defense.

An industry executive quoted in the analysis bluntly sums up the situation: the European defense industry “hasn’t been in the habit of producing on a large scale for a very long time,” and beyond the major conglomerates, the sector depends on multiple layers of suppliers—often small family-owned businesses—all of which must ramp up production simultaneously for the supply chain to function.

McKinsey’s Uncompromising Analysis

A McKinsey study published in February 2026 confirms this cautious assessment: despite a considerable increase in investment, equipment stocks in European NATO countries remain below 2021 levels, reflecting both massive donations of equipment to Ukraine, the phasing out of aging systems, and long delivery times for new equipment.

The same study also found that the fragmentation of weapons platforms in Europe is more than four times greater than in the United States—a fact that seriously complicates interoperability, logistics, and the industrial economies of scale needed to produce quickly and in large quantities.

This statement about the lack of experience in large-scale production struck me more than any stock market figure: you can’t make up for thirty years of military deindustrialization in three years of enthusiastic press releases.

From 300,000 to 2 million shells per year

Nevertheless, there is a concrete and verifiable example of successful industrial catch-up: European production of 155mm shells has risen from approximately 300,000 units per year in 2022 to an estimated capacity of 2 million units per year by the end of 2025, according to data from the European Parliament and confirmed by several specialized analyses. According to the Financial Times and the European Parliament’s research service, this pace of industrial expansion would exceed peacetime growth rates by a factor of three.

This result did not come out of nowhere: it stems directly from targeted programs such as the Act in Support of Ammunition Production (ASAP), which has a budget of 500 million euros to boost domestic production, and the European Defense Industry Program (EDIP), which will mobilize 1.5 billion euros between 2025 and 2027.

Rheinmetall at the Forefront of This Revival

Rheinmetall now operates the largest artillery shell production facilities in Europe, with announced capacity expansions in Germany, Romania, and Lithuania. The new plant in Unterlüß alone is targeting an annual capacity of nearly 350,000 shells, as part of an 8-billion-euro investment plan scheduled for 2026–2030.

This specific case demonstrates that rapid industrial catch-up is possible when political will, public funding, and industrial execution align—but it also shows just how much this alignment remains the exception rather than the rule across the entire sector.

This is exactly the kind of concrete success I want to highlight: not an abstract figure from a diplomatic summit, but shells that are actually rolling off the production line at a German factory at a measurable rate.

800 billion euros on the table

On March 6, 2026, the member states of the European Union approved the ReArm Europe plan, which calls for 800 billion euros in defense investments by 2030. This colossal sum breaks down into 150 billion euros in loans through the SAFE (Security Action for Europe) instrument and 650 billion euros in national budgetary leeway, made possible by 17 member states invoking the national exemption clause, which temporarily exempts defense spending from standard deficit rules.

On paper, this amount is sufficient to bring about a structural transformation of the European defense industry. In practice, its implementation will depend on the ability of 27 governments to coordinate their procurement efforts rather than continuing to fund redundant and fragmented national programs.

A Tight and Demanding Timeline

The European roadmap sets out specific milestones: mapping industrial capabilities by mid-2026, 40% of procurement through joint procurement by 2027, filling critical capability gaps by 2028, and full delivery via the SAFE instrument by 2030. In particular, the third quarter of 2026 is set to see the presentation of a comprehensive status report on industrial ramp-up, as well as the holding of the first European Defense Industry Summit.

This timeline, while rigorous on paper, leaves little room for error: any delay in industrial mapping or in the coordination of joint procurement directly affects the date by which Europe will actually be able to rely on a credible and autonomous deterrent.

I remain fundamentally optimistic, but realistic about the practicalities: such an ambitious bureaucratic timeline, coordinated among 27 countries with often competing industrial interests, is historically the kind of plan that always takes longer than expected.

Trump, an Uncomfortable but Effective Catalyst

It would be intellectually dishonest not to acknowledge that this acceleration in European rearmament owes much to pressure from the Trump administration, which has for years demanded a more equitable sharing of the financial burden of collective defense. The new target of 5% of GDP by 2035, agreed upon at the Hague summit, bears the direct mark of this repeated American insistence.

Whether or not one approves of the method—often blunt and public—the budgetary results are clear: defense spending by European allies and Canada rose by 20% in 2025 compared to the previous year, an unprecedented jump since the end of the Cold War.

A Strategic Dependence That Persists Despite Everything

This U.S. pressure, as effective as it may be in budgetary terms, has not yet resolved Europe’s structural dependence on U.S. industrial and technological capabilities in several critical areas, notably advanced missile defense and certain command systems. European strategic autonomy therefore remains, at this stage, a stated goal rather than a fully realized reality.

It is precisely this tension between persistent dependence and a stated desire for autonomy that makes industrial implementation in the coming years just as crucial as the budget announcements themselves.

I have no qualms about giving Trump credit on this specific budgetary point: the rearmament figures are real and verifiable, even though I remain convinced that his approach has also sown legitimate concern among several European allies.

Undercapitalized SMEs Facing Explosive Demand

A Houlihan Lokey report published in April 2026 highlights a risk often overlooked in mainstream analyses: European defense suppliers are often small companies with limited capacity to raise equity capital to finance their expansion, which exposes major contractors to bottlenecks throughout complex supply chains.

This finding directly echoes the warning issued in the CNBC analysis: if a single Tier 2 or Tier 3 supplier fails to deliver a critical component, an entire fighter jet or armored vehicle program could come to a standstill, regardless of the size of the major contractor’s order book.

Civil Industrial Conversion as a Potential Solution

An interesting and underutilized avenue involves mobilizing Europe’s civilian manufacturing base to accelerate defense production. The example of the Renault automotive group, which has begun producing drones for Ukraine, illustrates this potential for industrial conversion: automotive engineering, high-volume assembly, precision machining, and quality control processes transfer relatively well to military manufacturing.

If this trend accelerates, it could alleviate capacity constraints more quickly than relying exclusively on the expansion of major defense contractors’ factories, while reinforcing the political narrative that rearmament can be achieved through domestic rather than imported means.

I believe this path to industrial conversion is underestimated by commentators: transforming European automotive assembly lines into drone production lines may be the fastest and most politically viable solution available at this time.

Deterrence is measured in factories, not in rhetoric

Western military deterrence against Russia does not rest solely on summit announcements or commitments expressed as a percentage of GDP. It rests, quite concretely, on the actual capacity of European factories to produce ammunition, armored vehicles, and air defense systems at a rate sufficient to replenish stocks while continuing to support Ukraine’s war effort.

As long as this gap between budgetary ambition and industrial execution persists, the Kremlin has an argument—however questionable it may be—to downplay the actual scope of Western rearmament in its own domestic propaganda narratives.

A Window of Vulnerability That Must Not Be Ignored

This period of industrial transition, in which orders far exceed immediate delivery capabilities, constitutes a window of strategic vulnerability that patient adversaries such as Russia, China, or Iran may seek to exploit until the Western industrial base has completed its full modernization.

It is precisely for this reason that rigorous monitoring of industrial execution—and not just budgetary announcements—must remain a priority for anyone seriously analyzing the security of NATO’s eastern flank.

I believe the West is dangerously underestimating this window of industrial vulnerability: our adversaries, for their part, are well aware of how long it will take us to make up our own production shortfall.

Investors Are Now Betting on Capability, Not Just Announcements

One encouraging sign is worth highlighting: according to several market analysts, institutional investors now clearly distinguish between companies capable of demonstrating a genuine ability to ramp up industrial production and those that rely primarily on announcements and press releases. This increased discipline in the financial markets could, paradoxically, accelerate the actual implementation of European rearmament.

The contrast observed in 2026 between BAE Systems’ stock performance—up 23% since the start of the year—and Rheinmetall’s more modest performance, despite growth prospects of 40 to 45%, illustrates this growing market caution toward growth promises that have not yet materialized into concrete deliveries.

Mergers and Acquisitions as a Catalyst for Capacity

According to the Bain & Company report published in January 2026, Europe will need to allocate more than 1,000 billion euros to defense acquisitions by 2030 to rebuild its operational capacity, modernize its equipment, and replenish its stockpiles. A substantial portion of this amount is expected to flow through mergers and acquisitions, enabling major conglomerates to rapidly absorb existing production capacity rather than waiting for new factories to be built from scratch.

This wave of industrial consolidation, if it materializes at the announced pace, could be the fastest and most realistic way to bridge the gap between European budgetary ambitions and their translation into military capabilities that can be deployed on the ground.

I see this announced wave of mergers and acquisitions as further confirmation that the industry itself recognizes it cannot build everything from scratch: acquiring existing capabilities is often faster than creating new ones.

Two Hundred Thousand Jobs to Be Reskilled

The European Defense Roadmap explicitly calls for the retraining of 200,000 defense industry employees by the end of 2026—a goal that underscores how much the human factor, and not just financial considerations, is a major obstacle to the continent’s industrial growth.

This shortage of skilled labor particularly affects specialized technical trades: precision machining, the assembly of complex electronic systems, and the chemistry of energy materials—skills that cannot be acquired overnight and often require several years of training before a worker becomes fully operational on a military production line.

A Demographic Race Against Time

This labor constraint is part of an already strained demographic context for several aging European economies, where the defense industry must now compete with other sectors to attract a qualified technical workforce that is becoming increasingly scarce. This demographic challenge could, in the long run, prove more difficult to resolve than the issue of financing new production lines alone.

Without a large-scale training strategy, sustained over the long term by stable public funding, even the best-funded factories risk operating below their theoretical capacity due to a lack of qualified personnel to run them at full capacity.

I find that this human aspect is too often pushed to the sidelines in financial analyses: a factory devoid of skilled workers will not produce a single additional shell, no matter how much is invested in it.

What World War II Teaches Us About Industrial Mobilization

Historical precedents for rapid industrial mobilization—notably that of the United States during World War II—show that radical industrial transformation remains possible within a few years when political will, financial resources, and logistical organization are perfectly aligned. But this precedent also serves as a reminder of just how much such mobilization requires centralized coordination—something the European Union, with its 27 member states and their often divergent industrial interests, structurally struggles to replicate.

This historical comparison must therefore be handled with caution: the current European institutional context differs profoundly from that of a unified federal state in a time of declared war, which automatically complicates any attempt to rapidly replicate this type of total industrial mobilization.

Cautious optimism based on results already achieved

Despite these structural obstacles, the example of 155mm ammunition production—which has increased more than sixfold in three years—demonstrates that rapid catch-up remains possible in targeted and well-funded industrial sectors. This example provides a realistic and verifiable basis for measured optimism, provided it can be replicated in other critical segments such as air defense and precision-guided munitions.

It is this replication, segment by segment, that will determine whether the current stock market boom in the European defense sector ultimately translates into genuine strategic autonomy, or whether it remains a financial public relations exercise disconnected from reality on the ground.

I choose to highlight the example of 155mm shells as proof that what seems industrially impossible is not always impossible: sometimes all it takes is a clear objective, dedicated funding, and sustained political will over the long term.

The Risk of a Financial Bubble Disconnected from Reality

Some more skeptical financial analysts are warning of the risk of a speculative bubble in defense sector stock valuations, arguing that the expected price-to-earnings ratio for 2026, around 26.5 times earnings according to an EY study, already represents a significant premium relative to the broader market—a premium that may not be justified if current production issues persist beyond 2027.

This financial caution serves as a reminder that stock markets, however optimistic they may be at present, are no guarantee of actual industrial success, and that a correction of excessive valuations remains possible if the gap between promises and actual results does not narrow quickly.

Long-Term Budgetary Sustainability in Question

Other critical voices point out that maintaining such a high level of defense spending over an entire decade, up to the 2035 target, will require painful budgetary choices in other European public sectors, particularly health care and education, which could generate internal political tensions that might, in the long run, undermine the unity of the current consensus on rearmament.

This domestic political dimension—often overlooked in purely industrial or stock market analyses—could prove just as decisive as the production constraints themselves for the future of European rearmament.

I take these criticisms seriously without fully endorsing them: reasonable skepticism about long-term fiscal sustainability seems to me healthier than blind optimism in the face of such enormous sums.

A Test of Credibility for the Entire Alliance

The NATO summit scheduled for July 7–8, 2026, in Ankara represents a crucial opportunity for Western leaders to demonstrate—with figures and timelines to back it up—that the path toward 5% of GDP by 2035 is indeed accompanied by realistic industrial planning, and not merely theoretical budgetary commitments disconnected from actual production capabilities.

In particular, this summit must clarify how the 27 European Union countries will coordinate their joint procurement—a target set at 40% by 2027—without which the current industrial fragmentation will continue to hinder the economies of scale needed to produce faster and at lower cost.

The Legitimate Expectations of Allies on the Eastern Flank

For countries such as Poland, Bulgaria, and Romania—which are directly exposed to Russia’s military posture in the Black Sea and along NATO’s eastern border—this issue of industrial execution is not theoretical: it directly determines the delivery schedule for the equipment they need to ensure their own immediate defense against a threat deemed real and persistent.

It is this concrete urgency, experienced daily on the eastern flank, that should remind all European decision-makers that industrial timelines—unlike political ones—cannot be negotiated.

I constantly think of our allies on the eastern flank when I read these financial reports from my office: for them, every month of industrial delay translates into real vulnerability, not some abstract stock market percentage.

U.S. Order Books Highlight the Gap

A comparison with the U.S. defense industry highlights just how far Europe still has to go. The five largest U.S. defense contractors ended fiscal year 2025 with a combined order backlog of $1,360 billion, up 23.7% year-over-year, according to a PwC analysis published in June 2026. By way of comparison, Washington’s proposed defense budget for 2027 alone totals $1,500 billion—an amount greater than the entire five-year “ReArm Europe” plan.

This disparity in scale does not mean that Europe is doomed to lag behind indefinitely, but it serves as a stark reminder that European strategic autonomy—often cited as an imminent goal—will still require years of sustained investment before it can structurally rival America’s industrial depth.

An Opportunity for Collaboration Rather Than Mere Rivalry

Several industry analysts emphasize that this relationship should not be viewed solely as a competition: U.S. and European companies are increasingly exploring cross-deals, allowing strategic U.S. buyers to invest in expanding European defense budgets, while major European companies seek access to the most advanced U.S. technological capabilities.

This growing interdependence, if managed effectively on the political front, could accelerate the transfer of industrial know-how to Europe while strengthening transatlantic cohesion in the face of common threats posed by Russia, China, and Iran.

I see this growing interdependence as yet another reason to reject any discourse on European strategic autonomy that would be pursued against the United States rather than in partnership with it: our security interests remain deeply intertwined in the face of the same adversaries.

A Real, but Still Incomplete, Re-armament

The boom in European defense is neither an illusion nor a mere exercise in political communication: ammunition production figures, record order books, and the massive investments announced since 2022 constitute a very real industrial transformation that is already partially evident on the ground. But this transformation remains incomplete, and the gap between budgetary ambitions and actual delivery capacity remains the main risk factor for the credibility of Western deterrence in the coming years.

The coming months—leading up to the Ankara summit and beyond—will reveal whether Europe finally succeeds in turning its billions into tangible military capabilities, or whether the current stock market boom will remain, for part of the sector, a bet on an industrial future that is still largely yet to be built.

The Real Indicator to Watch

Rather than relying solely on budget announcements or stock market valuations, serious observers should now closely track more concrete indicators: the actual number of shells produced each month, the rate at which the industrial workforce is being retrained, and the actual share of European joint procurement. It is these figures—more understated but far more revealing—that will determine the true trajectory of Western rearmament.

It is by monitoring these indicators—with the same rigor applied to this report—that we will one day be able to state with certainty that Europe has transformed its historic promise of rearmament into a fully realized industrial reality.

I will continue to follow this issue shell by shell, factory by factory, because I believe that it is precisely this level of factual detail that is most lacking in public debates on European rearmament.

Signed, Maxime Marquette, columnist