European strategic autonomy – Europe’s ability to act independently in key areas such as defence, energy, digital infrastructure and critical supply chains – has emerged as a central priority, write Mathieu Jourde and Lazare Hounhouayenou.
Enhancing economic security by reducing dependencies is one of the three key challenges facing the European Union identified in the 2024 Draghi report on EU competitiveness (the other two are closing the innovation gap with the US and harmonising decarbonisation and competitiveness).
Sparked by global geopolitical shifts, the war in Ukraine, overreliance on foreign powers, and economic vulnerabilities exposed by the Covid pandemic, Europe is increasingly recognising the need to reduce its dependence on external actors.
However, while the concept of strategic autonomy is gaining traction, its realisation is fraught with political, economic and institutional challenges.
Why strategic autonomy is necessary
- Geopolitical shifts and security risks
The growing assertiveness of China, the unpredictability of the US in international affairs, and the Russia/Ukraine conflict have all underscored the urgency of a more self-reliant Europe. These events have highlighted Europe’s limited capacity to act independently in defence and diplomacy, often relying on NATO – which is heavily driven by US leadership – for security guarantees. - Technological sovereignty
The EU lags behind the US and China in critical technologies such as semiconductors, artificial intelligence and cloud computing. This gap creates both economic and security risks. Strategic autonomy involves securing digital infrastructure, protecting data, and ensuring control over critical technological inputs. - Energy dependency
The EU’s overreliance on Russian gas became a critical vulnerability after the start of the Russian/Ukraine conflict and severe damage to the Nord Stream pipelines. This has driven home the need to control more of Europe’s energy production and distribution and to transition toward renewables and diversified sources such as nuclear energy. - Supply chain resilience
The Covid pandemic revealed the fragility of global supply chains, particularly for pharmaceuticals, medical equipment and semiconductors. Repatriating or diversifying production capabilities is now seen as essential for the EU’s long-term resilience. - Basic needs – Food and healthcare
At the base of Maslow’s pyramid (i.e., hierarchy of needs), food and healthcare are identified as critical elements of human needs. The Covid pandemic underlined this for healthcare. Food price volatility in the wake of the Ukraine/Russia conflict highlights how sensitive the topic is, as does criticism of the EU’s Farm to Fork strategy.
What are the main challenges?
- Governance and bureaucracy: EU decision-making has remained slow on issues such as defence procurement and industrial policy
- Fragmented national agendas: Diverse perceptions of the threats Europe faces and different levels of budgetary capabilities hinder unified action. Increasing national autonomy can indirectly undercut European influence
- Industrial fragmentation and dependence on the US: Dependence on US tech firms and weapon systems limits Europe’s practical independence. Its defence and high-tech industries are highly fragmented. A lack of interoperability and competition between national industries may hinder the emergence of European champions capable of rivalling global players
- Financing needs: The scale of investment required across sectors is immense – public budgets alone are insufficient. Private capital potentially has a significant role to play with respect to financing needs.
Key public initiatives for strategic autonomy
- ReArm Europe Plan/Readiness 2030: Announced in March 2025, this initiative targets €800 billion in joint and national defence spending: a) EU member states can raise defence spending by up to 1.5% of GDP over four years using a special fiscal flexibility clause; b) the EU’s SAFE (Security Action for Europe) instrument will raise €150 billion via EU-backed loans for defence modernisation.
- European Chips Act: Launched in 2022, this allocates €43+ billion to double Europe’s global share of chip production to 20% by 2030, supporting factories in Germany, France and Italy.
- Germany’s €500 billion infrastructure fund: Announced in 2025, this long-term fund – outside of the federal budget – should modernise transportation, digital and energy infrastructure.
- RePowerEU: This €300 billion+ plan, launched in 2022, aims to eliminate dependence on Russian fossil fuels and fast-track grid upgrades, liquefied natural gas (LNG) terminals, renewables, energy efficiency, and critical raw materials diversification.
Private initiatives in supporting autonomy
While public funds should help lay the foundation, we believe private capital is essential for scale and longevity. Private capital flowing into public equity markets can help fund the growth of European champions in defence, clean energy, digital infrastructure and semiconductors.
By investing in listed companies critical to autonomy such as Airbus, ABB, Nokia, Rolls-Royce, Siemens and STM, asset managers and retail investors can support market confidence, visibility and liquidity. Initial public offerings (IPOs) should be vital for retaining innovative firms in Europe and scaling them without foreign buyouts.
Public perception, ESG dilemmas and contested sectors
Strategic autonomy means confronting tough questions around what is considered investable or socially acceptable. Key sectors such as nuclear energy, defence and critical raw materials are politically or ethically contentious in parts of Europe.
While nuclear energy, for example, is increasingly seen as core to low-carbon energy sovereignty, it still faces opposition.
Similarly, defence stocks are often excluded from environmental, social & governanceinvestmentportfolios despite a growing recognition that security is a precondition for sustainable development. This creates a paradox: the very sectors vital to Europe’s autonomy may be underfunded due to legacy ethical filters in ESG frameworks.
Reconciling public support, regulatory alignment and financial incentives will be central to ensuring that outdated investment norms not hold back Europe’s strategic ambitions.
Why European defence stocks may still perform
Despite their strong outperformance since early 2022, European defence stocks may, in our view, still offer investors compelling upside given the structural tailwinds.
Defence budgets across Europe are not only rising — they are being restructured for long-term commitments. Many European defence companies have strong order backlogs, robust cash flows and attractive valuations compared to US peers which face greater uncertainty over public spending.
Moreover, increased geopolitical instability is encouraging countries to prioritise local suppliers (e.g., via a ‘Buy European’ clause ensuring that 65% of the costs of the end-products originate from European Economic Area countries).
Importantly, European investors — once cautious about investing in defence stocks due to ESG concerns — have started to reassess their stance, potentially unlocking a broader base of institutional capital.
In short, while the past performance of these stocks has been impressive, we believe the re-rating of the sector may continue as strategic autonomy becomes a permanent policy pillar.
Investing in Europe’s strategic autonomy
In our view, strategic autonomy is no longer an option, it’s a necessity. Europe is now matching its ambitions with a range of financial tools covering areas from defence rearmament and energy transition to tech leadership.
The scale of investment plans is historic, but success will depend on execution, cross-border cooperation and a deeper integration of private finance. Europe’s autonomy will be built not just in Brussels, but by investors who believe in its future.
Why should you choose us?
The fund managers have an average of over 20 years’ experience in European equity investment. The portfolio management team is embedded within the larger BNP Paribas Asset Management investment platform, which manages €30 billion in assets under management in European thematic funds, providing a broad reach across numerous asset-class specialists and analysts.
BNP Paribas Europe Strategic Autonomy is classified as SFDR Article 8, helping to managing risks over the long term.
