We need to boost our defence industrial and technological base. It was not clear to anybody before Russia’s war of aggression against Ukraine, but now it has become common sense. It is a prerequisite if we want to be able to strengthen our defence capacity in a tense geopolitical context.

That is the reason why the European Council tasked me, as High Representative for Foreign and Security Policy, to define a new European Defence Industrial Strategy together with the Commission and the European Defence Agency. Last Tuesday I presented the result of our work together with my colleagues Executive Vice-President Vestager and Commissioner Breton.

A greater sense of urgency

The war against Ukraine has indeed brought a greater sense of urgency to the issue of ramping up the production capacities of the European defence industry. To respond to the Russian aggression, we have done what was unthinkable a few years ago – provide weapons, mainly from our existing stocks, to a country at war using the European Peace Facility. But, after two years of a high intensity war, existing stocks are depleted and the conflict has evolved from a war of stocks to a war of production.

After two years of a high intensity war, existing stocks are depleted and the conflict has evolved from a war of stocks to a war of production.

We must move from an emergency mode to a longer-term vision to become able to replenish our stocks and develop the defence capabilities we will need in the future in a more contested geopolitical environment, while at the same time continue providing adequate military support to Ukraine.

The first urgency concerns ammunition production. The industry answered to this emergency by increasing its production capacity by 50% since the start of the war. Which is quite remarkable. Today, in that domain, the constraint is not so much a lack of production capacity, but rather a lack of orders and financing. Industry leaders are clearly telling us: place orders and we will produce more.

Ammunition is only a part of the problem

However, ammunition production capacity is only a part of the problem. We need to do much more to develop this industrial sector. The European defence industry includes a great variety of actors, from large multinational champions to small and medium enterprises. It is highly concentrated geographically: a few Member States make 90% of the total European defence industry. This industry has an annual turnover of €70 billion and employs 500,000 people.

It supplies around 40% of the needs of the European defence, meaning that our armies are importing the majority of the weapons and equipment they use. For the last two years, this proportion has even been much higher due to the need to increase our capabilities very rapidly: between the start of Russia’s war of aggression and June 2023, 78% of defence acquisition by EU Member States were made outside the EU. At the same time, the European defence industry also exports between 40 to 50% of its production to non-EU countries. The products that we import and export are quite different in nature.

Governments are the only buyers  

What makes this sector unique among all industries is that governments are the only buyers. In 2022, defence investment by EU Member States amounted to €58 billion, almost 4 times less than in the US. Defence policy remains an  exclusive competence of EU Member States and they are the master of their armies. If we want to boost the European defence industry, working with Member States is therefore crucial.

We need to invest more, better, together, and European. We have already said that many times before, but this time, we need to do it. EU Member States are indeed still not coordinating and pooling their defence planning and procurement enough. In 2021, European collaborative procurement was only at 18%, despite the benchmark of 35% set by Member States themselves back in 2007.

The fragmentation of the European defence industry is related to the political fragmentation of the continent. In Europe, we do not have a Pentagon that concentrates demand and drives the industry. We have to overcome this fragmentation through more cooperation, incentivising more joint procurement of defence capabilities and projects of common European interest.

We have to overcome the fragmentation of European defence industry through more joint procurement and more projects of common European interest.

We will set up a Defence Industrial Readiness Board to identify joint procurement opportunities and define industrial production objectives. We will also strengthen the European defence industry commitments in the framework of the Permanent Structured Cooperation (PESCO) and incentivise common projects through additional financing, simplification of procedures and value added tax exemptions. With the new European Defence Industrial Strategy we aim a 40 % share of joint procurement in 2030.

To make our defence industry more resilient, we need also to better ensure security of supply and address bottlenecks in times of crisis. We will work with Member States to help create strategic stocks of critical equipment.

A better access to finance for the defence industry

We need finally to ensure a better access to finance for the European defence industry both from private and public sources. We call in particular on the European Investment Bank (EIB) governing bodies to adapt the EIB lending policies to allow it to finance the European defence industry. The EIB is an investment bank. Its role would not be to finance arms purchases, but to invest in increasing production capacity. The EIB can be a key driver in this regard.

For the remaining period of the current Multiannual Financial Framework (MFF), from 2025 to 2027, € 1.5 billion from EU budget will be allocated to support the European defence industry. During the next MFF, much more important financial means will be for sure needed.

A debate has been launched recently on a joint EU borrowing to cope with the major effort required to invest in our defence capabilities and our defence industry. It is certainly not something we will be able to complete during this term of office, but in my view, it would make sense. We did it already successfully to deal with the consequences of the COVID-19 pandemic, I do not see why we should not do it when Russia threatens our very security and we urgently need to boost our defence capabilities and our defence industry.

We borrowed in common successfully to deal with the COVID-19 pandemic, I do not see why we should not do it when Russia threatens our very security and we urgently need to boost our defence.

We need also to strengthen our cooperation with partners, and in particular Ukraine and its strong and innovative defence industrial base. Visiting recently a Ukrainian plant to produce drones, I was very much impressed. Strengthening the Ukrainian defence industrial base and helping it to cooperate closely with the European industry will be part of the EU’s future security commitments for Ukraine. To stimulate this cooperation, we will host an EU-Ukraine Defence Industry Forum this year and open an EU Defence Innovation Office in Kyiv.  

If Member States agree - it has to be a unanimous decision upon a proposal by the High Representative, – we could use the windfall profits of Russian frozen assets to purchase arms for Ukraine and/or help strengthen its defence industry. So far, we have considered using these profits to support the reconstruction of Ukraine.  However, currently, the main issue in Ukraine is not so much reconstruction, but rather avoiding further destruction. If Member States agree, it would make sense to use these resources to procure additional military support for Ukraine through the European Peace Facility. In the longer term, we could also use these funds to support the Ukrainian defence industrial base.

We need to become “defence ready”

In the current geopolitical context, we have no other choice: we need to become “defence ready”. I am confident that our Member States will show the political will and provide the necessary resources to make the bold leap forward that is needed to take control of our own destiny.