The Rearmament Signal: European Defence Budgets and the Autonomous Systems Opportunity.

The NATO 2% GDP commitment was, for most of its history, a political target that most European members ignored. That changed decisively in 2025. NATO's annual spending report confirmed all allies above 2% for the first time — but the more significant signal is that the leading spenders are now treating 2% as a floor, not a destination.

Poland is the most aggressive example. Defence spending is forecast at 4.8% of GDP in 2026, with a defence budget of approximately PLN 200.1 billion. That is not a planning commitment — the contracts are being signed. Poland's SAN counter-drone programme, in partnership with Kongsberg and PGZ, is valued at PLN 15 billion (approximately $4.2 billion), with deliveries due from 2026. Kongsberg's share alone is approximately NOK 16 billion ($1.67 billion). Poland is also drawing on approximately €44 billion in EU SAFE loans to finance acquisitions at a pace its domestic budget cycle could not otherwise support.

The Baltic states — Estonia, Latvia, Lithuania — are operating at similar intensity. Finland, Sweden, Denmark, and Norway are all sustaining defence spending well above 2% and accelerating procurement. These are the countries closest to the threat environment that is driving European rearmament, and they are the fastest-moving buyers.

Germany, historically the laggard in European defence spending, has shifted structurally. The Bundestag budget committee approved initial contracts of approximately €268 million each for Helsing's HX-2 and Stark Defence's Virtus loitering munitions on 25 February 2026, with options that could reach €1 billion per programme. A separate German strike-drone framework worth €2 billion is in procurement, and Rheinmetall's combat drone programme has been reported at up to €2.4 billion for a longer-term acquisition.

European rearmament capital is not spreading evenly across defence categories. It is concentrating in four autonomous systems segments: loitering munitions, low-cost strike drones, counter-UAS batteries, and modular sensor-jammer-shooter chains. Each of these is absorbing disproportionate share of the new spending because they are cheaper per unit than conventional platforms, faster to field, and — critically — they are the capability the conflict in Ukraine demonstrated as essential.

Germany's Helsing HX-2 and Stark Defence Virtus awards are the clearest example of the loitering munitions category receiving formal national procurement. France placed its first order for long-range kamikaze drones from MBDA and Aviation Design in January 2026. The UK committed over £4 billion to uncrewed and autonomous military systems this Parliament, with UK Defence Innovation allocating over £140 million in its first year specifically to drone and counter-drone technology — including £30 million for counter-drone systems alone.

Counter-UAS is the single fastest-growing line item. Sweden's Defence Materiel Administration placed an order with Saab on 8 April 2026 for a mobile and modular counter-UAS system valued at approximately SEK 2.6 billion (deliveries 2027–2028). Poland's SAN programme is the largest counter-drone contract in European history. The pattern is consistent: every country that has experienced or assessed the drone threat is prioritising defeat capability as the first procurement priority, before it prioritises additional offensive platforms.

The European Defence Fund's 2025 allocation directed €910 million across 62 projects, including unmanned minesweeping, autonomous ground systems, resilient drone navigation, and swarming capability. These are EDF's research and development investments — the procurement contracts that follow are substantially larger.

The most consequential structural shift in European defence procurement is not the spending level — it is who is winning the contracts. Traditional primes still dominate the largest national programmes. But the modular, software-first, and dual-use companies are capturing the faster-moving, more agile procurement lines — and those are the lines that are growing fastest.

DroneShield reported a record $61.6 million European military contract in June 2025 and has since announced European manufacturing and assembly capacity to service regional demand. Milrem, an Estonia-founded company with civil-military roots, received €50 million under the EDF's iMUGS2 project for field testing unmanned ground systems. Dassault Aviation invested in French startup Harmattan AI in January 2026 — a direct signal that the traditional primes are acquiring or partnering with dual-use AI and autonomy companies rather than building the capability internally. Helsing, which received Germany's largest loitering munition award, is itself an AI-first defence technology company founded in 2021, not a legacy aerospace contractor.

The procurement split is now explicit: large sovereign programmes with defined platforms (SAN, HX-2, Virtus) are going to established contractors with production capacity; faster, more modular drone and counter-drone contracts are going to dual-use and technology-first companies with the software capability and procurement agility to deliver in compressed timelines.

This creates a specific investment dynamic. The dual-use companies entering defence procurement are doing so at the most capital-efficient point of the cycle — early contracts that validate the technology and the procurement relationship before the larger programme awards follow. The Helsing trajectory — from AI startup to €268 million initial contract in under five years — is the template.