NATO & European Security
European rearmament, NATO cohesion under US pressure, and the continent's pivot to strategic autonomy.
Current Situation
Last updated: July 25, 2026
European security is characterized by a shift toward tactical deterrence and systemic political transition. Germany has elevated its security stance to a "high threat level" due to terrorism risks and is deepening counter-Russia deterrence by joining a French nuclear exercise. While NATO finalized a €27 billion overhaul of its Cold War-era fuel network, alliance cohesion is fraying as Turkey previously blocked the deal and EU support for new Russian sanctions declines. Territorial tensions remain high, evidenced by NATO shooting down a drone in Romanian airspace and Greece advising shipping fleets to increase security in the Black Sea.
The United Kingdom is undergoing a significant political reset under Prime Minister Andy Burnham, who has appointed Wes Streeting as Defense Secretary and John Healey as finance minister. The new administration is navigating severe fiscal constraints, with public debt costs exceeding those of Italy, Spain, and Greece, while implementing consumer relief like removing the 5% VAT on electricity. Meanwhile, European allies are aligning with U.S. spending demands; Italy aims for a 5% defense spending goal over the next decade, and Bulgaria has approved the stationing of U.S. troops and tanker aircraft to support Middle East operations.
Investment momentum in defense and aerospace has shifted to a strong "risk-on" posture, driven by massive legislative funding and procurement. The U.S. House passed a $1.15 trillion National Defense Authorization Act, while Lockheed Martin reported a 38% year-over-year increase in its backlog to $230.42 billion. Commercial aerospace is rebounding as Boeing secures orders from SMBC Aviation Capital for 100 737 Max jets and expects FAA certification for the Max 7 and 10 by October. However, valuation volatility persists, highlighted by SpaceX shares falling 40% from a June peak to below their $135 IPO price.
Key variable to watch: The impact of new U.S. tariffs and China's retaliatory export controls on 14 European companies on transatlantic trade stability.
Background
Origins
NATO — the North Atlantic Treaty Organization — was founded in 1949 as a collective defence alliance against Soviet expansion in Europe. Its central commitment is Article 5: an attack on one member is an attack on all. For 40 years of the Cold War, NATO was the primary institutional expression of the Western security order, anchored by American nuclear guarantees and conventional forces stationed in West Germany.
The post-Cold War period introduced a fundamental identity crisis: what was NATO for, if not to deter the Soviet Union? The answer that emerged was "out-of-area operations" (the Balkans, Afghanistan) and eastward expansion — incorporating former Warsaw Pact members and Soviet republics into the alliance. By 2004, NATO had expanded to include the three Baltic states, Poland, Hungary, the Czech Republic, Slovakia, Bulgaria, and Romania. By 2009, Albania and Croatia. By 2020, North Macedonia. Finland and Sweden joined in 2023–24 in direct response to Russia's invasion of Ukraine.
This expansion is precisely what Putin cited as justification for the Ukraine invasion — a NATO on Russia's doorstep was, in his framing, an existential threat. Whether or not this framing was sincere or cynical, it became the defining narrative justifying a war that has forced NATO's reinvention.
The second Trump administration's ambivalence about NATO — and Trump's repeated suggestions that he might not honour Article 5 commitments against countries that don't meet spending targets — has done more to reshape European security thinking in two years than the previous decade of debate. European capitals have absorbed the lesson that US security guarantees cannot be taken for granted.
Key Actors
Emmanuel Macron (France): The most vocal advocate for "European strategic autonomy" — the concept that Europe must be able to defend itself without dependence on the US. Macron controversially raised the question of whether France's nuclear deterrent could be extended to cover Europe. France has the only independent European nuclear arsenal and this gives Macron unique leverage in the autonomy debate.
Friedrich Merz (Germany): Germany's new Chancellor reversed decades of post-war German pacifism by committing to 3% GDP defence spending, suspending the constitutional "debt brake" for defence investment, and supporting the provision of Taurus cruise missiles to Ukraine. The Zeitenwende ("turning point") that Scholz declared in 2022 has been radicalised under Merz. Germany's rearmament is the single largest variable in European security capacity.
Andrzej Duda / Donald Tusk (Poland): Poland has become NATO's most hawkish member — positioning itself as the frontline state, spending 4% of GDP on defence (highest in NATO), and lobbying aggressively for permanent US troop presence. Poland's geographic position between Germany and Ukraine/Belarus makes it the most strategically important non-nuclear NATO member.
Baltic States (Estonia, Latvia, Lithuania): The three smallest and most exposed NATO members share land borders with Russia and Belarus. They have driven the hardest line on Russian containment, pushed for NATO battle groups to be upgraded from tripwire forces to genuine combat-capable units, and have built their own border fortifications.
Mark Rutte (NATO Secretary-General): Dutch former PM who took over from Stoltenberg in 2024. Has been effective at managing Trump's demands while maintaining alliance cohesion — presenting NATO burden-sharing data in ways that satisfy Trump's political requirements without undermining the institution.
United Kingdom: Post-Brexit, the UK has maintained its position as NATO's second military power and the US's closest bilateral security partner. The AUKUS (Australia-UK-US) submarine deal has shifted some UK strategic focus toward the Pacific but UK commitment to European security remains strong.
Historical Context
1949 — NATO Founded: Twelve founding members including the US, UK, France, Canada, and seven European states. The founding treaty was specifically designed to ensure US involvement in any European war — the lesson of 1914 and 1939 was that US non-involvement had enabled two catastrophic European conflicts.
1955 — West Germany Joins: A watershed moment. The country responsible for two world wars was rearmed and integrated into the Western alliance — a model of how former adversaries can be transformed into partners. West German rearmament was politically possible only within NATO structures.
1966 — France Withdraws from Military Command: De Gaulle's decision to maintain French independence from NATO's integrated military command structure while remaining a political member. France returned to the integrated command under Sarkozy in 2009.
1989–1991 — Cold War Ends: The Berlin Wall fell in November 1989; the Soviet Union dissolved in December 1991. NATO's existential purpose disappeared overnight. The debate over whether to expand eastward — and whether assurances were made to Gorbachev about non-expansion — has become one of the most contested historical questions in international relations.
1999 — First Eastward Expansion / Kosovo: Poland, Hungary, and Czech Republic joined. NATO also conducted its first offensive military action — air strikes against Yugoslavia over Kosovo — without UN Security Council authorisation. This set a precedent for NATO acting beyond its collective defence mandate.
2001 — Article 5 Invoked for the First Time: After September 11, NATO invoked Article 5 for the first and only time in history. The subsequent operation in Afghanistan (ISAF) was NATO's largest and longest military operation, ending in the chaotic 2021 withdrawal.
2014 — Crimea and the Wales Pledge: Russia's annexation of Crimea prompted NATO to adopt the "Wales Pledge" — all members to move toward 2% GDP defence spending. Most ignored it for another decade. Only a handful of members met the target before 2022.
2022–present — Ukraine and Rearmament: Russia's full-scale invasion of Ukraine transformed NATO's relevance and urgency. Finland and Sweden joined; Baltic battle groups were upgraded; Germany committed to 2%+ spending; Poland went to 4%. NATO military planning shifted from crisis management back to territorial defence. The alliance is experiencing its most significant military buildup since the Cold War.
Market Exposure
European Defence: The primary investment theme. Rheinmetall (Germany) — artillery, ammunition, armoured vehicles. BAE Systems (UK) — naval, aerospace, land systems. Thales (France) — radar, sensors, electronics. Leonardo (Italy) — helicopters, defence electronics. Saab (Sweden) — Gripen, Carl-Gustaf systems. Kongsberg (Norway) — Naval Strike Missile, NASAMS. All have multi-year order backlogs and government spending commitments behind them.
NATO Ammunition Supply Chain: The Ukraine conflict revealed that NATO's ammunition stockpiles were critically low. Artillery shell production — the most consumed munition in industrial warfare — is being scaled up across Europe. Companies involved in propellants, shell casings, and explosive fill are beneficiaries.
US Defence in Europe: US defence contractors benefit from European procurement of interoperable systems — F-35 (Lockheed), Patriot (Raytheon), Black Hawk (Sikorsky), C-17 (Boeing). European NATO members collectively spend more on US-built systems than any other non-US buyer.
Infrastructure and Construction: Hardening of borders, base construction, logistics infrastructure. Poland's border fortifications are the largest current project but similar investments are underway in the Baltics, Finland, and eventually Germany.