Paolo Surico: Defence spending must build Europe's innovation ecosystem
Professor Paolo Surico argues that rising defence spending should be used to boost European innovation and economic growth, not just military procurement
London Business School's Professor Paolo Surico argues that Europe's defence challenge is not primarily the amount it spends, but how it spends it. Writing in Sifted, Surico says European governments devote too much of their defence budgets to procurement, often purchasing equipment from overseas suppliers, while underinvesting in domestic research and development. He believes Europe should use increased defence spending to build a self-sustaining innovation ecosystem that combines government support, cutting-edge research and private-sector entrepreneurship.
Surico contends that directing more funding towards homegrown defence R&D would generate both stronger long-term security capabilities and wider economic benefits. Unlike procurement spending, which tends to deliver short-term effects, investment in innovation creates new technologies, intellectual property and productivity gains that can strengthen competitiveness across the economy. The article highlights that around 80per cent of European defence spending currently goes towards procurement, with only a small proportion supporting domestic innovation.
The economist also calls for reforms to European fiscal rules. He argues that existing exemptions for defence spending unintentionally encourage governments to purchase off-the-shelf military equipment rather than invest in European technology companies. Surico proposes a targeted exemption that would favour R&D investment in domestic defence startups, while also supporting greater involvement from public institutions and long-term investors to help European companies scale rather than relocate to the United States in search of growth capital.
Surico's comments reflect a broader body of research examining how public investment, innovation and industrial policy can drive productivity growth. His work on mission-oriented investment and innovation-led economic development has also informed policymaking discussions beyond academia. Similar arguments have been championed in Parliament by Chris Coghlan MP and echoed in Mario Draghi's recent calls for Europe to strengthen its technological sovereignty, strategic autonomy and capacity to convert research excellence into globally competitive industries.