EU defence and defence industry policy

A European Union (EU) defence industry policy is a relatively recent development in terms of the bloc’s more than 60 years of existence. EU defence industrial initiatives in this area have as their legal basis Article 173 of the Treaty on the Functioning of the European Union (TFEU), which underpins industrial policy.

Although several EU Member States have large, technologically sophisticated defence industries which have played an important role in their national economies, defence has been considered a sensitive area in which countries have been anxious to retain their sovereignty. Article 346 TFEU allowed them considerable latitude in the tendering of defence contracts (as did its predecessor, the Treaty of Rome), resulting in a fragmented market.

Building on previous initiatives, in 2013 the European Commission adopted a strategy to boost the efficiency and competitiveness of the European defence technological and industrial base. To ensure more efficient defence spending, the strategy highlighted the importance of:

boosting competitiveness via EU standards and certification, and better access to raw materials and funding for small and medium-sized defence companies;
civil-military cooperation, exploiting the dual-use potential of EU-funded research (which had been civil oriented to this point).

EU defence industry policy received further impetus with the European defence action plan (2016) and a communication on Launching the European Defence Fund to support collaborative defence research and development (2017).

The European defence action plan has three strands:

establishing the European Defence Fund, covering research and development of defence technologies and products;
promoting investment in defence supply chains;
strengthening the EU’s internal market to tackle fragmentation and improve competitiveness by better implementing the rules on procurement and the transfer of defence-related products within the EU.

Preceded by two pilot programmes, the European Defence Fund will have a budget of around €8 billion over the 2021-2027 multiannual financial framework period. It will finance projects in which at least three entities (mainly companies and research organisations) from three different Member States jointly perform defence research and development activities, and will promote cross-border activities of small and medium-sized enterprises.