EU defence & industrial policy: A cross-sectoral outlook

In its nearly 70 years of existence, never has the EU experienced a stronger push to double down on investments and coordination when it comes to defence.  

While defence remains primarily a competence of the Member States, the current volatile international environment – with the Russian invasion of Ukraine and ongoing conflicts in the Middle East – has resulted into Europe’s defence strategy being under intense scrutiny. NATO’s stability could be further challenged by the potential re-election of Donald Trump in the United States, a prospect that could undermine the alliance’s cohesiveness. Additionally, there is a realisation that most EU funds allocated to arm Ukraine are actually channeled towards U.S. defence contractors.  

Against this backdrop, the Union recently introduced the European Defence Industrial Strategy (EDIS), aiming to bolster its defence capabilities through industrial policy. 

The European Defence Industrial Strategy: A new approach 

Published on 5 March, the EDIS represents a significant shift in the EU’s approach to defence preparedness and emergency response. EDIS intersects with various policy areas, highlighting its broad impact on the EU’s economic security, financial services, sustainability, and digital transformation. The strategy encompasses several key elements designed to enhance the efficiency of defence spending, improve supply chain resilience, and foster a defence industrial culture across the EU. 

Enhancing efficiency and coordination 

One of the primary objectives of the EDIS is to optimise defence spending through more coordinated and long-term planning across member states. By aggregating demand, the EU aims to streamline procurement processes and reduce redundancy, ultimately ensuring that resources are used more effectively. This approach not only saves costs but also fosters a more unified and robust defence posture within the EU. 

Strategic enablers and supply chain resilience 

The EDIS underscores the importance of identifying and maintaining access to strategic enablers such as space, cyberspace, and critical maritime infrastructures. Ensuring free and unfettered access to these contested domains is vital for the EU’s defence capabilities. Additionally, the strategy addresses the need to strengthen the supply chain for defence products, particularly during crisis-induced demand surges. Collaboration with civil industries is explored to enhance flexibility and resilience in the supply chain. 

Fostering a defence industrial culture 

Promoting a defence industrial culture at both EU and national levels is another critical aspect of the EDIS. This involves improving access to public and private financing for defence projects and addressing skills mismatches in research and development (R&D) and manufacturing. By promoting a less restrictive interpretation of Environmental, Social, and Governance (ESG) criteria, the strategy aims to facilitate greater investment in the defence sector. 

Economic security and trade 

Economic security is closely linked to defence, as evidenced by the European Commission’s recent initiatives. These include a white paper on strengthening export controls for dual-use goods, a recommendation to prevent the misuse of R&D cooperation with non-EU countries, and a proposal to review the Foreign Direct Investment Screening Regulation. These measures aim to safeguard the EU’s strategic sectors, including the defence industry, from external threats. 

Financial services and investment 

The EDIS emphasises the need to combine public and private investments to enhance the EU’s defence industrial capabilities. The European Investment Bank (EIB) has presented its Group Security and Defence Industry Action Plan, which focuses on expanding the definition of dual-use projects and opening direct credit lines to defence and security SMEs. Additionally, the EIB has committed to disbursing the remaining funds under the Strategic European Security Initiative (SESI) to accelerate defence investments. 

Sustainability 

Sustainability is a core component of the EDIS, with the European Commission framing defence as a pillar of social sustainability. The defence industrial base plays a crucial role in ensuring Europe’s security, prosperity, and social stability. The strategy also calls for the incorporation of sovereignty into the sustainable finance framework, recognising the importance of resilience and security in EU policies. 

Digital transformation 

Unmanned systems and drone technologies are crucial in defence technology. The EDIS highlights the EU’s support for R&D in these areas, with a focus on ramping up mass production capabilities. The European Drone Strategy 2.0 aims to fund R&D actions under the Horizon Europe program and the European Defence Fund (EDF), supported by the EIB. This includes coordinated calls for funding and the development of a Strategic Drone Technology Roadmap. 

Political landscape and future debates 

The EDIS will undoubtedly spark political debates, especially in the context of the upcoming EU elections. As defence policy remains a national competence, eurosceptic parties may oppose the strategy, viewing it as an encroachment on sovereign rights. The expected increase in seats for far-right parties could influence negotiations on the strategy, which are anticipated to begin in the next mandate. 

The European Defence Industrial Strategy represents a comprehensive effort to strengthen the EU’s defence capabilities amidst a turbulent global landscape. By enhancing efficiency, fostering a defence industrial culture, and integrating sustainability and digital innovation, the EDIS can position Europe as a more resilient and autonomous actor in this field. As the EU navigates the complexities of defence policy, the success of this strategy will hinge on the ability to balance national sovereignty with collective security interests.