The New Defence model: scale, speed and sovereignty

In a new research paper, ‘The Defense Sector Facing the Tempo of War, Part 1’, Thierry Mestre, Senior Aerospace and Defense Analyst, explores how the return of high-intensity warfare following the Russian invasion of Ukraine is reshaping national defense priorities. Four years on, national security increasingly depends on the industrial and financial capabilities needed to adapt to a changing landscape of warfare.

Following the end of the Cold War, political theorist Francis Fukuyama declared the “end of history”, marking the apparent end of great-power rivalries, with liberal democratic alliances prevailing as the universal model of governance. In the following decades, national defense budgets experienced a scissor effect, maintaining “sample armies” characterized by highly sophisticated defense systems but severely reduced equipment volumes. The series of conflicts that followed did not challenge this model, as they were largely seen as asymmetric external conflicts against weaker states and militias.

History, however, did not end. Russia’s annexation of Crimea and the subsequent full-scale invasion of Ukraine in 2022 marked the start of a new historical cycle, characterized by the proliferation and compounding of conflicts across continents. The posture of the major powers – the United States, China, Russia and Europe – shifted from economic competition towards confrontation. The paradigm shift is visible in commercial rivalry through increased tariffs, export controls on critical materials and technologies, and competition in new strategic arenas such as the deep sea, outer space, and the melting Arctic – all vital for global communication and trade.

At the same time, the Western foreign policy consensus has degraded, with the US retreating from its role as guarantor of international law and major contributor to the NATO alliance. Within Europe, strategic defense programs are faltering, with the Franco-German Future Combat Air System and the Maritime Airborne Warfare System both weighed down by industrial, strategic, and political disagreements. To strengthen strategic autonomy, nations are focusing on reducing supply chain dependencies and rebuilding domestic defense production capacity.

While far from a war economy, the increase in domestic defense manufacturing capacity is shaping France’s legislative, fiscal, and industrial strategy. The 2024-2030 Military Planning Law (MPL) is projected at €413 bn (plus €35bn under the updating of the MPL) , an increase of €154 bn from the previous period, with industrial investment guaranteed by ring-fencing budgets at the beginning of each year. This is driving a growth in procurement, with annual orders rising from an average of €9.5 billion between 2012-2016 to a high of €38 billion in 2025.

Solely focusing on mass production of traditional munitions, however, is insufficient to meet the strategic realities of modern warfare. Ukraine’s rapid innovation in drone technology demonstrates how industrial agility can neutralize military advantage, destroying multi-million-euro tanks using drones that cost a fraction of the price. The war in Iran reinforces this lesson, as the US and its Gulf allies deplete their stocks of sophisticated interceptor missiles to shoot down low-cost Iranian Shahed drones.

This creates a high-low economic paradigm, where sophisticated capabilities needed for high-impact strikes are supported by increasingly robotic systems that are low-cost enough to be expendable while remaining economically sustainable. This strategy – broadly understood as the New Defense model – is shaping the defense doctrines of the major powers. Both China’s anti-access/area-denial network and the US Air Force’s development of autonomous collaborative platforms rely on drones to saturate adversary defenses and reduce operational risk.

Critically, this new operational model depends on highly networked systems, creating increased technological dependencies on the private sector. The Ukrainian experience exposed the vulnerabilities of relying on non-sovereign systems when Starlink cut off satellite access to Ukraine in 2022. This has prompted European states to renew their capabilities, with France developing the Aurore and Providence radar and detection programs, while Sweden launched its first reconnaissance satellite, Pelican, into orbit in 2026.

With military effectiveness increasingly shaped by industrial capacity, large-scale domestic production of a high-low strategic mix has re-emerged as a strategic deterrent. This model for rearmament is underpinned by a structural – as opposed to cyclical – growth cycle, founded on the commitment of NATO members to raise spending targets from 2% to 3.5% of GDP.

In turn, translating increased spending commitments into a rearmament strategy hinges on combining domestic mass production with the technological agility needed to keep pace with developments in robotic and AI technologies. In France, the strategic partnership between Valeo and Harmattan AI to produce drone engines from 2027 illustrates a working example.

Just as frontier defense technologies are shaped by innovations from the private sector, the funding mechanisms behind rearmament are no longer defined exclusively by state budgets. Crucially, the reframing of defense as a sovereign investment that is no longer penalized under ESG frameworks is opening the sector to participation from private capital: in France, the banking sector’s increased participation was on display with the French Banking Federation attending the world’s largest defense industry exhibition – Eurosatory – and increasing funding for the defense sector by 22% in 2025.

Groupe BPCE is prioritizing defense in its Vision 2030 strategy. By multiplying commitments to the sector by 2.5x to €10 billion and growing export support by more than 7x to €1.2 billion, it aims to strengthen regional competitiveness and support national sovereignty. Public and private initiatives are expanding to meet the €4-6 bn 2030 equity target for SMEs and mid-caps in the Defense Technological and Industrial Base (DTIB), set by the Directorate General of the Treasury.

While the DTIB shows signs of a healthy financing model, with a median profit margin of 19.8% in 2024, extended working-capital requirements – double those of the industrial sector – present significant cash flow pressures for companies. Private equity is therefore playing a vital role in helping companies reach the critical mass required to work with major contractors, while reducing sector fragmentation through industrial mergers.

The synergy between national defense and financial markets is captured in the performance of the GS Europe Defence Basket index, which climbed to nearly 12,000 points in 2025 and stabilized at almost four times its pre-2022 level, signaling a more complete integration of the structural trend.

Russia’s full-scale invasion of Ukraine triggered a drastic re-evaluation of national defense strategies, reshaping the realities of modern warfare through the rapid acceleration of low-cost drone technologies. With military advantage no longer guaranteed by sophisticated weapons alone, national security increasingly depends on developing a domestic manufacturing capacity that minimizes external dependencies while keeping pace with technological developments.

The scaling of national defense budgets by NATO members is driving new public-private partnerships in manufacturing and a financial sector that views defense investment as a strategic priority instead of an ESG risk. With global conflicts proliferating across multiple continents, national defense capabilities will continue to depend on scaling manufacturing capacity, developing home-grown technologies, and unlocking financing strategies.