Defence atop of the EU agenda: What does it mean for the EU industry

On 26 March, the Employers' Group held a debate with representative from the EU institutions and EU security and defence industry. President Stefano Mallia opened the debate underlining that in the face of global uncertainties, the EU's commitment to strengthening its defence capabilities opens new horizons for innovation, job creation and economic growth.

Indeed, the European Defence Fund, with its €8 billion budget for 2021-2027, represents a game-changer for the sector. This initiative not only fosters collaboration between Member States but also stimulates research and development in cutting-edge technologies. From artificial intelligence to cybersecurity, from space technologies to unmanned systems, the possibilities for business expansion are vast.

Moreover, the EU's push for strategic autonomy in defence is creating a more robust and competitive European defence industry. This drive towards self-reliance is not about isolation, but about developing EU capabilities to be a stronger partner on the global stage.

The European Commission, represented by Mr Francois Arbault, DG DEFIS Director for Defence Industry, echoed that EU defence industry readiness is our "best life insurance". This is why the industry competitive edge is a priority. "We need to ensure an effective deterrent posture by 2030 as the threat is tangible and we need to avert it. The ambition is to support competitiveness, invest in a more innovative industry," he added, underlining that Member States have now the possibility to activate the national escape clause which gives breath as it allows for a discount defence expenditure from the budget debit rules.

Nathalie Errard, Senior Vice President of EU affairs at Airbus, noted that no EU country would be able to build a commercial system from A to Z, they need to join forces: the example of Airbus is telling. "Countries are increasing defence budget but it's not going to be enough, we need synergies and integrated approaches," she stressed, adding that EU initiatives must be developed at EU level while creating proper coordination.

Mr Vassilis Theodosopoulos, Senior Manager Defence and Security at Aerospace, Security & Defence Industries Association (ASD Europe), pointed at the Commission's Joint White Paper for European defence readiness 2030 which underlines that “regardless of the format chosen by Member States, undertaking collaborative projects will enhance coordination, thus generating economies of scale and improving delivery timelines. In turn, this will boost the production capacity of European defence industry”. The Member States have set themselves a common target of 35% of total defence equipment purchases being made collaboratively.

Theodosopoulos noted that we have ways to raise funds, we have a strategy, joint procurement and investment instruments, but what we lack interoperability. If we want to scale up defence industries, he insisted, we need to start from the demand side. He conceded that creating a EU DARPA, the equivalent of the US Defense Advanced Research Projects Agency (DARPA), would be advantageous as military innovation can then be transformed into innovation for civil use. In fact, several such institutions already exist in the Europe, including the European Innovation Council (EIC), Germany’s Federal Agency for Disruptive Innovation (SPRIN-D), and the United Kingdom’s Advanced Research and Invention Agency (ARIA). But all have so far failed to realise the full potential of a European DARPA.

Marcin Nowacki, EESC Employers' Group member and Rapporteur of the Opinion ECO/655 Defence funding in the EU said that the EU’s innovation agenda is even more urgent now: Russia’s invasion of Ukraine has underscored the need to strengthen the bloc’s defence industrial base, and the global artificial-intelligence race has highlighted the importance of dominating in advanced civilian technology.

These two areas are increasingly interconnected, as was the case for many of DARPA’s biggest achievements, from GPS to Siri (Apple’s digital personal assistant) and drones.

Nowacki underscored the need for new investments in drone technology, infrastructure, missile, and air defence systems. He also flagged the limitations for SMEs to upgrade to the EU level and fight for contracts, a point that is not addressed in the White paper.