By: Finn Boutkan
Shipyards, ammunition plants, and tank factories are operating at full capacity worldwide, reflecting a shifting world order with an increased state assertiveness. Europe aims to expand its defence industry, bolstering its military power and strategic autonomy to secure a strong position within the international hierarchy. The agreement on the development of the European defence industry raises questions: what is needed, and what will challenge the industry’s development and effectiveness? Experts Frank Bekkers, Director of the Security Programme at The Hague Centre for Strategic Studies, and Hans Huigen, Director of Stichting Nederlandse Industrie voor Defensie en Veiligheid, provide answers to these questions.
The EU’s Goals of Strategic Autonomy
The international community finds itself in an interregnum where the old liberal-based order is weakened and the new one has not yet been born, leading to an unstable geopolitical landscape. This is reflected in increasing assertiveness from states, a decline in multilateralism, and a decrease in international cooperation, as seen within the United Nations. The war in Ukraine especially shocked the European continent, as it became clear that Russian aggression, and its blatant violation of internationally recognized borders, did not stop with Crimea in 2014. The European Council’s Strategic Compass in 2022 aimed to revitalise strategic autonomy and defence among European Union member states, with policies aimed at reducing dependence on the United States and revitalising Europe’s diminished defence industry. These goals were reinforced by Donald Trump’s re-election last year. The second Trump administration has put more pressure on the EU to develop its defence industry capabilities, and otherwise pursued policies resulting in damaged transatlantic relations that call the US’s commitment to European security into question.
In contrast to other international multilateral systems, the EU has seen increased internal cooperation. The first-ever European Defence Industrial Strategy (EDIS) was established, setting a percentage goal for defence material and contracts for European defence companies. The EU allocated a total of €8 billion through the new European Defence Industry Programme (EDIP) and the European Defence Fund (EDF). However, the most significant shift has been the ReArm Europe initiative, launched by the European Commission. The initiative provides member states with additional fiscal space by exempting defence spending from the EU’s budget deficit rule, allowing up to €800 billion in potential extra European defence investment. Within this framework, the Security Action for Europe (SAFE) instrument provides around €150 billion in loans for joint procurement. The EU remains in control: the Commission must approve investment plans before member states can receive the loans, ensuring that strategic autonomy goals are met. The recent NATO summit also set a cornerstone for European defence industry development by implementing a historic 5% of GDP for defence (3.5% on core defence requirements and 1.5% on defence- and security-related spending). Although these initiatives are ambitious and have set the foundation for developing a strong defence industry, there are still some major flaws that prevent further development.
Industry Balance
Given the highly fragmented arsenal of European armies, many advocate for a greater standardisation of weapon systems. European states operate 14 different main battle tank systems and 19 different 155mm artillery systems. This dramatically limits Europe’s interoperability due to systems that require different maintenance, communication, and munitions. Additionally, this fragments the European defence industry, resulting in an environment populated by small to medium-sized companies, which leads to low production volumes per production line and relatively high costs per unit. A European defence industry which fosters the development of large companies enables the establishment of large production lines that can produce affordable defence materials. Similarly, a more consolidated European defence industry provides guarantees for long-term investments to successful contractors. It offers confidence due to reduced competition, reassuring companies that ambitious development will be profitable, allowing for more rapid expansion of production for attrition warfare.
In contrast, European nations must not overlook the role of small to medium-sized enterprises (SMEs). Ukraine shows rapidly changing battlefield technologies and the necessities of a flexible industry that is in close communication with practical feedback. SMEs have demonstrated effectiveness in this area, with innovation and adaptability of production. The EDF recognises this importance and encourages mobilisation of finance towards defence SMEs. In addition, if the EU centralises its defence industry too heavily, dominated by big companies and production lines, a similar oligopolistic model to the US might result, which is undesirable.
The EU must strike a careful balance in its reorganisation. The war in Ukraine showcases the importance of a flexible and competitive industry, where small and medium-sized businesses play a crucial role. At the same time, attrition warfare requires large companies capable of producing heavy conventional military systems, such as tanks, artillery, ships, and (most importantly) munitions at a low cost. Europe must be able to do both. Failing in one will be a significant weakness to Europe’s industrial and military capabilities, and weaknesses will always be exploited. Deeper cooperation and integration between Europe’s developing defence industry and Ukraine’s could significantly improve Europe’s situation and help create mutual benefits in innovation and production. The EU member states must nudge their defence companies to cooperate with their Ukrainian counterparts.
Private meets Public, Defence meets Civilian
Frank Bekkers emphasised the dual use of the defence industry. Many key technologies are developed and utilised by both the defence and civilian sectors. Bekkers explains that much of the innovation critical to modern defence capabilities (such as AI, autonomous systems, cyber technologies, quantum computing, and drones) is not developed by traditional defence firms. Instead, commercial tech firms are leading in this space. Bekkers pledged for a hybrid dual-use framework between defence and civilian industry that doesn’t force companies to “go all in” on the defence market. Recently, the Nederlandse Industrie voor Defensie & Veiligheid (NIDV) has reported a surge in companies that were previously civilian-focused and are now seeking to enter the defence market. Here lies an opportunity for Bekkers’ vision to be realised, where Europe can broaden its industrial basis and foster innovation.
However, both Bekkers and Huigen caution that the defence industry still functions essentially through peacetime procedures and established defence-industrial relationships. This results in lengthy, rigid, and poorly adapted procedures, which hinder innovation and productivity. Huigen highlights the Dutch government’s lacklustre investment strategies. Uncertainty remains among defence companies, as it’s unclear whether the government’s focus goes beyond the short-term. At the same time, a long-term commitment is necessary to develop capacity and yield future profits. Although contract and investment opportunities have improved significantly over the last months, the situation remains challenging. European countries must continue to closely collaborate with their defence industries and heed the demands for long-term investment guarantees, nudging strategic investors to take similar steps. The development of the industry necessitates deeper integration between the military and civilian sectors, as well as between government and private entities.
Securing Supply Chains
European defence will not be sufficiently improved by the acquisition of new material alone. Bekkers highlights the critical challenge of supply chain vulnerability. While current political discourse primarily focuses on the acquisition of material goods, the underlying industrial sector is largely overlooked. European defence manufacturers remain heavily dependent on primary suppliers to produce their defence platforms, ranging from metallurgy to electronics and advanced manufacturing. There is little oversight and control over these resources. Reports indicate that the Netherlands, for instance, lacks visibility beyond first-tier suppliers, making it challenging to anticipate or control the supply chain. What is known is that the most critical material used in defence systems is extracted or produced outside Europe, thereby undermining the strategic autonomy of the EU and its defence industry. Huigen explains that, as of yet, the defence industries’ supply changes can keep up with demand; however, with geopolitical instability, it is unknown what the future might bring and what could be used as leverage against Europe’s interests. Strategic autonomy will remain performative until Europe understands the origins of its inputs and can control them effectively under pressure.
Conclusion
The revitalisation of Europe’s defence industry is not just a matter of funding or political will. It demands structural transformation, cooperation, and strategic decision-making. While recent EU and other international initiatives have mobilised political and financial capabilities, they remain insufficient in vision. Deeper reforms are needed in procedures, investment guarantees, and supply chain resilience. As Hans Huigen and Frank Bekkers argue, Europe must move beyond peacetime procurements and develop its defence industry at a pace that matches the geopolitical threats by closely listening and cooperating with defence companies.
The EU must strategically balance its industry to develop strategic autonomy, optimising its capacity while maintaining flexibility and innovation. Large companies have the capital to set up mass production lines, which are crucial for attritional warfare. Small and medium-sized businesses remain important, given their ability to innovate and adapt to rapid technological changes. Furthermore, the security of supply chains must not be overlooked in pursuit of future strategic autonomy goals. Europe must gain insight and control to secure its critical resources.
The war in Ukraine shows that industry readiness is not just about producing tanks or drones. The industry must be able to endure the demands of rapidly changing battlefields and be future-ready. It’s about adaptability and resilience.
Edited by: Karolína Hajná and Jekaterina Savicka
Image Source: Soldier on the Back of Military Truck, Image by Art Guzman, Pexels, 2022.