The Space Economy: Strategies and Challenges from a European Perspective

Author: Cecilia Di Fulvio (Senior Researcher Mondo Internazionale GEO - Economia)

Introduction

The global space economy is undergoing a deep transformation, evolving from a field once reserved for scientific exploration into a critical pillar of national security and economic growth. Current projections suggest the sector will expand from its present valuation to approximately $1.8 trillion in the next decade, driven by the following dynamics. Not only this era is defined by technological innovations such as the miniaturization of satellites and the emergence of reusable launch vehicles, but also by a shift from state-centric models to private sector leadership in the space economy. For the European Union, existing infrastructure, such as the Galileo and Copernicus systems, is now essential for strategic autonomy and environmental monitoring. However, Europe finds itself at a crossroads: with advanced privatization in the US and significant competition from China, it must choose between affirming its role through targeted investment and industrial integration or diminishing its weight in the space economy and accepting dependency on foreign technologies. The EU Space Act regulation proposed by the Commission represents an important starting point to complete the internal market integration and promote the European way to innovation. At this time, it is particularly important to proceed in this direction as consistently as possible.

1. Europe's historical role and shifting dynamics

In the last fifty years, Europe has emerged as the most scientifically advanced region in space exploration. Europe’s first decades in the space sector were built on a model of intergovernmental cooperation through the European Space Agency (ESA), which was instituted in 1975, and the successful deployment of flagship programs. Moreover, systems such as Galileo for positioning, navigation, and timing (PNT) and Copernicus for Earth Observation (EO) established Europe as a global leader in space data. Despite these successes, the industrial landscape is shifting rapidly. The European share of the global upstream market, which comprises spacecraft manufacturing and launch services, shrank from 21% in 2008 to just 6% in 2024 (Gili and Boneitin, 2025). This decline is mostly attributed to the rise of vertically integrated actors in the U.S. and China, which operate across the value chain of space activities and whose scale allows them to benefit from more dynamic commercial environments.

In the current international context, space is no longer a neutral scientific domain but a contested operational one that is critical for national security and defense. The EU has responded by redefining its space policy through the 2022 Strategic Compass and the 2023 EU Space Strategy for Security and Defence, moving toward a defense oriented approach to protect space assets from hybrid threats. At the same time, member states are taking independent legislative action: Italy, for instance, became the first European country to regulate the space economy through law n. 89 of 13 June 2025, which defines national governance frameworks and promotes private investment while upholding international liability obligations. However, the European Union is yet to face the persistent challenge of fragmentation. Indeed, space governance is currently split across various decision-making centers, including the European Commission, EUSPA, ESA, and national agencies. The lack of effective coordination among these bodies is often cited as a weakness compared to the American model, where NASA and DARPA have clearly defined and complementary mandates, respectively in civil space exploration and defense research. While the proposed EU Space Act aims to reduce this fragmentation through market integration and safety requirements harmonization, critics argue it may exacerbate the issue by creating additional bodies with far-reaching investigative and sanctioning powers. In addition to facing institutional challenges, European space governance needs to adapt its structure to the new business environment that emerged in this sector. While the European industry remains a leader in downstream activities, the lack of competitiveness of its upstream services threatens the region’s strategic autonomy.

2. Current economic challenges

Increasing geopolitical competition is prompting great powers to boost their spending in defense and technology related space activities, while favoring private investment in this sector. This is especially true in the United States, while Europe is falling behind in both public and private space spending. Public investment in the U.S. is roughly six to ten times higher than in the EU, representing 0.25% of GDP compared to Europe's 0.07% (European Parliament, 2025). This gap extends to the private sector, as U.S. space startups complete their first venture capital rounds three months earlier than European counterparts and raise 2.8 times more capital (Colombo et al., 2025), despite the higher specialization of EU companies. As a matter of fact, European startups suffer from the relative underdevelopment of the local venture capital industry and a widespread aversion to high-risk asset classes, which forces them to seek funding or relocation abroad.

In addition, Europe is currently navigating an unprecedented launcher crisis, due to the retirement of Ariane 5 in 2023, which has supported several ESA missions over almost thirty years, and delays in the Ariane 6 leading to the backlog of multiple missions, including the IRIS² initiative for space autonomous space connectivity. These events, which are related to Europe’s loss of access to Russian Soyuz rockets due to the war in Ukraine, are forcing the EU to rely on external providers. Indeed, the Galileo navigation satellites were launched through SpaceX, and the aforementioned programs present economic limitations: while Ariane 6 launch costs range between $5,000 and $10,000 per kilogram, SpaceX’s fully reusable Starship is projected to reduce costs to approximately $500 per kilogram (Gili and Boneitin, 2025). This order-of-magnitude difference places Europe at a severe structural disadvantage in the commercial launch market.

While the EU Space Act aims to create a level playing field, it raises significant concerns regarding compliance costs. Estimates suggest the regulation could lead to a 10% increase in satellite manufacturing costs and up to a 10% increase in IT budgets for risk management. For launch operators, compliance could cost up to €1.5 million for heavy launchers (Gili and Boneitin, 2025). These administrative burdens are particularly threatening to small and medium-sized enterprises (SMEs) and startups, which may find the entry barriers and personnel vetting requirements unsustainable. Furthermore, the traditional ESA principle of “geographical return”, meaning the allocation of contracts based on financial contributions, is increasingly seen as a distortion of economic efficiency that hinders the emergence of European space champions.

3. Comparative advantages and future outlook

Europe’s main economic advantage remains its downstream market, which accounts for 19% (€78 billion) of the global total. The European industry leads in earth observation data processing and holds dominant positions in segments like insurance, finance, and consumer solutions. Flagship programs are evolving to support these markets: Galileo introduced the High Accuracy Service (HAS) and signal authentication (OSNMA) to protect against spoofing in 2025, while the Copernicus Data Space Ecosystem (CDSE) surpassed 500,000 users (EUSPA, 2026), providing a marketplace for third-party innovation.

The future of European strategic autonomy rests on the deployment of IRIS². This multi-orbit constellation of 290 satellites is designed to provide secure, high-speed connectivity for government and commercial users, integrating quantum cryptography and anti-jamming technology. Initial services are targeted for 2029, with control facilities designated at Italy's Fucino Space Centre. GOVSATCOM, which pools satellite capacity to provide secure communication for crisis management, border surveillance, and diplomatic missions, is supposed to complement this infrastructure. At the national level, Italy’s IRIDE program serves as a model for national contribution to the European ecosystem, utilizing NRRP (National Recovery and Resilience Plan) funds to deploy six satellite constellations for Earth observation. To compete globally, Europe is also pursuing industrial consolidation, such as Project Bromo, which aims to merge the space assets of Leonardo, Thales, and Airbus into a single competitive entity.

In the long term, the future of the European space industry can evolve towards three different scenarios (European Parliament, 2025). In case fragmented national policies and underinvestment result in economic stagnation (0-2% growth), the EU would face a “brain drain” towards the U.S. and its industrial share of global orbital satellites would collapse to just 3%. Lacking counterspace capabilities, European infrastructure would remain exposed to external threats while policy priorities shift away from space toward social issues such as aging populations and economic growth. While consistent with current trends, the vital importance of strategic autonomy in this great power competition era makes this scenario particularly problematic. Alternatively, the “collaborative space” scenario envisions a global détente following the demilitarization of Eastern Europe, where the EU leads international cooperation efforts. Supported by robust growth (5-6%) and milestones like sustainable fusion power from the ITER project in 2039, the Union successfully manages the green and digital transitions. By establishing permanent Moon bases and launching the first quantum communication satellites, Europe fosters high social cohesion and equitable global partnerships, particularly with African nations on climate and water management. Given the current trends in international security and policy priorities, this scenario is unlikely for 2050. Finally, in a world of high tension and nationalist competition, the EU could enhance its strategic autonomy in space. In this scenario, the Union achieves this goal by operating space-based missile defenses to neutralize human-made threats. Driven by defense and civilian contracts, the EU would improve its global position in liminal sectors such as AI, robotics, and genetic technology, even establishing permanent lunar settlements and mastering long-term life support. This path would generate unparalleled economic growth (5-6%) and attract global talent, reinforcing this trend. Given the current challenges, this scenario requires consistent efforts for scaling up European industrial capacity and harmonizing governance.

Conclusion

Europe possesses the scientific expertise and downstream capacity to play a crucial role in the space economy, but its fragmented governance and investment gap act as persistent anchors. The shift toward a strategy prioritizing national security and economic growth, supported by the EU Space Act and programs like IRIS², is essential to this aim. By reforming procurement processes to become an anchor customer for space companies and providing initial incentives for SMEs, Europe can potentially bridge the gap between scientific excellence and industrial scale. For this to happen, it is essential to foster harmonization and scale up successful companies across member states. Leadership in the space economy will belong to those who can achieve both the industrial base and the regulatory agility required to navigate an increasingly congested and contested environment.

Source Classification

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