Defence industry
The EU defence industry plays a vital role in ensuring the Union’s security and strategic autonomy. It also contributes to competitiveness and growth. However, the European defence sector has long suffered from structural weaknesses, preventing it from producing defence equipment at the necessary pace. In view of the increasing geopolitical tensions, the EU has put defence at the top of its agenda and aims to strengthen the defence industry to make it more responsive, innovative, competitive and resilient.
Legal basis
EU defence industrial initiatives are based on Article 173 of the Treaty on the Functioning of the European Union (TFEU) regarding EU industrial policy. In addition, Article 182 TFEU provides the legal basis for defence-related research and technological development.
Unlike in other sectors, a true single market for defence equipment has not been developed. Member States have regularly used Article 346 TFEU to exempt certain defence-related industries and measures from EU single market rules when they consider this to be necessary for the protection of their essential security interests.
Objectives
The European defence industrial sector is a crucial prerequisite for the Union’s defence readiness and credible deterrence. It is also an important contributor to economic growth, competitiveness, innovation and job creation. EU policies in this field aim to enhance defence industrial production capacities, increase investment and access to finance, strengthen competitiveness and innovation, and stimulate research. The EU also aims to enhance cooperation among defence companies across Europe to increase their production capacity, allow for economies of scale, reduce costs and create a true single market for defence equipment.
Achievements and current developments
A. EU defence industrial policy since the early 2000s
1. Development of a European defence equipment market
In September 2004, the Commission presented a Green Paper on defence procurement with the objective of contributing to ‘the gradual creation of a European defence equipment market’. The green paper was part of the 2003 strategy ‘towards a European Union defence equipment policy’. The aim was to use the resources in the area of defence more efficiently and raise the competitiveness of Europe’s industry, 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. 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 the Code of Conduct on Defence Procurement of November 2005, which is supported by a reporting and monitoring system to help ensure transparency and accountability among the Member States. Another important element is the Code of Best Practice in the Supply Chain of May 2005.
The standardisation of defence equipment is important for integrating national markets. The launch of a European Defence Standards Reference System (EDSTAR) portal in 2012 allowed for steps to be taken towards standardisation. EDSTAR followed the establishment of the European Defence Standards Information System, which is a portal for wider-ranging European defence materiel standardisation aimed at publicising materiel standards that are either to be developed or to undergo substantive change.
In July 2013, the Commission adopted a communication, including an action plan to enhance the efficiency and competitiveness of the European defence industry. The communication announced the establishment of a market monitoring mechanism for defence procurement.
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 simplified and harmonised the conditions and procedures for transfers of defence-related products throughout the EU. It created a uniform and transparent system of licences (general, global and individual) and allowed companies that are considered trustworthy 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 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 for 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).
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. European defence research and the European Defence Fund
Despite the efforts to create a common framework for European defence policy, spending on the European defence research as a whole has declined sharply since 2006 and only started to increase again in the past few years. In 2015, the Member States agreed to move progressively from research focused exclusively on civilian and dual use in Horizon 2020 towards a dedicated European defence research programme as part of the European Defence Fund (EDF).
The EDF is the EU’s main instrument to support research and development in defence. It 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). Its main aims are to promote cooperation between companies, including small and medium-sized enterprises (SMEs) and research actors throughout the Union. It further strives to boost defence capability development through investments and to help EU companies develop cutting-edge and interoperable defence technologies and equipment.
The EDF was preceded by two test programmes: the Preparatory Action on Defence Research and the European Defence Industrial Development Programme.
B. A new era for EU defence industrial policy
In 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 an action plan for strengthening the EU’s security and defence strategy by 2030.
The start of Russia’s war of aggression against Ukraine in February 2022 marked the beginning of a new era for European defence policy. It also exposed significant challenges with regard to the EU’s defence industrial readiness. In February 2022, the Commission published a roadmap on critical technologies for security and defence. 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 in the EU’s stance, ambition and tools in the realm of defence. (See 5.1.2)
The 2022 joint communication on defence investment gaps and, more recently, the 2024 Draghi report on the future of European competitiveness illustrated that long-term underinvestment and lack of cooperation have led to critical defence capability gaps and a fragmented European defence industry and market. Production capacities are very low and the Member States depend on non-EU defence equipment acquisitions.
To incentivise joint defence procurement among the Member States, the short-term financial instrument, the European Defence Industry Reinforcement through common Procurement Act (EDIRPA) was launched in 2023. Another short-term emergency measure, the Act in Support of Ammunition Production (ASAP) was put in place to increase the production of ammunition and missiles, help the Member States refill their stocks and deliver ammunition to Ukraine.
In March 2024, the Commission launched the first ever European Defence Industrial Strategy with the aim of increasing defence spending, improving joint procurement, providing predictability to the defence industry and enhancing interoperability between Europe’s armed forces, thereby enhancing cooperation with Ukrainian defence industries. The legislative proposal for a regulation establishing a European Defence Industry Programme (EDIP) and a framework of measures to ensure the timely availability and supply of defence products is a crucial step in delivering this strategy. EDIP is intended to mobilise EUR 1.5 billion of the EU budget over the 2025-2027 period to continue enhancing the competitiveness of the EU’s defence technological and industrial base.
The Joint White Paper for European Defence Readiness 2030, presented in March 2025, puts the EU defence policy on a new level in view of the growing threats and security challenges. The white paper proposes several actions to consolidate the European defence industry: strengthen industrial capacities across the EU; secure the supply of critical industry inputs and reduce dependencies; build a true EU single market for defence equipment; simplify existing rules and cut red tape; boost research and development to foster innovation; and keep, attract and develop talent to enhance skills and expertise in the defence sector.
Role of the European Parliament
Parliament called for the creation of a European armaments agency and for standardisation in defence in its resolution of 10 April 2002. Its resolution of 17 November 2005 on the Green Paper on defence procurement encouraged the Commission’s efforts to contribute to the gradual creation of a European defence equipment market.
In its resolution of 22 November 2012 on the implementation of the common security and defence policy (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.
In its 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.
In a resolution adopted in May 2015 and a resolution of April 2016, Parliament called for an effective and ambitious European foreign and security policy and urged the Member States to establish policy objectives based on common interests. Parliament proposed that a European Defence Union be launched as a matter of urgency in its resolution of 22 November 2016.
In its 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. It also called on the Member States to strengthen intra-EU defence procurement and research and development cooperation, and to boost interoperability between their militaries.
Parliament called for increased contributions towards strengthening Ukraine’s defence capabilities in its resolution of 1 March 2022 on the Russian aggression against Ukraine. The Member States were asked to accelerate the provision of defensive weapons to Ukraine in response to clearly identified needs.
In September 2023, Parliament adopted a position on the proposed regulation on EDIRPA. It reached an agreement with the Council that, among other things, the instrument would end in December 2025 rather than in 2024, and would have a budget of EUR 300 million.
In its resolution of 9 May 2023 on critical technologies for security and defence, Parliament welcomed the establishment of an observatory of critical technologies and underlined the need to reduce dependencies as regards the supply of critical materials, to foster investments for innovation and development, to give priority to joint EU-funded and co-financed projects, and to increase funding.
In its resolution of 12 March 2025 on the White Paper on the Future of European Defence, Parliament called for a united and clear long-term vision for the European defence industry to ensure that priority needs are addressed. It also stresses the importance of enhancing capabilities and resources and finding creative solutions for large-scale public and private investments in security and defence.
The resolution of 2 April 2025 on the 2024 annual report on the implementation of the CSDP highlights the need to overcome the fragmentation of the EU’s defence industrial landscape in order to finally achieve the full implementation of the EU’s internal market for defence products.
For more information on this topic, please see the website of the Committee on Industry, Research and Energy.
Judith BÜRGER