Why Europe Needs its Defence Industry

Why do we need a European defence industry?

Any country has three options for acquiring the defence equipment it needs: (1) establishing a domestic 
defence industrial capacity for developing and producing the products needed; (2) developing and 
procuring equipment in cooperation within the EU or with other international partners; (3) importing off-the-shelf equipment from third countries.

Given the complexity and cost of most defence systems and equipment, no European country can afford to sustain a full-spectrum domestic defence industry alone, and although there are some European 
cooperative programmes, many countries in Europe regularly purchase significant proportions of their 
defence equipment from non-European sources, most notably the United States. Sometimes they do so even when there are viable and readily available European alternatives. However, there are very good reasons for having a European defence technological and industrial base (EDTIB) capable of developing and producing the full spectrum of state-of-the-art defence capabilities:

It enables Europe to sustain the highly specialised skills and facilities required to provide our 
armed forces with the systems and equipment they need to fulfil their missions. The very 
existence of such assets in Europe enhances the credibility of Europe’s armed forces, and thus 
also bolsters their deterrent effect. 

• It maximises security of supply since European suppliers are not subject to the evolving foreign 
  policy considerations of a third state. In times of crisis or disruption of international supply chains, 
  the availability of a sufficient European industrial capacity allows the quick ramp-up of production, 
  without undue dependence of the goodwill, capacity or prioritisation of others.
• It allows European defence ministries to have unambiguous, enduring and unfettered access to, 
  control over, and system-level understanding of the equipment of their armed forces. This 
  enables them to shape the designs precisely to address their specific requirements. It also ensures that Europe has complete freedom to modify or upgrade key systems and incorporate 
  domestically produced weapons, sensors, and other sub-systems, without having to obtain 
  permission from a third country supplier or join a potentially lengthy upgrade queue. 
• It provides European armed forces with the freedom to operate their defence systems and 
  equipment as they need and European governments with the freedom to export or transfer such 
  capabilities to partners and allies abroad in line with their interests and values and, where 
  applicable, the EU Council Common Position 2008/944/CFSP. This is in contrast to foreign-made 
  products, which are often subject to operational and/or export restrictions by the producing 
  country. 

How to deliver such an industry in Europe?

Russia’s invasion of Ukraine has prompted most European countries to significantly increase their defence budgets and heightened the urgency of addressing long-standing capability gaps. As such, this is a unique opportunity for Europe to bolster its defence industrial base, in particular through expanding cooperative development and procurement, but also by developing further the internal market for defence.

However, in practice many of the major national capability procurements announced since Russia’s 
aggression have been for off-the-shelf solutions from non-European suppliers. In taking such decisions, 
each country is making a multi-decade commitment to a non-European solution, and if too many countries do the same, it will inevitably make it very difficult to pursue a parallel European cooperative approach. Indeed, European cooperative development programmes are only viable if a critical mass of countries join, bolstering both the development funding and the assured customer base. In some cases, purchasing non-European equipment also risks wasting R&D investments already made in Europe.
The European Union should therefore put in place a comprehensive strategy to support the EDTIB. This should encompass policy instruments and financial incentives that are sufficiently compelling to convince EU Member States that the merits of cooperation and of European choices outweigh the perceived benefits of third country off-the-shelf procurement.

More substantial EU action is needed to foster joint procurement of equipment developed in Europe, but also to support industry in developing the next generation of defence technologies. To this end, the 
European Defence Fund urgently needs a significant budget boost and a greater focus on the capability 
areas that matter most to Europe’s armed forces and invariably dominate procurement budgets. Similarly, support is also essential to ensure that European defence industry can ramp up production and sustain an appropriate level of preparedness in peace time. This includes fostering industry’s access to finance and investment, including from the private sector. Horizontal initiatives of economic security must contribute to reducing critical dependences and enhancing the resilience of defence supply chains. 

More should also be done to incentivise smaller Member states to join cooperative programmes, 
providing them with greater opportunities to join sensitive strategic programmes at a meaningful level 
and gain more access to the resulting IP. Finally, recognising that the supply chains of European defence industry stretch beyond the EU, the strategy should aim at fostering defence industrial cooperation with non-EU European countries and relevant international organisations, namely NATO and OCCAR, thereby enabling all of Europe’s defence industrial base to contribute more effectively to maintaining our collective security.