Ukraine as catalyst: accelerating Europe’s defense transformation

Article is published in the The Legal Industry Reviews: Ukraine

Authors:

Larysa Marchenko, Partner

Marharyta Breus, Staff

The war in Ukraine and rising geopolitical instability have catalyzed a strategic shift within the European Union. Defense spending, long a peripheral concern, has moved to the center of the EU’s policy agenda.

At the EDA Annual Conference 2025, Kaja Kallas, High Representative of the EU for Foreign Affairs & Security Policy/Vice-President of the EC, Head of EDA, articulated a clear and urgent call for action: “We must be realistic about the scale of this threat... Europe must transition from declarations to decisive action”.

The Secretary General of NATO has recently proposed that NATO members have to spend 5% of their GDP on defense, including support for Ukraine's urgent needs. Funds are to be invested in infrastructure and R&D to strengthen and modernize security capacities.

A shift from fragmented national initiatives to coordinated European action is vital. While national budgets remain key, the EU has built a multi-layered defense financing ecosystem over the past decade, integrating public grants, strategic loans, institutional investment, and private capital to support innovation and industrial scale-up.

Despite a solid defense financing foundation, gaps in fund deployment and limited private sector involvement hinder progress. The €800 billion “ReArm Europe Plan / Readiness 2030” is ambitious but requires swift implementation, regulatory alignment, and political commitment to succeed.

Private Capital: A Missing Link

Private capital has become increasingly important in defense innovation, with venture capital investments in the sector rising 18-fold over the past decade [3]. However, EU efforts to mobilize private investment remain limited, with only one €40 million EIF investment in Keen Venture Partners’ Defense and Security Tech Fund disclosed by mid-2025.

Major banks like UniCredit and Commerzbank are open to defense financing but want clearer government direction and face strong U.S. competition.

Ukraine’s Role in Shaping New Financing Models

Fast-paced, mission-driven defense financing is gaining momentum, exemplified by the “Danish model”, which channels direct bilateral funding into Ukrainian arms production. An initial €428 million from five partner nations is expected soon, with total support projected to reach €1.3 billion by 2025.

Beyond bilateral funding, partner nations are forming coalitions to accelerate delivery of key military capabilities and develop joint funding. A great example is the UK- and Latvia-led Drone Coalition, which united nearly 20 countries and committed €1.8 billion in 2024 to strengthen Ukraine’s drone capabilities.

New Ramstein 2025: Industrial Integration

The New Ramstein initiative, launched in May 2025, marks a strategic shift from supplying weapons to co-producing Ukrainian-designed drones, missiles, ammunition, and EW systems in partner countries under license for exclusive Ukrainian use, boosting supply chain resilience and integrating Ukraine’s defense industry into NATO-aligned ecosystems.

Joint production initiatives between Ukraine and Western partners are underway, with notable collaborating companies including Rheinmetall, Nammo, SAAB, Kongsberg, KNDS, FFG, and Raytheon.

Ukraine’s defense is a frontline test of Europe’s resolve. Co-production, rapid procurement, and interoperability are key to both supporting Ukraine and modernizing Europe’s defense industry. Closing the investment gap requires minimizing risks for private capital, streamlining defense procurement, improving joint planning, and leveraging Ukraine’s frontline experience to strengthen the European defense industrial base.