The report that shows how Romania can strike through defense investments. Every euro invested brings 3 euros back into the economy
Europe's accelerated rearmament opens one of the biggest economic and industrial opportunities in recent decades, but Romania risks falling behind other states on NATO's eastern flank if it does not accelerate investments and modernization of the defense industry.
Romania must accelerate investments and modernization of the defense industry. Archive photo
The increase in security tensions in Europe and NATO's decisions on increasing military spending are radically changing the economic priorities of European states. In this new context, defense is no longer just a strategic component, but also becomes a powerful economic engine, capable of generating investments, jobs and industrial development.
These conclusions appear in the report “Romania at the intersection of security and economy”, carried out by EY Romania, which analyzes the impact of the new European rearmament race on the local economy and industry.
NATO countries are investing massively. Romania advances more slowly
According to the report, after the outbreak of the war in Ukraine, the states on NATO's eastern flank sharply accelerated their defense spending, all exceeding the 2% of GDP threshold.
However, the differences between the states are major. Poland, for example, detached itself through rapid investment and ambitious military modernization programs, while Romania chose a more cautious approach based on budgetary sustainability and macroeconomic stability.
Although budgets for military equipment have increased in recent years, Romania's share of total regional investment has decreased as other states have accelerated their endowment programs more aggressively.
“Romania has taken important steps by increasing the budget and spending on military equipment, but remains below the level of ambition that its size and geographical position, industrial potential and geostrategic importance would justify”says Cătălina Dodu, Partner and Cybersecurity Leader for EMEIA Defense Sector & Technology Consulting Romania Leader within EY Romania.
Demand is exploding, and Europe can no longer produce enough
The report shows that the European defense industry is facing unprecedented pressure. Demand for munitions, equipment and advanced systems has grown so rapidly that it is outstripping current production capabilities.
In the period 2017–2024, the order backlog in the European defense industry increased by 183%, indicating a major imbalance between demand and production capacity.
In this context, countries that can offer new industrial capabilities or attract strategic investments are becoming increasingly important in the European security architecture.
However, Romania starts with disadvantages accumulated in the last decades: underfunding of the defense industry, lack of investments and limited integration in European production chains.
Investments in the defense industry can accelerate: the Government has approved the legislative framework
However, the EY report claims that the current context also represents a real opportunity for Romania, if the state manages to attract capital, technology and solid industrial partnerships.
Defense can become a major economic driver
EY specialists point out that investments in defense generate economic effects far beyond the military industry itself.
“NATO countries' decision to increase defense spending to 5% of GDP by 2035 creates one of Europe's biggest economic and industrial opportunities in decades. The accelerated growth in demand for military equipment, munitions and advanced systems generates a multiplier effect that can bring significant benefits to both the public and private sectors.”says Sofia Stoican, Partner and Business Consulting Government & Public Sector Leader, EY Romania.
The report shows that every euro generated directly in the defense industry produces, on average, another 2.7 euro in the economy through effects in supply chains and related industries.
Also, every job created directly in the sector generates an additional 2.4 jobs in other fields.
“A well-structured and rigorously implemented investment in the defense industry generates significant economic and strategic benefits: highly qualified jobs, transfer of know-how, increase in technological capacity and a genuine re-professionalization of the sector”, explains Sebastian Popescu, Partner and Head of Grants and Incentives Advisory, EY-Parthenon Romania.
Romania has a choice between reform and stagnation
The EY report concludes that Romania is at a decisive moment. The state must either accelerate the modernization of state-owned companies in the defense industry through investment and technology, or create the necessary conditions to attract international investors capable of integrating local production into European and global chains.
In the absence of quick and coherent decisions, Romania risks losing a major economic opportunity at a time when Europe is investing massively in security and reindustrialization.
On the other hand, if the current geopolitical context is intelligently exploited, the defense industry could become one of the main engines of economic and technological development of Romania in the next decade.
