In recent weeks, the UK, France, and other European countries have toughened their diplomatic stance toward Israel, implementing measures such as banning trade with Jewish settlements over the green line. Yet, alongside this political criticism, a completely opposite trend is unfolding on the ground: the presence of Israeli defense industries in Europe continues to expand.
Far from retreating, Israeli defense firms are deepening operations across the continent, ranging from the establishment of local manufacturing plants and infrastructure to the joint development of capabilities with European defense giants.
From Germany to Greece: impressive deals
Earlier this month, Elbit Systems and German defense giant Diehl Defence successfully demonstrated the operational capabilities of the SkyStriker loitering munition - a live demonstration that included the launch, detection, and autonomous engagement of a target at a range of 80 kilometers. Elbit operates a well-established subsidiary in Germany - Elbit Germany - ranging from a German headquarters managing development, production, and maintenance to offices in Koblenz and Berlin for defense and government relations. Reports indicate that the possibility of establishing an additional local plant is also being considered, driven by local political support for the creation of weapons manufacturing facilities.
Last week, Rafael finalized a deal with the state of Lower Saxony and the Aurelius fund to acquire a Volkswagen plant in Osnabrück for the production of Iron Dome components. This follows the sale of the Spyder system to Romania for about €2 billion in June - a country where Elbit already maintains its own manufacturing infrastructure.
The possibility of establishing Israeli factories and potentially even management headquarters is also being explored in Cyprus. All these developments complement existing ventures. Rafael’s long-standing European partnerships such as EuroSpike (with German firms Rheinmetall and Diehl) and EuroTrophy (with KNDS and GDELS) - illustrate how the Israeli defense industry is increasingly integrating into European production supply chains.
Rafael also featured in discussions during the recent visit of Israel’s President Isaac Herzog to Cyprus. According to Cypriot news site "Philenews," Israeli defense industries are exploring the establishment of manufacturing facilities on the island. Sources familiar with the matter told the Cypriot media outlet that, alongside manufacturing, the Israeli companies aim to establish management headquarters there. Cyprus’s status as both an EU member state and a country in close proximity to Israel provides potential benefits of a substantial Israeli defense-industrial presence.
This was clearly reflected in the strategic €3.1 billion "Achilles Shield" deal signed by Israel’s Ministry of Defense with Greece about two and a half weeks ago. The agreement incorporates Greek companies with work worth about €700 million (22.5% of the total contract value). In short, the Ministry of Defense recognizes that without bowing to demands for local production participation, there will be no deals.
Europe increases budgets and demands local production
Key factors in this trend are steadily rising European defense budgets and growing demands for local manufacturing. From the perspective of Israeli companies, this involves establishing local subsidiaries that create jobs and pay taxes in their host countries. None of the current sanctions prevent them from continuing normal operations.
This trend is driven by political, economic, and even security considerations. Politically, it compels nations to maintain sound relations with Israel, as the transfer of advanced technology and know-how would otherwise be jeopardized. Economically, expanded manufacturing infrastructure enables higher sales revenue and faster delivery times, while the host country benefits from job creation and tax revenue generated by the local entity. From a security standpoint, both the European nations and Israel stand to gain; for instance, in the event of war, Israel’s Ministry of Defense could procure Israeli-made products manufactured in Europe for its own operational needs.
Germany serves as the prime example of this trend. Driven by Israel Aerospace Industries’ 2023 Arrow-3 deal with Germany worth $3.5 billion and a follow-up deal last year worth an additional $3.1 billion, Germany has risen to second place among buyers of Israeli defense exports, according to the Stockholm International Peace Research Institute (SIPRI). Institute data indicates that between 2021 and 2025, Germany accounted for 21% of Israel's defense exports, while India accounted for 29% and the US 7.8%.
Manufacturing in Europe offers a major advantage, particularly as nations worldwide shift toward localization policies, such as the "America First" model in the US and the "Make in India" initiative. Both countries pursue similar policies, to which Israel adapted its defense strategy at a very early stage on a global scale.
At a time when NATO is aiming for defense budgets of roughly 5% of GDP by 2035, the EU is focusing on the SAFE initiative, which allows financing of defense deals worth up to €150 billion, provided that 65% of the value involves procurement from EU member states or Ukraine.
All Israel’s defense giants have European subsidiaries
Israeli origin of defense systems does not dampen demand and in fact, the opposite is often true. One of the products most closely associated with Rafael is the Spike missile - the world’s most popular tactical missile family -operated by 42 countries, including 20 NATO members. When Spike is mentioned globally, people know it comes from Israel and from Rafael, ands this boosts sales more than if the product was manufactured in Europe.
Consequently, Rafael operates joint ventures in Europe. EuroSpike has been marketing the system in Europe since 2004, with Rafael holding a 20% stake and German firms Rheinmetall and Diehl holding 40% each. Similarly, there is EuroTrophy for the Trophy active protection system. Rafael holds a 40% stake, while KNDS and GDELS hold 30% each. Nevertheless, the defense market is well aware that these are Israeli technologies, even when European CEOs serve as the public face of the companies.
In the case of subsidiaries whose names are not directly linked to the Israeli parent company, Israeli defense firms have come to realize that the reality cannot be concealed. Moreover, the trend toward local production encourages them to showcase their global footprint on their websites.
Israel’s red lines and solutions
Nevertheless, Israel has red lines. A lively public debate is underway in Greece because, prior to the signing, the local government said it would not close the deal without access to the source code. Yet Israel ultimately did not provide it. Source code comprises the set of software files, instructions, and definitions that enable the construction, operation, maintenance, and updating of a system. Without it, full control remains with the manufacturer - in this case, Israel.
The Ministry of Defense subsequently clarified that a different solution had been found. Israeli know-how would be transferred to the Greek companies participating in the project, enabling them to develop their own Greek source code for the system.
The interim solution reached entails the code being developed in Greece and remaining under Greek control. This approach aims to resolve tensions, including potential domestic friction for Israel, stemming from the fact that source code constitutes the system's core. While the Greek demand is understandable, it is not fully agreed upon. Consequently, the partners in Athens will gain a local capability that allows them, at least outwardly, to demonstrate independence to the local public on future upgrades.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2026.
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