NATO has resolved its issue with inadequate defense funding, as European members and Canada increased their core defense investment by $139 billion in 2025. However, the alliance is now grappling with the new challenge of converting these funds into tangible military capabilities and ammunition. NATO Secretary General Mark Rutte emphasized that while cash is crucial, it cannot stop a missile or a tank, highlighting the need to rapidly transform the money into combat-ready assets. The focus has shifted from merely increasing spending to effectively utilizing the funds to ramp up production.
The alliance faces significant hurdles in translating financial commitments into firepower. Analysts warn that Europe's current production capacity for critical weaponry, such as air defense missiles, would be overwhelmed within days if a conflict were to break out. Despite efforts, shell output, which increased from 300,000 annually in 2022, is targeting two million, a quantity still insufficient for a protracted conflict. The bottleneck is exacerbated by a fragmented European defense market with 27 distinct national markets and regulatory frameworks, hindering efficient production and investment.
Defense Commissioner Andrius Kubilius noted that Europe has learned to raise additional funds but still needs to learn how to spend them effectively to "outproduce, out-innovate, and outgun Russia." National favoritism further complicates the issue; for instance, the share of German procurement going to domestic firms has doubled from about 30% in 2020-2021 to 60% in 2025-2026. This fragmentation and lack of market transparency deter large companies from investing in expanded production capacity, as they often receive preferential treatment from their national governments without significant capital outlay for new facilities.
The EU has made some strides, establishing a defense fund, fast-tracking ammunition production, and launching a $150 billion loan scheme for the sector. The proposed 2028-2034 budget aims to quintuple defense and space spending to $131 billion, with a goal for member states to be ready for a major confrontation by 2030. Despite this, Europe still relies on the U.S. for critical command-and-control systems and software. The ongoing NATO summit in Ankara is expected to feature a special industry forum where leaders will sign deals worth billions of dollars, aiming to address the production shortfall and turn financial commitments into effective military strength.
