Reinforcing the European defence industry

Summary:

Russia's war on Ukraine has laid bare the challenges that the European defence industry faces as it tries to meet increased demand and ramp up production in the wake of a fundamentally changed security environment in Europe. The European defence industry comprises a number of large multinational companies, mid-caps and over 2 000 small and medium-sized enterprises. It faces a multitude of challenges, such as decades of under-investment, fragmentation, lack of supply of critical raw materials and semiconductors, and a lack of manufacturing capability.

The EU and its Member States have taken several steps to reinforce the European defence industry, especially since the start of Russia's war on Ukraine: Member States have significantly boosted their defence budgets, the combined total of which is set to reach €290 billion a year in 2025; the European Defence Fund is investing in research and capability development projects and has achieved very positive results so far; and Permanent Structured Cooperation is providing the legal framework and binding commitments for important progress in collaborative defence.

The EU has also broken taboos by proposing a joint defence procurement instrument (European Defence Industry Reinforcement through Common Procurement Act) and an initiative to ramp up ammunition production (Act in Support of Ammunition Production), as part of a three-track proposal to support Ukraine's needs for ammunition (deliver ammunition from existing stocks, jointly procure from industry, and support the ramping up of production). Additionally, the European Peace Facility, most known for being used to supply Ukraine with lethal weapons, can be used to procure defence materiel from the European defence industry, further boosting its capacity. The European Chips Act and Critical Raw Materials Act will also be leveraged to benefit the European defence industry to ensure that it has all the necessary supplies to tackle the substantially increased demand for its products. These signals have led the industry to take the first steps to ramp up its production capacity.

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