Canada and ReArm Europe: More Buck, More Bang?

With the world becoming “increasingly dangerous and divided,” Prime Minister Mark Carney has declared his intention to revive the Canadian Armed Forces (CAF) through a major spending program aimed at addressing key capability gaps while reducing overall reliance on the United States. Carney has even pledged to expand defence spending to two percent of Canada’s gross domestic project by March 2026. The catalyst for this rearmament is plain to see. Despite pledging to meet the two percent benchmark at the 2014 NATO Wales Summit, Canada has lagged behind most of its allies despite the Russian belligerence toward its neighbors and the security challenges that stem from the rise of China. More recently, annexationist rhetoric from the President of the United States—however serious—has also stirred anxiety within Canada over its inability to secure its own political sovereignty and territorial integrity.

A key plank of this initiative to rebuild the CAF is to involve Canada in ReArm Europe, as envisioned in the joint security and defence statement issued by Canada and the European Union on 23 June 2025. Established this past March by the European Commission, ReArm Europe is a loan program that unlocks up to €800 billion ($1.25 trillion) over five years for EU Member States to spend on defence. It is open to non-EU Member States like the United Kingdom and Canada. On the surface, joining ReArm Europe would advance three related objectives for Ottawa. First, access to those funds would in theory enable Canada to expand its defence spending. Second, those additional funds can help stimulate Canada’s defence industry. Third, and finally, participating in this loan program will substantiate Carney’s stated goal of diversifying Canada’s security partnerships so that it can lessen its reliance on the United States.

But what really is ReArm Europe, and what can be reasonably expected from Canada’s participation in it? Despite the headline-making sums of money involved, there is little in Canada written about the EU loan program. The purpose of this essay is to offer an assessment of ReArm Europe by explaining what it is and what problems in the European defence industry it aims to solve and, more crucially, will not solve. We then demonstrate how Canada could fruitfully participate in ReArm Europe.

In a nutshell, we argue that Canada should manage its expectations for what this strategic defence initiative can offer. Although it may unlock some funds for Canada, the lack of significant structural change in the European defence market and Canada’s own bespoke needs will limit what ReArm Europe can do for Canada as it tries to revive its own armed forces. The stated purpose of ReArm Europe is to induce more collaborative spending, but the practical effect will probably be to support European national industries.

 What is ReArm Europe?

The first thing to note is that “ReArm Europe” is a misnomer. Although King Charles III referred to it explicitly when he gave his Speech from the Throne in May, invoking the name ‘ReArm Europe’ is somewhat anachronistic. Because Spanish and Italian prime ministers worried that the phrase was too provocative, the strategic defence initiative has been rebranded as “Readiness 2030”, with 2030 being the date suggested by European intelligence as when Russia could have the capacity to attack EU/NATO Member States. That European leaders have trouble calling a spade a spade is indicative of some of the challenges outlined below.

Regardless of the politics behind its name, the European Commission unveiled ReArm Europe/Readiness 2030 in March 2025 to serve as a strategic defence initiative that aims to mobilize industry and capital for joint security. Intended as a supplementary boost to defence modernization efforts at the national level, it aims to achieve economies of scale in the sector and to ensure military supply, primarily through regulatory harmonization, rapprochement of capital markets, and coordinated procurement between participant states.

According to recent estimates from European Commission President Ursula Von der Leyen, ReArm Europe aims to mobilize €800 billion over five years. That said, this number is slightly misleading, as ReArm Europe is financed not by increased EU-level contributions, but mainly through EU-sanctioned deficit spending. Though its constituent Security and Action For Europe (SAFE) regulation will provide joint procurement loans totalling €150 billion, ReArm Europe will see the remaining €650 billion raised by exempting military spending from fiscal requirements under the EU’s Stability and Growth Pact. Other benefits to the sector will be delivered via deregulation, with defence projects qualifying for investment using Member States’ economic aid and assistance from the European Investment Bank, which has recently tripled its defence portfolio. The duration of loans given under the banner of ReArm Europe is up to 45 years, making the debt a multi-generational one in order to mitigate the guns-versus-butter trade-offs that European countries are already facing.

 In turn, how would Canada fit into this system? Considering it is not a member of the EU, it is not bound to any of its fiscal regulation being softened. According to the SAFE regulation, third parties can qualify for joint procurements if they sign a Security and Defence Partnership (SDP) with the bloc, a step confirmed by Canadian policymakers. Given the intense debate surrounding Canada’s reliance on the United States for defence-related products, many policymakers, including the Prime Minister, have touted the mechanism as an opportunity to reduce that dependence and to diversify Canadian security ties. Nevertheless, several elements of the plan leave several major questions unanswered, and the integration of countries outside the European Union offers fewer benefits, especially outside the continental security environment, than what would be the case for actual EU Member States.

Structural Constraints in the European Defence Sector

The overarching purpose of ReArm Europe is to facilitate defence spending on the European continent. After all, the combination of the post-Cold War peace dividend, the focus on out-of-area expeditionary operations, and financial austerity have depleted many European defence establishments in the three decades prior to Russia’s full-scale invasion of Ukraine. That the United States provided strong security guarantees and has competitive defence contractors that sell high-quality military capabilities has not helped the European defence industry either. With few firms emerging as market leaders on the European continent, legacy contractors entrenched themselves in domestic procurement markets. As demand relaxed and military budgets shrank, the sector in Europe experienced less disruptive innovation compared to what the U.S. defence industry has experienced despite the latter’s bias for legacy companies.

Governments still saw value in their national defence industries, but procurement tended to follow industrial aims in the spirit of juste retour, thereby putting a damper on joint procurement projects and creating inefficiencies across many, but certainly not all, military products. The result is duplication in certain systems, like armored fighting vehicles and command and control systems, while other needs, like ammunition production, went neglected by many. Too many countries have tended to see defence as a source of employment rather than a means for generating strategic preparedness. Though up from 11% in 2010, spending on European collaborative defence equipment procurement remains short of the European Commission’s goal of 35% at 18% in 2020 of total defence spending.

European defence establishments are not scaled to prepare for high-intensity war despite their aggregate latent power potential. More to the point, they have struggled to fulfill existing orders. Supply bottlenecks have been characteristic of the European defence industry. A 2011 Commons Committee of Public Accounts (United Kingdom) report highlighted how the Typhoon—a multirole aircraft that Britain purchased with Germany, Italy, and Spain—provided a cautionary tale as regards to European defence collaboration in view of the “huge delays and spiralling cost increases” that attended the project. The Royal Air Force was later forced to cannibalize its aircraft for spare parts. Australia had to quash its fleet of European-made NHIndustries NH90 Tactical Transport Helicopters fifteen years ahead of schedule out of frustration with their subpar performance and “lack of spare parts support.” Although aerospace is one of the most Europeanised parts of the European defence industry, Canada’s own procurement of the Airbus C295 is already six years behind schedule.

These frustrations have only become more acute after Ukraine proved capable of defeating Russia’s efforts at regime change in the opening days of its full-scale invasion. Even before Donald Trump restored his presidency, kickstarting the European defence-industrial base has become a priority. Setting aside its previous pro-market instincts, the bloc has pivoted towards an industrial policy to secure its energy supply and to rebuild its manufacturing capabilities. The enthusiasm for ReArm Europe’s debt-financed spending renders this point even more salient when considering military aid to Ukraine, which is viewed in part as a preventative expense for future conflict involving the EU. And indeed, one reason for why certain NATO members gave more military assistance to Ukraine, at least through 2022, was how much they had spent on their own strategic preparedness in the years leading up to Russia’s full-scale attack. Still, as the naming controversy over ReArm Europe, EU Member States remain divided on supporting Ukraine and, for that matter, preparing for strategic conflict with Russia.

Thus, as much ReArm Europe tries to address industrial undercapacity by consolidating and coordinating the production of key defence systems, the basic gist of ReArm Europe is that it throws money at the problems inherent in the European defence industry. Supply chains will remain complicated and national differences will also complicate joint procurement plans. Inefficiencies will persist absent a more robust common defence vision of the sort that various commentators have declared as essential for the European defence industry to make meaningful progress.

No Great Expectations

Due to how the initiative is structured, joining ReArm Europe through SAFE as a non-EU state comes with several structural hurdles for Canada. Unfortunately, as much as the initiative is worth pursuing, Canadian leaders should not oversell the benefits that it will receive from ReArm Europe.

As part of a broader effort to increase efficiency and productivity within the European Union following the 2024 Draghi Report, the European Commission established the Savings and Investment Union (SIU). This initiative will augment ReArm Europe since integrating capital markets and facilitating cross-border banking transactions serve to connect European savings with investment needs. Canada is not part of the SIU and so it will have little bearing on Canadian financial markets. Crucially, directing European savings towards investments in Canada go against the stated aim of strengthening Europe’s own defence sector and global competitiveness. Indeed, the primary purpose of the SIU is to reduce fragmentation in the European banking sector and to encourage economic growth within the European Union.

Of course, Canadian defence contractors could indirectly benefit from their European counterparts possessing more capital facing fewer investment barriers than they did before. However, one can argue that Canada does not need EU funds to go about its own deficit spending. Canada just needs to spend its own money. Crucially the strategic initiative will prioritize projects that contribute to continental defence. It was, after all, called ReArm Europe, and not ReArm North America or even ReArm North Atlantic. Embodying this prioritization is the fast-track status (i.e. no SDP required) that is given to European countries that have at least partial integration with the European Union common market, including those in the European Economic Area, the European Free Trade Association, and Ukraine, the last of which is meant to benefit from the defence integration and military assistance that ReArm Europe could help expand. Common procurement is even available for acceding and candidate states like Serbia and Turkey, however long their odds for joining the EU are at present.

The prioritization of European defence products for Europe also is evident in the requirements for how the funds are to be used. The rules are clear. With respect to war consumables like ammunition and missiles, Member States “must ensure that components representing 65% of the cost of the end product originate from the Union/EEA EFTA countries/Ukraine.” This requirement is more exacting for complex systems because EU Member States must also ensure that “the contractors fully control the design of the defence equipment” so as not to create “new dependencies” in their production. In short, the most optimistic scenario has Canadian contractors being able to make as much as 35% of the cost of the final product.

Reality will fall short of that threshold since European policymakers will likely see the deployment of capital across the Atlantic as the mere geographical distance of Canada from European supply chains and military assets raises costs and will constrain its inclusion in joint procurement projects. Indeed, considering that nearly two-thirds of Canada’s defence exports went to the United States in 2022, the Canadian defence industry is so integrated into its U.S. counterpart that unshackling it will be difficult, not least since, under Title III of the United States’ Defence Production Act, Canadian defence companies are treated like U.S. ones. That Canadian defence procurement has been slanted towards the United States hamstrings Ottawa’s credibility as a prospective investor and may make meeting the issue of design control a sensitive one with Ottawa. Finally, ReArm Europe will likely help finance big legacy companies that are national champions on the continent. For these reasons, the scope for collaborative innovation and technology sharing across the Atlantic Ocean might remain inhibited.

The few initiatives that have been proposed, such as onshoring production of Saab’s Gripen fighter jet in Canada, should be treated with skepticism. Two matters arise. One relates to the feasibility and economics of standing up and sustaining new production facilities within a reasonable timeframe. Another more pertinent one relates to the wisdom of acquiring the specific capabilities that those initiatives would encourage. One reason why the European defence market is fragmented is because, as Jan Joel Andersson notes, “diverging national requirements, design philosophies, and political and industrial interests make it difficult to agree.” Canada has its own set of considerations that reflect its geopolitical orientation, not least its extensive involvement in the defence of North America. Although the record of Canada’s future fighter jet program is peculiar, not least because of the controversies that have attended the procurement of the F-35, one reason why Dassault and Airbus are out of the picture is because they could not abide, at reasonable cost, by the command, control, and communication systems requirements that Canada’s participation in North American Aerospace Defence Command (NORAD) necessitates.

A more sensible approach could be to situate Canada’s participation in ReArm Europe in the context of its pre-existing European commitments. After all, Canada is in the process of expanding its troop commitment to the Multinational Brigade in Latvia, of which it has been the Framework Nation since 2017. Concerns regarding the viability of the Canadian commitment have intensified following the 2022 Madrid Summit decision to upgrade what was once the Enhanced Forward Presence battlegroup from the size of a large battalion to a brigade. Rotating 1900 CAF personnel between Canada and Latvia has been a major strain on Canada’s overall force posture. And so those capability needs that directly service the Canadian contribution—ammunition and other consumables—could be financed through ReArm Europe, thereby taking advantage of the shorter supply lines and the existing partnerships that the Brigade already embodies.

Conclusion

Joining ReArm Europe has been a declared priority for Prime Minister Carney as part of his worthwhile pursuit to revive the Canadian Armed Forces. Becoming a member of ReArm Europe does have its benefits, especially since Canada is already involved in European security as a leading contributor to the Multinational Brigade in Latvia. However, the benefits should not be oversold to members of the Canadian public. The Canadian defence establishment should have tempered expectations for what ReArm Europe can realistically provide. The reason is simple: the European defence industry will likely remain fragmented along national lines and thus prone to inefficiencies. The use of any funds loaned under this initiative will give strong preference to European products made in Europe. The massive sums of money associated with ReArm Europe should not divert attention away from these issues. 

Jacob Tuckey is pursuing a MA in Global Governance at the Balsillie School of International Affairs at the University of Waterloo as well as an emerging scholar in the Network for Strategic Analysis. Alexander Lanoszka is associate professor in the Department of Political Science at the University of Waterloo as well as co-director of the Network for Strategic Analysis. The authors thank Richard Shimooka for comments on an earlier draft.