Europe is rearming. Defence budgets are rising, factories are expanding, and new EU instruments are pouring money into ammunition production and joint procurement. But money is only part of Europe’s defence problems. The main constraint is that its systems remain slow, fragmented and poorly suited to an age when military technology can change in months rather than decades.

Three transformations are hitting the continent at once. Russia’s invasion of Ukraine has brought back large-scale war to European soil. Washington’s growing focus on the Indo-Pacific, its renewed interest in Greenland and its push to move NATO from “burden sharing” towards what might be called “burden shifting” mean that Europe will have to provide not only more money for the alliance but also a larger share of its combat power. At the same time, technology is changing warfare faster than traditional procurement systems can keep up.

At present, procurement systems work as follows: a military identifies a requirement; officials draw up specifications; companies compete for a contract and, years later, a system enters service. The problem is that, by then, the technologies shaping the battlefield may have changed dramatically. Promising technologies can become obsolete or fall by the wayside before they ever reach soldiers.

Ukraine has demonstrated a different model. Operational problems generate ideas; engineers turn them into prototypes; soldiers test them; manufacturers improve and scale them; battlefield experience feeds into the next iteration. Technology can also work in the other direction: new capabilities, such as cheap drones, can create tactics that planners had not previously considered.

The real measure of defence-industrial success should not be how many platforms roll off the line, but how fast capability can be imagined, built, tested, industrialised, fielded and adapted again

Europe needs to make this cycle permanent. I propose a model called Adaptive Defence Industrial Ecosystem Management, or ADIEM. The principle is for governments to move from being regulators and buyers to orchestrators of a defence ecosystem that links governments, armed forces, defence and tech companies, start-ups, universities and investors in a continuous loop. The real measure of defence-industrial success should not be how many platforms roll off the line, but how fast capability can be imagined, built, tested, industrialised, fielded and adapted again.

Industrial resilience and human capital are central to this model. Ukraine has shown that sustained operations depend on raw materials, reliable energy, resilient logistics and skilled labour quite as much as on the platforms themselves. And because digital capability now depends as much on software and data engineering as on heavy manufacturing, Europe’s defence sector competes directly with the commercial tech industry for the same scarce talent. This makes the appeal of a defence career a strategic question.

How to make ADIEM work

Reform defence governance. Create permanent structures that bring together military planning, industrial policy, innovation and procurement around shared capability goals. Give them room to depart from standard rules where those rules are the obstacle.

Start with battlefield problems. Build capabilities around what armed forces need to achieve. It works in reverse too: a new system needs a concept of operations written for it before it is bought at scale. Treat these as living documents that evolve with experimentation and real-world lessons.

Make procurement faster and more flexible. Use a hybrid procurement method. While central procurement agencies buy major systems, individual units are allowed to meet certain urgent combat needs. Alongside that, break large procurements into smaller contracts with incremental delivery, allow continuous software updates, use open architecture and speed up certification.

Build a genuine innovation ecosystem. Give start-ups, universities and public labs clear routes to deployment. Reward experimentation and operational relevance over novelty for its own sake.

Achieve affordable mass. Create dedicated programmes for weapon systems that are effective enough, cheap enough to buy in large numbers and simple enough to replace quickly. These include drones, autonomous vehicles, loitering munitions, low-cost intelligence, surveillance and reconnaissance (ISR) systems and electronic warfare.

Invest in human capital. Build a long-term pipeline of software engineers, AI specialists, systems engineers and skilled production workers, and change how the sector is perceived—presenting it as a high-technology field, not just a traditional military one.

Institutionalise experimentation. Set up permanent centres where soldiers, engineers, researchers and industry jointly evaluate new operational concepts and technologies. Test continuously rather than only in the run-up to a procurement decision.

Develop digital defence infrastructure. Invest in a sovereign defence cloud, secure data architecture, digital twins and common digital standards.

Governments also need to reform the institutions through which capability is developed, not just the funding lines that feed them. And while Europe has much of what it needs­—sophisticated armed forces, world-class manufacturers, strong universities and a growing defence-tech sector—it still lacks a system capable of connecting them quickly enough. That is the purpose of ADIEM: to connect these actors in a continuously adapting ecosystem, with governments acting as orchestrators rather than simply regulators and buyers.

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What happens if your economy is suddenly in crisis, Brussels offers help with strings attached—and Turkey, China or Russia can move faster? What if your country delivers every reform the EU asks for, only for a member state to block the next step anyway? And after years of waiting, would voters still choose to join?

In this special bonus episode, The Neighbourhood goes live from Lisbon for an EU enlargement game. Jessica Hendrick brings together RE-ENGAGE experts representing six EU candidate countries and throws a series of fictional—but very plausible—political and economic shocks at them inspired by real headlines: Russia’s intensified attacks on Ukrainian infrastructure, Ireland’s EU presidency push on enlargement, Iceland’s referendum, Germany’s regional elections and the upcoming 2026 Enlargement Package. Drawing on three years of surveys, interviews and crisis simulations, each expert has to answer for their country.

Playing for each country:

• Albania: Morten Bøås, research professor at the Norwegian Institute of International Affairs (NUPI), representing RE-ENGAGE’s Albanian partners at the European University of Tirana
• Bosnia and Herzegovina: Damir Kapidžić, director of the Institute for Social Science Research at the University of Sarajevo
• Georgia: Ketevan Bolkvadze, senior lecturer in the department of political science at Lund University, originally from Georgia
• Moldova: Mathilde T. E. Giske, research fellow at the Norwegian Institute of International Affairs (NUPI), representing RE-ENGAGE’s Moldovan partners at Moldova State University
• Serbia: Luka Filipović, research associate at the Institute for Contemporary History in Serbia
• Ukraine: Roman Petrov, president of the Ukrainian European Studies Association

The result is part enlargement simulation, part policy conversation and part game night. The experts bargain over a fictional €100 million EU cheque, decide whether the EU can compete with faster offers from other powers, test how easily disinformation could exploit frustration with enlargement, and imagine what would happen if EU membership was finally put to a public vote. Along the way, Serbia proposes keeping its relationship with Brussels “casual”, Bosnia finds a creative use for €100 million, and Ukraine calls for Hungarian “Varangians” when backsliding strikes.

When a crisis hits, does speed matter more than values? Can “Europe never wanted you anyway” become a winning political message? And if a country finally joins the EU, what stops democracy from sliding backwards once the prize of membership is secured?

Further reading:
RE-ENGAGE research overview
RE-ENGAGE research on Albania
RE-ENGAGE research on Bosnia and Herzegovina
RE-ENGAGE research on Georgia
RE-ENGAGE research on Moldova
RE-ENGAGE research on Serbia
RE-ENGAGE research on Ukraine

This podcast was recorded live in Lisbon on September 3rd, 2026.

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It took Europe’s far-right leaders no time at all to work out what Icelanders meant on August 29th, when they voted 52.8% to 47.2% against resuming negotiations to join the EU: a prosperous democracy had looked hard at Brussels and said no. Britain’s Nigel Farage congratulated them on “voting to keep their independence”. France’s Marine Le Pen went further, calling the result a reminder that “another Europe is possible”.

But Iceland did not vote against Europe—it voted to keep the Europe it already has.The country sits inside the single market through the European Economic Area (EEA) agreement, is part of the Schengen area, and adopts swathes of EU legislation to stay compliant with standards set in Brussels. Short of membership, there is no closer relationship with the EU on offer.

Opposition to tight integration with Europe remains at the fringes of Icelandic politics and does not appear in any party’s manifesto. The foreign ministry’s latest annual survey showed that only 6% of Icelanders believe that international co-operation diminishes our sovereignty, against 69% who think it strengthens it. On the EEA agreement, 58% take a positive view and only 19% a negative one.

The Icelandic electorate has never shown much enthusiasm for politics built on distrust of institutions, conspiracy theories or the dissolution of the post-1945 international system. A country whose biggest annual festival is the Pride parade, and where women hold the offices of president, prime minister, foreign minister, bishop of the national church, mayor of the capital, chief of police and deans of both main universities is not a promising beacon for movements in the West that are uncomfortable with the inclusive nature of liberal democracy.

That being said, there is no denying that there was more than a whiff of culture wars in the no campaign. The masculine energy was palpable, and much effort went into far-fetched notions of an EU plot to expropriate Icelandic wealth. Young people were, by all accounts, targeted on social media and inundated with phone calls; one of the most potent messages was that EU accession could see them drafted into a European army. The yes side also played loose with the facts, not least in assertions that lower euro interest rates would automatically ease young people’s access to the housing market. Highly nationalistic messaging left some voters in a charged emotional state—and those voices were the loudest online, both during the campaign and in celebrating the outcome.

Still, the result was not a victory for the reactionary fringe. The fringe just happened to be on the winning side. The reasons Icelanders voted no are deep, domestic and largely unglamorous: fish, the currency, a comfortable arrangement with the world and a belief that the international order will remain relatively unchanged, despite temporary turbulence.

Iceland already has the Europe it wants

Through the EEA and the European Free Trade Association (EFTA), Icelanders and Icelandic businesses already enjoy the free movement of goods, services, capital and people. Every knowledgeable Icelander understands that without the market access, Iceland would not have prospered as it has. No serious politician dares to entertain abandoning the EEA. In fact, the no side ran on defending the agreement as the better alternative to full membership.

On defence and security, Iceland is a founding member of NATO and has a bilateral defence agreement with the US. For a country of 400,000 people that has never in its history had a military, these two pillars seem more than adequate, untested as they may be.

Full membership in the EU would require amending the constitution, which currently does not permit the transfer of sovereign powers that accession involves. This is sensitive in any debate about independence and sovereignty. As things stand, obligations arising from the EEA agreement only reach Icelandic law when the Icelandic parliament, the Althingi, legislates for them.

Hypervigilance about resources

Iceland owes its rise from poverty to prosperity in the 20th century to controlling the rich maritime resources that surround it. For centuries, foreign fleets exploited those grounds while Icelanders were kept out of large-scale fishing by both restrictions imposed by Denmark (which ruled Iceland from 1380 to 1918) and a lack of financial infrastructure.

At the start of the last century, new technology and financing opportunities unleashed an explosion of entrepreneurial activity in the sector. Iceland then pushed its fisheries zone outwards until it reached its present limit in 1975, over fierce British opposition in stand-offs known as the “cod wars”. It was the closest the country has ever come to a military confrontation. Legal victory in that dispute is a tremendous source of national pride and a standing reminder of the importance of natural resources to our economy. Furthermore, Iceland’s track record in managing this resource compares very favourably with efforts elsewhere.

Accepting the EU’s common fisheries policy is, on the face of it, a requirement for full membership. For most Icelanders, this is where the conversation stops.

It follows that a crucial question is whether Iceland could join the EU and keep control of its fisheries. Accepting the EU’s common fisheries policy is, on the face of it, a requirement for full membership. For most Icelanders, this is where the conversation stops. It is out of the question. Therefore, much of the historical debate about EU membership has revolved around whether a permanent carve-out is possible, and much energy has gone into reading cryptic remarks on the matter from EU representatives. The application launched in 2009 produced no answer. Talks were shelved before this vital question was seriously engaged.

For the yes camp, applying again was the only way to find out the real answer. The no side held that a satisfactory answer was simply not on the table—a belief that makes a no vote logical even for people who do not object to membership in principle. Why board a train if you do not believe it will reach its destination?

Our love-hate relationship with our currency

Since its adoption in 1918, the króna has been one of the most consistent sources of frustration in Icelandic public life. It started out at par with the Danish krone and, by that benchmark, has since lost 99.9% of its value. Long protected by import, export and currency controls, and propped up by punishing interest rates, it has now been largely abandoned by the big Icelandic businesses that operate internationally. They have mostly chosen the euro as their operating currency.

Despite its drawbacks, the flexibility that a national currency provides a small economy reliant on natural resources is not to be discounted. Some economists claim that the currency is a valuable tool to smooth out external shocks and protect Icelanders from economic setbacks turning into societal hardships such as mass unemployment. For many, the costs of maintaining a tiny currency that is attuned to our specific economic conditions are well worth the benefits of keeping unemployment at a minimum. For others, these benefits are overstated, and the costs in perennially high interest rates and market risk do not make economic sense.

Europe looks sluggish from Reykjavík

Iceland’s business and finance community is very focused on topline economic figures that show European growth lagging behind America’s. The prevailing narrative is that Europe buries its entrepreneurial talent under the weight of regulation while the US offers a superior environment for economic activity and technical innovation. Iceland’s business and financial community sees the country’s relative economic success as too valuable to risk with full EU membership.

Counter-narratives that build on broader measures of well-being do not seem to gain traction. Even extensive first-hand experience of European quality of life stands little chance when pitted against economic metrics.

Icelanders often cite Mario Draghi’s bleak assessment of the EU’s competitiveness as evidence that even consummate EU insiders have lost faith. The claim of the EU’s supposed economic feebleness does more than feed the economic debate; it has also become a thinly veiled contribution to the culture-war caricature of a weak Europe in contrast to a muscular America.

The old order still looks solid from the North Atlantic

The biggest disconnect between international affairs experts and the general Icelandic population lies in how each reads the way geopolitics is evolving. Contrary to much international reporting, the volatile state of the world barely featured in the campaign, which was mostly fought on domestic issues. Even threats from the American president, Donald Trump, against our Greenlandic neighbours have not moved the needle. Perhaps most Icelanders viewed the episode as too outlandish to be taken seriously, or too uncomfortable to contemplate.

Icelanders are very supportive of Ukraine and disdainful of Russia’s aggression, but they seem to judge the war far enough away not to affect them. Many are perplexed by America’s current foreign policy yet treat it as a deviation from a norm that will eventually re-establish itself. Bogi Ágústsson, a respected Icelandic journalist, recently told The Economist that Icelanders are in denial about how serious some recent international developments are. I believe most close observers of US politics would tend to agree with him.

During the campaign, warnings about an impending rupture in the world order that underwrites Iceland’s peaceful existence found few takers. The government had brought the referendum forward from a planned 2027 precisely because of these international developments, but worries about Europe’s security and NATO—that now dominate international policy discussions—were simply not top of mind.

In this context, it bears mention that Iceland has never suffered a violent invasion or a hostile occupation, which leaves matters of security and defence largely a theoretical exercise.

Did emotions run too high?

While the referendum’s result does not represent what some far-right European leaders wish it did, some elements of the campaign should give cause for concern. The intensity of the rhetoric was excessive considering the low stakes of the vote. Any accession treaty would itself have gone to a second referendum.

The international reaction to the result also suggested that some elements within Icelandic politics are embedded within the international anti-globalist movement. Micro-targeting, emotional pressure and unsupported claims proved effective. A sense of crisis or impending disaster was invoked, inviting a mindset that loosens the scruples that normally keep political discourse civil and constructive. The success of this approach could provide a campaign blueprint that all parties might find hard to resist in future elections, to the detriment of Iceland’s hitherto relatively civil political culture.

As any fisherman knows, illegal bait might get you an easier catch a few times, but eventually will ruin the fishing for all. Trust in elections is a common stock too, and it does not tend to replenish on demand.

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This week, Mark Leonard is joined by Ellie Geranmayeh, deputy director of ECFR’s Middle East and North Africa programme, to unpack a volatile new chapter in the confrontation between the United States and Iran. After months of managed escalation, military strikes have resumed and President Donald Trump has launched an ambitious new sanctions package, dubbed an economic “D-Day”, aimed at squeezing Tehran into submission.

Ellie argues that Washington has returned to a familiar strategy of maximum pressure, betting that unprecedented economic isolation and a blockade of Iranian exports will either force the regime to make major concessions or trigger domestic unrest. But Tehran appears determined to hold out, relying on sanctions-evasion networks, regional diplomacy and the belief that the US will struggle to sustain its campaign over the long term. As both sides continue limited military operations while keeping channels for negotiation open, the prospect of a comprehensive deal remains elusive.

The conversation also explores the domestic pressures facing Iran’s leadership, from a shrinking economy and growing public dissatisfaction to the threat of renewed nationwide protests. Mark and Ellie examine whether economic hardship could destabilise the regime, why Iranian leaders remain sceptical of American commitments and how internal politics in both Washington and Tehran are shaping the path ahead.

Finally, they discuss the wider regional and European implications of the conflict. How are Gulf states positioning themselves between the US and Iran? What risks does the confrontation pose to global shipping through the Strait of Hormuz? And can European governments still play a meaningful diplomatic role as tensions rise and fears grow that the Iran conflict could become increasingly entangled with the war in Ukraine?

This podcast episode was recorded on September 3rd 2026.

Bookshelf

Hillbilly Elegy, by J.D. Vance.

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