Europe can’t make Ukraine enough weapons—So it’s paying Kyiv to do it

KYIV, Ukraine—Ukraine’s European allies, struggling to produce enough weapons for Kyiv’s war effort, are pioneering a new method: Giving Ukrainians money to do it themselves.

In the new approach, Europeans are financing Ukrainian government contracts with cash-strapped Ukrainian arms makers to produce equipment for the country’s armed forces, including long-range missiles and drones that can strike Russian territory. Kyiv tells its allies which companies to work with and armaments to buy, and the Europeans vet the producers independently before agreeing to deals.

Ukraine will still rely on Western allies for advanced weapons such as Patriot surface-to-air interceptor missiles. But officials say the new approach will allow Kyiv to acquire weapons faster and in greater number than waiting for European arms to be produced. Ukraine can do this because its arms industry is operating far below its production capacity—30% of its potential, by some estimates—because of insufficient funding.

Proponents of the approach say Ukrainian defense firms are able to churn out many systems faster and less expensively than Western suppliers can. Ukrainian firms also tailor equipment more specifically to the country’s ever-changing front-line needs, while bolstering its defense industry for the future.

Dubbed the “Danish Model” after Copenhagen developed the approach with Ukraine earlier this year, the system is drawing growing participation and interest from other countries. Norway, Sweden and Lithuania have provided money, and other nations have expressed interest, according to Danish Defense Minister Troels Lund Poulsen. Germany has already applied a similar approach and the Netherlands, in parallel, is contracting directly with Ukrainian companies.

Denmark developed its approach because it, like many allies, had already donated to Kyiv almost all of its available weaponry, say officials. The Netherlands, Sweden, Norway and the Baltic states are also in this group.

The model is part of a broader effort by northern European and Baltic countries to consolidate cooperation to boost Ukraine. It emerged after France, Germany and other big countries failed to unite the continent behind a coherent plan, and as Europe braces for the incoming Trump administration, which could reduce U.S. engagement across the continent.

Ukrainian President Volodymyr Zelensky singled out the Danish Model while marking the 1,000th day since Russia’s full-scale invasion, alongside Danish Prime Minister Mette Frederiksen. He said it let Ukraine produce artillery, missiles, long-range drones and howitzers.

“It allows us to unite other countries around investments in weapons-manufacturing in Ukraine,” he said.

Funding so far is limited. Denmark has secured about €650 million, or $680 million, including more than $400 million coming from confiscated interest on Russian financial assets frozen in Europe, say Danish and European Union officials. Copenhagen aims to deliver those funds by year-end.

Denmark has contributed more than $180 million of its own funds to the total, Norway more than $42 million and Sweden, which last week announced financing for long-range drones and missiles, more than $20 million.

Poulsen hopes to funnel at least $1.4 billion through the system next year.

“This is an example of how to ensure faster delivery while also strengthening the Ukrainians’ own arms production and eventually make them less dependent on donations,” Poulsen said in an interview.

Zelensky said last month that the investment has allowed Ukraine to produce nearly 20 Bohdana howitzers monthly. Last December, Ukraine produced six.

“Last year, we faced the reality that the technical capabilities of Ukraine’s military-industrial complex significantly exceeded the financial capacity of the Ukrainian budget,” said Vladislav Belbas, the general director of Ukrainian Armor, an arms maker that has been subcontracted to produce parts for the Bohdana howitzer.

The Danish approach is winning fans because integrated audits and oversight limit potential corruption in arms acquisition, a problem that has plagued Ukraine’s defense efforts. Copenhagen inspects recipients before releasing funds and defense attachés from the Danish Embassy follow up to ensure companies deliver as agreed. So far, no company has failed the control.

The approach may also reduce pressure on allies to pull weaponry from their own arsenals.

“If you increase the capacity in Ukraine, then we have to give less weaponry ourselves and can build our capacity again,” said Dutch Admiral Rob Bauer, who chairs the North Atlantic Treaty Organization’s committee of military leaders.

“With the Danish model we can ensure that the donated funds will go to the production of arms that Ukraine needs the most,” Swedish Defense Minister Pål Jonson said in an email. “Ukrainian wishes and Ukrainian needs on the battlefield can more easily be met.”

Ukraine has well-established arms production capacity and is developing technology to meet its needs—particularly for drones—faster than foreign companies can, said Eric Ciaramella, senior fellow at the Carnegie Endowment’s Russia and Eurasia Program.

“Ukraine was the heart of the Soviet defense industrial base, so they have a lot of know-how when it comes to manufacturing complex systems,” Ciaramella said. Supporting Ukraine’s defense industry lets the West help ensure Ukraine’s long-term self-sufficiency, he said.

Many of its weapons makers say they could increase capacity if they had more production contracts, but they are caught in a wartime bind. The government has forbidden arms exports, and the military is the sector’s only customer, but has limited resources. This year it will have spent $6 billion on weapons purchases, Oleksandr Kamyshin, Ukraine’s minister of strategic industries, said earlier this year.

The Danish model aims to address the issue.

“The only thing that makes a company produce more is if they have a contract,” said Tomas Kopecny, the Czech governmental envoy for Ukraine reconstruction. He leads the Czech ammunition initiative, which this year will deliver to Ukraine roughly 500,000 rounds of 155mm artillery. He said Denmark, the Netherlands and Czech Republic are closely allied in working to get Ukraine weapons it needs most effectively. “The Danes and Dutch are very creative,” he said.

Boosters say the approach also eliminates layers of government involvement that can slow arms deliveries and add cost.

Last week, Denmark hosted the first summit of a new format comprising Ukraine and 12 European countries: the five Nordics, the three Baltics, the U.K., the Netherlands, Germany and Poland.

Most of Ukraine’s Western donors have shunned directly funding its defense companies due to fear of financial mismanagement, corruption or because donors want payments channeled to their own arms producers. Denmark, the Netherlands and their like-minded neighbors either don’t have big defense industries or see no prospect of tapping domestic firms fast enough to help Kyiv.

Denmark pays its contracts through the Ukrainian government but interacts directly with companies. The Netherlands sends payments straight to Ukrainian companies, because of Dutch laws, according to the Defense Ministry.

Lithuanian Defense Minister Laurynas Kasciunas said his country is joining the Danish initiative with an initial contribution of more than $10 million and aims to do more.

“It’s one of the most efficient ways of getting money to Ukraine,” said Kasciunas. A Ukrainian-made Stugna antitank rocket system is one-tenth the price of a U.S. Javelin antitank rocket and available in larger numbers, he said.

Lithuania is also considering buying Ukrainian-made strike drones for its own armed forces, he said. After visiting Ukrainian arms makers, Kasciunas said he was impressed by their ability to operate despite Russian attacks. “They find ways,” he said.

Bojan Pancevski contributed to this article.

Write to Daniel Michaels at Dan.Michaels@wsj.com and Sune Engel Rasmussen at sune.rasmussen@wsj.com