Key Takeaways
France's 2025 defence budget will rise to €50.54 billion, focusing on complex munitions, intelligence, space, cyber warfare, AI, and other advanced technologies.
The EU is shifting toward greater strategic autonomy in defence procurement, reducing reliance on non-EU suppliers to strengthen Europe’s long-term defence capabilities.
EU defence firms, such as Saab and Dassault Aviation, are expected to secure larger joint procurement contracts, intensifying competition with U.S. suppliers as EU military technology advances.
Increased EU defence spending will boost support for Ukraine, with further EU autonomy likely if Trump wins the U.S. presidency, potentially straining U.S.-EU defence ties and increasing EU arms exports.
French defence expenditure
On 14 October, French Armed Forces Minister Sébastien Lecornu gave context to rising defence spending in the French government’s 2025 draft budget. While the government plans to cut €60 billion from most departments to reduce the fiscal deficit, defence spending will see an increase of €3.31 billion in 2025. This fits with the intention outlined in the European Defence Industrial Strategy, which stresses the short-term need for bolstering Europe’s defence readiness in the face of Russian aggression.
Lecornu’s address gives a clear picture of French defence spending priorities. Defence expenditure will increase for complex munitions, intelligence gathering, and space and cyber warfare. Additional funds will go toward military artificial intelligence, deep-sea capabilities, and directed-energy weapons.
European strategic autonomy
The upward trend in the French defence budget is underpinned by the new French Military Programming Law (2024-2030), which emphasises a longer-term shift toward French ‘strategic autonomy.’ At the grand-strategic level, this is an acknowledgement of French ambition to become a balancing power in Western Europe and for European defence more generally to become less reliant on non EU defence suppliers, chiefly the United States. As it stands, the EU is heavily reliant on non-EU sources for its defence procurement: 78% of EU defence procurement between mid-2022 and mid-2023 went to non-EU suppliers. Of that, 63% went to the United States.
This increased expenditure over the next five years will lay the groundwork for significant long-term changes in the structure of the European defence industry, including its procurement relationship with the US and its global competitiveness.
Forward Look
EU competitiveness in the global defence market
KSG projects that over the next five years, the EU will make substantial progress in reducing the fragmented defence spending that has characterised its past procurement practices shifting toward more coordinated joint procurement efforts. This implies a collaborative approach to defence procurement that will likely see outsized and record procurement orders going to major EU defence companies, notably Saab, Kongsberg, Thales, Leonardo, MDBA, and Dassault Aviation.
KSG expects that competition for defence contracts specifically between European and US suppliers will intensify in the coming years. As the EU increases defence expenditure domestically, EU military technology is also expected to become more competitive relative to US military technology. Lecornu specifically criticised the choice to purchase US-made Patriot air-defence systems, credibly arguing that the French and Italian-made SAMP/T systems outperform the Patriot system.
The EU supplies roughly 27% of global arms exports, only behind the US at 42%. KSG expects that as domestic demand for EU defence production increases, the EU will begin closing this gap in the coming decade. This will likely increase competition with US defence contractors in South Korea and Japan as they balance Chinese power projection, and allied West and East-African countries facing growing insurgency threats. Moreover, KSG expects that if Trump wins the US presidency in November, this will likely heighten the perception of the US as an unreliable security partner, further increasing global demand for EU arms exports.
Technology and capacity-oriented defence spending
KSG assesses that European defence spending in the next five years will invest heavily in technology that can improve autonomous weaponry and intelligence gathering systems. This means that the European landscape remains ripe for defence technology breakout firms that bring technological solutions to tactical and operational-level problems (such as Andoril, Shield AI, and Epirus in the United States). Given the traction of Europe’s strategic autonomy concept, European-owned tech-defence firms and their investors may look to gain from exceptionally lucrative, long-term defence contracts.
Commodities associated with high-technology weaponry will likely also see a surge in demand, as increased competition incentivises domestic EU technological innovation. These will include rare earth metals such as neodymium and dysprosium; semiconductor commodities such as silicon, gallium and indium; and those required for wiring and battery function, predominantly lithium and cobalt. Other commodities that will see a surge in demand will be high density and heat-resistance metals such as titanium and tungsten. In this regard, Chinese dominance in the global extraction and processing of critical raw materials will remain a key vulnerability for the EU.
Geopolitical implications of EU defence expansion
KSG assesses that the political drive toward EU strategic autonomy will ultimately serve to increase EU support for Ukraine in its war against Russia, especially if Trump wins the US presidency in November. Although the Russian capacity to sustain a war of attrition should not be underestimated, increased NATO capacity will continue to serve as a major source of deterrence and may place Russia in a position of overreach. This may place further pressure on Russia to reduce its own support in peripheral theatres such as the Sahel.
KSG assesses that French bolstering of its military capabilities will be reinforced both by continued tensions between Iran and Israel, given its role in aiding Israeli and US forces in downing Iranian missiles. Energy relations will likely incentivize increasing French capabilities, with TotalEnergies expanding its relationship with the ADNOC (Abu Dhabi National Oil Company) in 2022. This augments France’s substantial reliance on the region, given Saudi Arabia represents roughly 12% and 8% of France’s refined and crude oil imports respectively.
KSG expects that even if Harris wins the US presidency and signals a continuing US commitment to NATO and EU security, the strategic autonomy concept will remain a driving force in pushing EU defence spending to domestic firms. A Harris presidency does not guarantee a democratic majority in Congress or the Senate, and her likely unpopularity in office would make pushing through legislation that pertains to bolstering EU security difficult.