NATO leaders meeting next week in Ankara are set to review whether rising military budgets can be converted into weapons, factories and usable capability amid supply-chain, labor and procurement strains.
Europe's rearmament drive is entering a more difficult phase as the focus shifts from spending pledges to whether defense companies and governments can translate hundreds of billions of euros into delivered weapons and industrial capacity. Ahead of next week's NATO Summit in Ankara, investors are increasingly questioning whether soaring defense valuations are running ahead of the sector's ability to execute, with procurement delays, fragmented national programs, labor shortages and supply-chain constraints slowing the buildup. European defense stocks and order books have surged since Russia's 2022 invasion of Ukraine, and McKinsey estimates European NATO core defense spending has doubled since 2019 and could reach about 800 billion euros by the end of the decade, aligning with NATO's new 3.5% of GDP benchmark. But recent setbacks, including Germany's cancellation of the F126 frigate program in favor of eight smaller Meko A-200 frigates from ThyssenKrupp Marine Systems, have highlighted the risk that government priorities can change even as budgets rise. Analysts and executives say Europe also remains dependent on U.S. and other foreign suppliers in key categories, meaning bigger budgets will not automatically deliver strategic autonomy without deeper industrial cooperation and more domestic production.