Europe's response to the war in Ukraine is extending far beyond higher defence budgets. Governments are increasingly repurposing civilian industries for military production, raising questions about long-term economic priorities, industrial competitiveness and the future direction of the European economy.
INR Report: Based on reporting by Lena Petrova for World Affairs In Context
Europe's industrial landscape is undergoing one of its most significant transformations since the end of the Cold War, with governments increasingly integrating military production into long-term economic planning.
According to geopolitical analyst Lena Petrova, what began as an emergency response to Russia's invasion of Ukraine is evolving into a broader restructuring of European industry, where defence manufacturing is becoming a central pillar of industrial policy rather than simply a response to a temporary security crisis.
From civilian industry to defence production
Petrova argues that European governments are no longer simply increasing defence budgets to replenish military stockpiles.
Instead, they are actively encouraging industries that traditionally produced civilian goods to shift toward military manufacturing.
Car manufacturers, electronics companies, engineering firms and battery manufacturers are increasingly being integrated into Europe's expanding defence supply chain.
The objective extends beyond producing additional weapons for Ukraine. According to Petrova, NATO governments are seeking to build industrial capacity capable of sustaining military production for many years while reducing dependence on overseas suppliers.
Europe's economic model is changing
For decades, much of Europe's manufacturing success was built upon affordable energy, export-driven industry and comparatively modest defence spending.
Germany became synonymous with advanced engineering and automobile manufacturing, France developed globally competitive aerospace and luxury industries, while Central and Eastern Europe became deeply integrated into continental automotive supply chains.
Petrova argues that this model has fundamentally changed.
Military investment, once regarded as an emergency response, is increasingly being viewed by policymakers as a permanent component of economic strategy. She notes that discussions at the July 2026 NATO summit in Turkey focused not only on military readiness but also on expanding industrial production capacity, strengthening defence supply chains and coordinating long-term procurement among allies.
Automobile factories become military suppliers
One of the clearest examples of this shift can be seen within Europe's automotive sector.
With electric vehicle demand slowing, competition from Chinese manufacturers increasing and higher energy costs affecting profitability, several manufacturers have announced production cuts, factory closures and job losses.
Rather than allowing industrial capacity to remain idle, governments and defence contractors are exploring ways to repurpose existing automotive facilities for military production.
Petrova says many automotive plants already possess the advanced robotics, precision engineering, electronics integration and highly skilled workforce required to manufacture military vehicles, drone components, communications equipment and other defence technologies.
Drones reshape industrial priorities
The war in Ukraine has dramatically increased demand for unmanned aerial systems.
Petrova says drones now play critical roles in reconnaissance, surveillance, logistics, electronic warfare, intelligence gathering and precision strikes, creating demand for industrial-scale manufacturing rather than specialist production facilities.
European defence companies are increasingly partnering with automotive suppliers, electronics manufacturers and battery producers to meet that demand.
Governments are also offering subsidies and investment incentives to encourage civilian manufacturers to convert portions of their production capacity toward defence production.
Defence becomes industrial policy
Petrova argues this represents a significant philosophical shift.
Where industrial policy once prioritised renewable energy, transport infrastructure, semiconductors and green technologies, military manufacturing is increasingly being treated as another strategic industry deserving long-term public investment.
Rather than being viewed solely as a national security expense, defence spending is increasingly becoming a tool of economic policy across Europe.
Economic trade-offs
Petrova questions whether this transformation represents the most effective long-term allocation of public resources.
She argues that military production does not generate the same productivity gains as investment in education, healthcare, transport infrastructure, civilian scientific research or commercial innovation.
With European governments already facing ageing populations, rising healthcare costs, slower economic growth and growing public debt, increasing military expenditure inevitably creates difficult fiscal trade-offs.
She also warns that industries becoming increasingly dependent upon government defence contracts may evolve into a permanent military-industrial ecosystem where public procurement rather than competitive civilian markets drives long-term industrial activity.
A changing global economy
According to Petrova, Europe is simultaneously restructuring supply chains to prioritise critical minerals, semiconductors, batteries, electronics and advanced machinery sourced from allied nations.
She notes similar industrial strategies are already being pursued by both the United States and China, contributing to an increasingly fragmented global economy organised around geopolitical blocs rather than open international markets.
In her assessment, military manufacturing has become both a consequence of intensifying geopolitical competition and a force that further accelerates it.
Does This Affect New Zealand?
While New Zealand is not a NATO member, developments within Europe have broader implications for global trade, supply chains and defence procurement.
As more advanced manufacturing capacity is redirected toward defence production, international competition for semiconductors, batteries, critical minerals and industrial components may intensify. New Zealand businesses that rely on imported machinery, electronics or specialised manufacturing inputs could face continued supply pressures and price volatility.
The debate also raises wider policy questions for New Zealand. Successive governments have promoted industrial resilience, advanced manufacturing and greater economic self-sufficiency following disruptions exposed during the COVID-19 pandemic. If major economies increasingly integrate defence spending with industrial policy, New Zealand will face ongoing decisions about how to strengthen domestic manufacturing capability while maintaining its traditional emphasis on diplomacy, trade and regional stability.
Source
Original Report: World Affairs In Context – NATO Is Turning Europe's Economy Into a War Machine
Presenter: Lena Petrova