Unpacking the European Defence Industrial Strategy

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Alen Hristov

Steven van den Heuvel

Helena Walsh

The European Union (EU) is embarking on a bold journey towards a more robust and autonomous defence policy. This shift, driven by the evolving global security landscape and the ongoing war in Ukraine, has significant implications for the European defence industry, a key enabler of the EU plan. In this spotlight, we explore Europe’s defence ambitions, the indispensable role of industry in it, and the key considerations for turning the plan into success.

When political momentum meets spending ambitions

Shortly after the Russian invasion of Ukraine, the EU outlined its defence vision for the next 20 years. The “Strategic Compass on Security and Defence” committed the need for a robust European defence industry underpinned by strong R&D, smooth collaborative procurement, and reduced dependence on non-EU suppliers.

Two years later, the plan gained political traction. Ursula von der Leyen (a former defence minister) underscored in February that EU will be “turbocharging its defence industrial capacity in the next five years”, committing to create a Defence Commissioner role if she secures a second term as President. Internal Market Commissioner Thierry Breton further pitched a new ambitious €100bn fund for defence industry cooperation, a sentiment which was further echoed by French President Emmanuel Macron and German Chancellor Olaf Scholz.

Furthermore, ahead of the European elections, political parties have also included defence policy and spending into their manifestos, with the EPP listing defence as its number one priority, and PES championing “the development of the European defence industry.”

A first-ever defence industrial strategy

On 5 March the European Commission delivered the European Defence Industrial Strategy (EDIS): the EU’s plan to bolster its defence industry after decades of underinvestment. The plan includes:

Legislative initiatives: A European Defence Industry Programme (EDIP) which will mobilise €1.5 billion that will bridge the gap between now and the next 2028-2035 financial period;
Joint procurement: A Defence Industrial Readiness Board to perform the joint procurement function and support the implementation of the EDIP.
Projects of common interest & sales mechanisms: Projects of common interest will focus on securing EU access to contested areas such as maritime, air, cyber and space, while a new Military Sales Mechanism will facilitate the availability of defence products.

The EU plan relies heavily on EU countries’ national industries, with participation in the EDIP being exclusively open to EU Member States, Associated Countries (e.g. Norway) and Ukraine. As a result, by 2030, EU countries should collaboratively procure at least 40% of defence equipment; spend at least 50% of their defence procurement budgets on products made in Europe; and trade at least 35% of defence goods between EU countries.

The Enablers: Europe’s
defence industry

Europe’s defence industry has long called for an ambitious Defence Investment Programme and has recognised the sea of opportunities that the EU plan presents. The following types of companies will be particularly relevant to the EU plan:

Aerospace and defence contractors which design, develop, and manufacture aircraft, missiles, satellites, and other airborne systems for military use.
Electronics and communications companies that develop and manufacture communication equipment and other electronic systems used for military applications.
Cybersecurity firms providing solutions and services which are also playing a growing role in the defence industry.

When pursuing opportunities under the EDIP, however, the following would be important for companies:

Focus on competitiveness: Concentrate on the Plan’s strategic goal of improving EU competitiveness and strengthening the EU’s Defence Technological & Industrial Base (EDTIB).
Collaboration is essential: With the EDIP encouraging collaboration, companies should consider partnering with other European entities.
Political awareness: Companies should possess deep insights of the EU’s foreign and security policy priorities and demonstrate how their projects will contribute to those priorities.

Challenges and considerations defence industry

While the EU’s ambitions open doors for industry, significant challenges are expected to arise:

National interests: With defence remaining a national responsibility, EU countries may be resisting the idea that some of their competencies are taken away.
Financial contributions: As Commission Vice-President MargretheVestager noted, EDIP’s €1.5 billion is “an incentive” and that “the real funding comes from the Member States.” Securing such funding will be key for the success of the plan.
Bureaucracy: Streamlining the complex bureaucratic procedures involved in collaborative projects and cross-border procurement will be vital.
Skilled workforce: Meeting the increased demand for skilled personnel, from engineers to project managers, requires addressing potential workforce shortages.

Despite the challenges, external events, such as elections in other countries and a potential lower US commitment to NATO in the future could serve as catalyst and urge EU countries to strengthen their defence policy integration, and spending at EU level.