With a turnover of EUR 119 billion in 2020, 463 000 people directly employed and more than 2 500 SMEs, the European defence industry is a major industrial sector. It is characterised by economic and technological components that are important factors for Europe’s industrial competitiveness. Created in 2004, the European Defence Agency supports the Member States in improving their defence capabilities through cooperation and contributes to the development of their defence industry. The sector has recently decided to address some of its main long-standing challenges, such as market fragmentation and low spending levels, by reinforcing common procurement and enhancing EU defence expenditure.

Legal basis

EU action in this field must be based on Article 352 of the Treaty on the Functioning of the European Union (TFEU), which covers cases in which the EU Treaties do not make explicit provision for the action needed to attain one of the EU’s objectives. Article 173 TFEU provides a legal basis for EU industrial policy. However, progress towards applying internal market rules on the defence equipment market has been restrained by Article 346(1) TFEU, which states that ‘any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material’.


The defence industry has been important for the EU because of its technological and economic policy aspects. The competitiveness of the European defence industry is vital to the credibility of the nascent common security and defence policy (CSDP). It is important that the Member States cooperate with one another in order to put an end to policies and practices that prevent European defence companies from working together more efficiently.


The EU defence industry is important for the European economy as a whole. Like all other industrial activities, it is required to deliver increased efficiency in order to provide value for money for its customers and, at the same time, protect its shareholders’ interests.

A. Background issues

1. Research and development policy

EU research funding is mainly aimed at civilian objectives. However, some of the technological areas covered – e.g. materials or information and communication technologies – can contribute to the improvement of the defence technological base and the competitiveness of the industry. Where possible, defence industry needs should therefore be reflected in the implementation of EU research policy. At its December 2013 meeting, the European Council invited the Member States to increase investment in cooperative research programmes, also calling on the Commission, together with the European Defence Agency (EDA), to develop proposals to further stimulate dual-use (civil and military) research. In 2015, the Member States decided to move from research exclusively focused on civilian and dual use towards a single dedicated European defence research programme.

2. Exports

In 2008, the Council adopted Common Position 2008/944/CFSP (the CP), which defines common rules governing the control of exports of military technology and equipment, replacing an earlier political agreement, the EU Code of Conduct on Arms Exports (1998). With the CP, the EU is the only regional organisation to have established a legally binding arrangement on conventional arms exports. The aim of the CP is to enhance the convergence of the Member States’ arms export control policies, with arms exports ultimately remaining a matter of national competence. The EU export control regime itself is governed by Regulation (EC) No 428/2009, which details common EU control rules and a common EU list of dual-use items and provides for coordination and cooperation to support consistent implementation and enforcement throughout the EU.

On 30 June 2011, the Commission published a Green Paper on the EU dual-use export control system, with the aim of taking stock of the functioning of the system and considering possible areas for reform. This paved the way for the adoption of a communication (COM(2014)0244), which outlines a long-term vision for EU strategic export controls and identifies concrete policy options for the modernisation of the export control system. In September 2016, the Commission adopted a proposal to modernise the existing Regulation (EC) No 428/2009 and strengthen controls on exports of dual-use items.

B. EU defence industry policy

1. Towards a European defence equipment market

In September 2004, the Commission presented a Green Paper on defence procurement (COM(2004)0608), with the objective of contributing to ‘the gradual creation of a European defence equipment market’ between the Member States, on a more transparent and open basis. The green paper formed part of the strategy ‘Towards a European Union defence equipment policy’, adopted by the Commission at the beginning of 2003. The aim was to improve the efficiency of the use of resources in the area of defence and raise the competitiveness of the industry in Europe, as well as to help bring about improvements in military equipment within the context of European security and defence policy.

In 2007, the Member States agreed to enhance the development of the European defence technological and industrial base with the help of a dedicated strategy. The maintenance and further development of the European defence technological and industrial base is one of the main objectives of the EU defence industry policy. July 2006 saw the launch of the Intergovernmental Regime to encourage competition in the European defence equipment market. This voluntary intergovernmental regime is operated on the basis of a Code of Conduct on Defence Procurement (November 2005), which is supported by a reporting and monitoring system to help ensure mutual transparency and accountability between the Member States. Another important element is the Code of Best Practice in the Supply Chain (May 2005).

The standardisation of defence equipment is important for integrating national markets. Steps were taken with the launch of a European Defence Standards Reference System (EDSTAR) portal in 2012, replacing its predecessor, the European Handbook for Defence Procurement (EHDP). EDSTAR followed the establishment of the European Defence Standards Information System (EDSIS), which is a portal for wider-ranging European defence materiel standardisation aiming at advertising materiel standards that are to be developed or are to undergo substantive modification.

On 24 July 2013, the Commission adopted a communication including an action plan to enhance the efficiency and competitiveness of the European defence industry (COM(2013)0542). This covered the following areas: the internal market, industrial policy, research and innovation, capabilities, space, energy and international trade. With respect to defence procurement, the communication announced the establishment of a market monitoring mechanism.

2. Defence procurement and intra-EU transfers of defence products

Through Directive 2009/43/EC on intra-EU transfers of defence-related products and Directive 2009/81/EC on defence and security procurement, the EU has set up relevant guidelines in order to establish an EU framework in this area.

Directive 2009/43/EC on intra-EU transfers of defence-related products simplified and harmonised the conditions and procedures for transfers of such products throughout the EU. It created a uniform and transparent system of three types of licences: general, global and individual. Another key element of the directive concerns the certification of companies. Companies that are considered trustworthy are entitled to undertake transfers under general licences. The intention was for individual licensing to become an exception and be limited to clearly justifiable cases.

Directive 2009/81/EC introduced fair and transparent rules for defence procurement, which aimed to make it easier for defence companies to access other Member States’ defence markets. It provides for a negotiated procedure with prior publication as the standard procedure, allowing more flexibility, specific rules on the security of sensitive information, clauses on the security of supply and specific rules on subcontracting. However, the Member States can exempt defence and security contracts if this is necessary for the protection of their essential security interests (Article 346 TFEU).

In June 2021, the EU launched an analysis of the future of European security and defence. This process led to the creation of the Strategic Compass, a policy document that lays down the EU’s security and defence strategy for the next 5-10 years.

Russia’s invasion of Ukraine had significant implications for European defence. In February 2022, the Commission had published a roadmap on critical technologies for security and defence (COM(2022)0061). In March 2022, the Council significantly revised the Strategic Compass to take into account the destabilisation of the European security order and the subsequent change of EU stance, ambition and tools in the realm of defence. (See 5.1.2)

On 19 July 2022, as announced two months earlier in the joint communication from the Commission and the High Representative of the Union for Foreign Affairs and Security Policy on the Defence Investment Gaps Analysis and Way Forward (JOIN(2022)0024), the Commission adopted a proposal for a regulation on establishing the European Defence Industry Reinforcement through common Procurement Act (COM(2022)0349), a short-term financial instrument worth EUR 500 million to incentivise common defence procurement among the Member States.

3. The European Defence Agency

The European Defence Agency (EDA) was established in July 2004 under a joint action of the Council of Ministers to develop defence capabilities, promote and enhance European armaments cooperation, strengthen the European defence technological and industrial base, create an internationally competitive European defence equipment market, and enhance the effectiveness of European defence research and technology. The 2004 joint action was first replaced by a Council decision in July 2011 and then revised in October 2015 by Council Decision (CFSP) 2015/1835 on the statute, seat and operational rules of the EDA.

4. The European defence research programme

Despite the efforts to create a common framework for European defence policy, European defence research as a whole has declined sharply since 2006. Conscious of this ominous trend, several of the EU’s political bodies have begun to react. In 2015, the Member States agreed to progressively move from research focused exclusively on civilian and dual (civil and military) use in Horizon 2020 towards a dedicated European defence research programme, funded by the EU budget from 2021, as part of the European Defence Fund (EDF).

In November 2016, the Commission published the European defence action plan (COM(2016)0950), in which it proposed the establishment of the EDF and other actions to improve the efficiency of the Member States’ spending on joint defence capabilities, strengthen European citizens’ security and foster a competitive and innovative industrial base. The EDF was anticipated by the Preparatory Action on Defence Research (PADR), with a budget of EUR 90 million for 2017-2019, and the European Defence Industrial Development Programme, with a budget of EUR 500 million for 2019-2020. In June 2018, the Commission presented a legislative proposal establishing the EDF, which became operational on 1 January 2021 with a total agreed budget of almost EUR 8 billion for the 2021-2027 period (Regulation (EU) 2021/697).

Role of the European Parliament

Parliament has adopted various resolutions touching on the defence industry.

In a resolution of 10 April 2002, Parliament called for the creation of a European Armaments Agency and for standardisation in defence.

In a resolution of 17 November 2005 on the Green Paper on defence procurement, Parliament reiterated the view, expressed earlier in its 2002 resolution, that a strong, efficient and viable European armaments industry and an effective procurement policy are vital to the development of the European security and defence policy. The resolution also encouraged the Commission’s efforts to contribute to the gradual creation of a European defence equipment market, which would be more transparent and open between the Member States.

In a resolution of 22 November 2012 on the implementation of the CSDP, Parliament insisted on the fact that the strengthening of European capabilities should also result in the consolidation of the industrial and technological base of Europe’s defence industry, and called on the Member States to fully implement Directive 2009/81/EC in order to achieve greater interoperability of equipment and combat market fragmentation.

In a resolution of 21 November 2013 on the European defence technological and industrial base, Parliament called for the reinforcement of European industrial cooperation, and stressed the need to support CSDP missions through European research and development using the Horizon 2020 research programme. It also invited the Member States to improve the transparency and increase the openness of their defence markets, while stressing the specific nature of defence procurement.

In two resolutions adopted in May 2015 and April 2016, Parliament called for an effective and ambitious European foreign and security policy based on a shared vision of key European interests. It urged the Member States to define policy objectives based on common interests and argued that a white paper on EU defence should be adopted on the basis of the global strategy. Parliament supported the development of a strong CSDP and defence cooperation among the Member States.

In a resolution of 22 November 2016, Parliament proposed that a European Defence Union be launched as a matter of urgency.

In a resolution of 25 March 2021 on procurement in the fields of defence and security and the transfer of defence-related products, Parliament invited the Commission to improve SMEs’ access to finance and to thoroughly examine the reasons why SMEs are not fully integrated into the single market for defence products. It also called on the Member States to demonstrate political will by strengthening intra-EU defence procurement and research and development cooperation, as well as to use common procurement and research projects to boost interoperability between their militaries.

In its resolution of 1 March 2022 on the Russian aggression against Ukraine, Parliament called for increased contributions towards strengthening Ukraine’s defence capabilities. It supported the historic decision to allocate significant additional funding to supply Ukraine with defensive weapons through the European Peace Facility and the provision of military equipment by the Member States. The Member States were asked to accelerate the provision of defensive weapons to Ukraine in response to clearly identified needs.


Matteo Ciucci