With the Russian invasion of Ukraine bringing back high intensity warfare to the European soil, discussions on bolstering a self-reliant and resilient European defence have intensified. Against this backdrop, the European Commission has started to place a critical focus on the development of a robust European Defence Union, by strengthening strategic autonomy while simultaneously deepening cooperation with NATO and key global allies.
At a historical juncture where security challenges are ever escalating and great power rivalry is ever more palpable, defence will remain a priority for the next European Commission. Recognising the importance that this policy area will continue to have, this article explores the key security and defence issues anticipated to be in the spotlight during the next mandate and the main debates taking place at the EU level within the defence domain. Our aim is to shed light on potential engagement opportunities, offering to stakeholders some food for thought and a starting point for reflection.
A Stronger Europe Amid Escalating Crises
The first strategic document adopted by the von der Leyen Commission after the outbreak of the war in Ukraine was the 2022 Strategic Compass for Security and Defence. The document aimed to enhance coherence by offering a unified interpretation of the strategic environment surrounding the EU and by setting forth clear common objectives.
With this prospect in mind, the Strategic Compass identified four key imperatives that have since served as the foundation for any security and defence initiative and that will likely continue to guide the course of future initiatives: 1) Act; 2) Secure; 3) Invest; and 4) Partner with others to achieve common goals.
Building upon these four principles, subsequent EU actions in the security and defence sector have sought to enhance coordination mechanisms across Member States, ensure a cohesive response to security challenges, and create an environment conducive to technological advancement, with a focus on research, development, and innovation.
In his foreword to the Compass – recognising the worrying range of threats that Europe now faces – HR/VP Borrell urged policymakers to move beyond conceptual debates and take decisive initiative. Accordingly, improved funding systems have been implemented to support EU goals, ensuring financial backing for key technology and security infrastructures, thus reinforcing the EU’s strategic capabilities.
In the words of Borrell, while the Strategic Compass is “neither a crystal ball for predicting the future, nor a silver bullet that will magically enable Europe to develop a common defence policy overnight”, the document is still worth mentioning, as it will certainly serve as “a guide for preparation, decision, and action”.
Pivoting to Production: Europe’s Strategic Defence Industrial Strategy
While the Strategic Compass’s good resolutions may have been relevant for setting the course ahead, they alone were certainly not sufficient to achieve concrete results. To do so, more circumscribed policies with clear targets and restricted scope were needed.
With this purpose in mind, the European Commission engaged in an extensive consultation process with a wide array of actors, including Member States, industry representatives, the financial sector, think tanks, and the academia. The result of this effort was the first-ever European Defence Industrial Strategy (EDIS), presented in a joint statement by the President of the Commission and the High Representative on 5 March 2024.
The EDIS defines the vision for European defence industrial policy until 2035, with the specific objective of “strengthening the European defence technological and industrial base (EDTIB)”, a locution that comprises all European defence stakeholders in broad terms, including defence technologies and research institutions within the EU. Behind this project is the idea that, to construct a comprehensive collective defence – i.e. one that encompasses not only traditional military capabilities but also cyber defence, space security, and hybrid threats – the EU must strengthen its defence industry by fostering a business ecosystem that promotes competitiveness and innovation. In other words, building a robust defence industrial sector will prove vital to reducing the EU’s vulnerability to external disruptions and securing its broader interests on the global stage.
Mirroring the structure of the Strategic Compass, the European Defence Industrial Strategy also revolves around four pillars, this time tailored with an industry-centric perspective, namely: 1) Investment; 2) Research and Innovation; 3) Funding; and 4) Partnerships.
Standing out as key proposal under the funding pillar, the European Defence Industry Programme (EDIP) was carefully designed to support and finance projects that align with the strategic objectives set out in the European Industrial Defence Strategy. In short, while the strategy outlines the broader priority of strengthening Europe’s defence industry, the EDIP is supposed to provide the necessary funding and support mechanisms to implement such goal by fostering innovation, competitiveness, and collaboration within the European defence sector.
Promising Onset yet Unsatisfactory Execution
If on the one hand the European Defence Industrial Strategy has been largely praised by industry representatives for its ability to focus on the most pressing issues facing the defence sector, certain observers have lamented that several shortcomings could potentially jeopardise its effectiveness and intended outcomes.
According to some, the strategy appears to prematurely stigmatise weapon imports and overestimate the internal production capacities of the EDTIB. In fact, despite the existing consensus on the necessity to enhance the EU’s production capacity to decrease dependency on third countries, fears have been voiced that a drastic reduction in imports could risk leaving European stocks unable to meet the demand for equipment, particularly ammunition (see Europe’s ammunition market size). Viewed in this light, the EDIS’s objective of reducing foreign supply to under 50% by 2030 may seem overly ambitious and partially detached from cost-efficiency considerations.
Questions have also been raised about the overall practicality of the Strategy, especially in relation to its funding. In fact, the planned budget of €1.5 billion for enhancing the industrial readiness of the EDTIB has left some stakeholders dissatisfied (as a point of comparison, France’s defence budget alone amounts to € 47.2 billion).
Partly to compensate for this failure to meet the industry’s expectations in terms of funding, a specific and strong mention of the topic was included in the Strategic Agenda 2024-2029, adopted on 27 June 2024 by the 27 Heads of State and Governments sitting in the European Council. Here, reference is made to the EU’s intention to “improve access to both public and private finance, including through the enhanced role of the European Investment Bank Group as a catalyst”, suggesting that Eurobonds might be considered as well. However, even this promise could still fail to be fully realised should the EU not concurrently address the reputational challenges that defence companies, particularly SMEs, encounter when seeking private funding.
Overall, to evaluate the validity of these criticisms, it will be essential to closely monitor the evolution of the Regulation establishing the European Defence Industry Programme, as this is still currently under the scrutiny of the two co-legislators and might undergo further modifications before its final approval. As it stands, if adopted, the EDIP would introduce a new voluntary framework for European armament programmes, establish a modular and gradual EU security of supply regime, create a mechanism for effective response to future crises in defence product supply, and form a Defence Industrial Readiness Board comprising representatives from the Member States, along with the EU High Representative and the Commission.
A Struggle for Limited Resources
The allocation of financial resources broadly speaking and much beyond industrial development will be a pivotal issue during the upcoming mandate. Given the constraints of limited resources in a challenging economic period, the focus of the discussions will likely be on the size of EU budget dedicated to defence.
In 2023, the European Parliament supported the Commission’s proposal to increase defence funding in the 2024 annual EU budget. It will be interesting to see if the new Parliament will maintain this stance. A glimpse into the trajectory of this debate was provided on Monday, 3 June, when the European Commissioner for Cohesion, Elisa Ferreira, emphasised that new EU priorities, such as defence, should not compromise support for cohesion policy. Apparently, if the new Parliament chooses to seek a review of the Multiannual Financial Framework (MFF), it will need to put significant effort in the negotiations.
In a clumsy attempt to solve this never-ending debate on budget allocation and prevent a tug-of-war between defence and welfare state expenditures – particularly feared among left-wing factions – some have begun to propose the confiscation of Russian frozen assets and their employment to sustain Ukraine’s war efforts and fund reconstruction initiatives. Yet, this approach is not without its controversies either, as potential adverse impacts on financial markets cannot be ruled out.
As for the Council, it should be noted that the anticipated results of the French elections might disrupt the usual balance among the Member States, which typically sees Macron’s France consistently supporting further defence integration. By contrast, the opposing front seems to remain steady, with German Chancellor Olaf Scholz and outgoing Dutch Prime Minister Mark Rutte upholding their firm opposition to any increase in common defence spending. It remains to be seen whether Rutte’s new role as NATO Secretary-General will change his stance, and whether the outcome of the US election will allow the momentum for defence integration to gain traction. In the meantime, Poland and the three Baltic States have not wasted any time ahead of the Hungarian’s Presidency and presented a proposal for the EU to finance a € 2.5 billion military barrier along the borders with Russia and Belarus.
What seems clear, then, is that, even once the defence budget is established, its distribution across various priorities will continue to be a topic of discussion, with the primary unresolved issue revolving around whether, and to what degree, the EU’s support for Kyiv will be enhanced.
Beyond Budget and Policies: Institutional Changes on the Horizon
Besides policy and budgetary discussions, talks of institutional novelties are also coming more and more in the eye of the storm.
The first proposal that floated, strongly advocated by European Commission President von der Leyen, along with Estonia, Italy, and the Netherlands, would consist in the creation of a defence post within the next Commission.
Commenting on the news, High Representative Borrell harshly squashed the idea defining it as challenging considering that primary defence responsibility lies with national governments. Upon examining the treaties, he might have a point in contesting the feasibility of the proposal, as the introduction of an EU Commissioner for Defence and Security without a treaty reform does not appear straightforward. To get around this obstacle, the suggestion has been presented to create instead an “Industrial Defence Commissioner” and entrust the nominee mainly with joint procurement. Even so, the exact scope of the post is quite blurred and might risk overlapping with both the High Representative for Foreign Affairs (who heads the European Defence Agency) and the Commissioner for Internal Market (currently leading the Directorate-General for Defence Industry and Space, DG DEFIS). As of now, the authority vested in a prospective Commissioner for Defence thus remains ambiguous, with the looming pitfall of the post ending up being a mere ceremonial title with neither budget nor influence.
Up until the previous week, it appeared that also the European Parliament was considering changes to better accommodate the growing defence stance, with the potential transformation of the Subcommittee on Security and Defence (SEDE) into a fully-fledged parliamentary Committee increasingly making news. Newly re-elected MEP and former chair of the Subcommittee Nathalie Loiseau (Renew, France) was among the strongest proponent of this upgrade, in the name of the better technical eye that members of this (sub)committee could provide when overseeing the EU’s industrial policy, compared to MEPs from the industry (ITRE), foreign policy (AFET), or internal market (IMCO) committees.
Also in favour of the proposal were EP President Roberta Metsola and her party, the EPP, which contended that the level-up could mirror the growing leverage that the European Parliament is slowly obtaining over defence issues. Less enthusiasts were instead MEPs from S&D, who did not give their blessing to the proposal, arguing that other subcommittees, such as the Subcommittee on Human Rights (DROI), would deserve the same treatment. Ultimately, their viewpoint was the one that carried the day.
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This new EU mandate holds significant implications for all companies in the security and defence sector, regardless of their size, in terms of the possibility to influence and shape both policymaking and funding opportunities. If the ongoing discussions appear overwhelming, we invite you to connect with us to receive the latest updates and tailor-made advice for your engagement. Lykke Advice is committed to assisting you in getting your voice and expertise heard during the EU legislative process and seizing all the opportunities that the focus on the defence industry will present.
by Farweb