For a European defense industrial strategy

Politique Internationale — Faced with the rising tensions of recent months, and not just because of the war in Ukraine, what is your assessment of the European response? Is it satisfactory, or could it be improved?

Thierry Breton — Russian aggression in the Ukraine has brought about a paradigm shift. The transfer of ammunition from member states’ stockpiles to Ukraine, and the need for the European Union (EU) defense industry to produce more - and faster! - have accelerated European defense cooperation. In record time, the EU adopted two innovative financial instruments to strengthen the European defense industrial base: the European Defense Industry Reinforcement through common Procurement Act (EDIRPA), which encourages member states to jointly procure the most critical and urgent defense products; and the Act in Support of Ammunition Production (ASAP), which encourages the industrial ramp-up of ammunition production. In this way, we have taken a major step towards a more integrated European defense market, offering greater predictability for European industry.

P. I. — So what’s the next step? Have you drawn up an agenda and a work plan?

T. B. — We now need to move on from short-term emergency responses to building a long-term defense capability. This is why, at the beginning of March, I presented a communication on the European Defense Industrial Strategy (EDIS) and a Defense Investment Program (EDIP). Beyond our support for Ukraine, which remains our priority, we need to take our destiny into our own hands to ensure our own security without depending on external decisions. The strategic compass and, more broadly, the post-Versailles agenda (1) have underlined this: the Union and its Member States have no choice but to prepare for the worst-case scenario by adopting a more assertive and dissuasive geopolitical stance, and investing to strengthen the European defense technological and industrial base (EDTIB).

P. I. — Do you feel that Europe’s response is dependent on its major ally, the United States? To what extent is industrial autonomy on the way?

T. B. — More than ever, Europe needs to assume its defense responsibilities. We need to be more responsive, more agile and accelerate the pooling of our equipment, including for operations where we were previously dependent on the United States. I would like to emphasize that Europe has a large and diversified defense- related production capacity, more than twice that of the United States, for example. We have also increased our ammunition production capacity to more than one million shells, and will reach two million next year. To meet our security needs effectively, we can’t afford to flip a coin every four years during the American elections.

P. I. — How do you see Europe’s industrial players in this environment? Is each company going it alone, or are there joint approaches to accelerate a particular type of project?

T. B. — It’s a fact that our defense market is still highly fragmented. And this has to change: the industrial ecosystem has to undergo a real conversion, with security of supply and the ability to increase production as priorities. We need to supply more and faster, without depending on others. We need to invest together, by Europeanizing demand, buying in common and promoting the Europeanization of industrial value chains. In this respect, the European Defense Fund is already a success. By stimulating cooperation and integration, it is enabling the development of truly European supply chains. Including projects scheduled for 2023, over €3 billion of investment will have been injected into the European defense industrial base, in nearly 100 projects involving 700 companies, 40% of which are SMEs.

The European Defense Industrial Strategy (EDIS) and the European Defense Investment Program (EDIP) are a step in this direction: they both aim to initiate a paradigm shift so that the European defense industrial and technological base can guarantee the Union’s defense industrial readiness, i.e. the ability to respond effectively, on time, to a constantly evolving European demand for defense equipment.

P. I. — How do you see naval shipbuilding in the future? Is a European vision on the agenda?

T. B. — In our strategic compass, the maritime sector has been defined as one of the most contested areas, which no member state can claim to protect on its own. The EU has the largest exclusive maritime zone (EEZ) in the world, so we need to strengthen our surveillance capacity, especially when it comes to protecting the seabed and the critical infrastructures located there. This is why we presented a revised maritime security strategy last year, to provide the Union with effective tools to safeguard its interests at sea. We must now face up to new challenges such as cyber-attacks targeting maritime infrastructures or threats to the seabed. In the medium to long term, it will be inevitable to raise the question of a European aircraft carrier.

P. I. — Still on the subject of naval shipbuilding, are there any particular projects that have caught your attention?

T. B. — Thanks to the European Defense Fund, we have financed joint research and development projects to develop the EU’s defense capabilities in critical areas, including naval combat. In particular, the Fund has provided €60 million for the European Patrol Corvette project - a new flexible, interoperable and cyber-secure vessel. The launch of this project illustrates the European Union’s ability to develop “made in Europe” sovereign defense solutions that meet the military needs of its member states, while strengthening industrial cooperation at European level.

P. I. — Some of our leaders have been talking about a “war economy”, which has triggered a lot of comment. What are your thoughts on this?

T. B. — It’s a necessity and, in part, already a reality as far as the defense industry is concerned. So, for the first time, we have a true overview on a European scale, based on the visits I have personally made to each of our country’s armaments plants. We also have a global view of our equipment production capacity, particularly for 155 mm shells, which are the lifeblood of the war. We have initiated a real industrial policy to set up a war economy. Now we need to do the same for all segments of our defense industry’s value chain.

P. I. — At European level, should defense companies be able to benefit from preferential advantages? We’re thinking in particular of supply chains for certain materials or components...

T. B. — We shouldn’t assume that we’ll always be able to rely on external markets for our defense supplies. We need to reduce our strategic dependencies. In the European defense strategy I presented last March, I propose to “think European”, from industrial planning to procurement. This is fully in line with my work as Internal Market Commissioner. Over the last four years, from vaccines to semi-conductors and critical raw materials, we have transformed the way we conduct our industrial policy in order to secure our supply chains.

P. I. — We’re all familiar with your expertise in technological fields. Do you feel that defense has entered a new era? If so, is this to the detriment of traditional capabilities?

T. B. — In our strategic compass, we have clearly defined the technologies and defense capabilities needed to ensure the security of our continent. We know how to make everything in Europe, from fighter jets and aircraft carriers to submarines and tanks. But today, we need to expand our industrial base. To do this, we are ready to help companies take certain risks, in particular to invest in new capabilities, without necessarily having orders from the various armed forces.

As we step up EU defense industrial production, we are also building the future of the sector. By 2023, we have mobilized a further 1.2 billion euros from the EU budget to fund major joint R&D projects, particularly in the space, air and naval fields, helping to reduce the fragmentation of the European defense capabilities landscape. With EDIP, we are mobilizing over €1 billion to strengthen our industrial and technological base.

What I am convinced of is that in this global race for technological supremacy, which requires increasingly rapid and costly investment cycles, no single member state can act effectively alone. We therefore need greater coordination and joint investment in the defense industrial sector to protect our strategic infrastructures.

P. I. — The ecological transition has taken hold in all sectors, including defense. So much so that ESG criteria are now prompting some investors to lose interest in this sector, or even to pull out. Are there ways to counter this attitude?

T. B. — The recent increase in geopolitical tensions and the paradigm shift concerning our security have generated new investment needs, which have led to an increase in public spending. Even though the development of defense technologies and capabilities relies mainly on public procurement contracts or subsidies, the amounts are not sufficient without the support of private investment. Ensuring access to finance for the EU defense sector - in particular for SMEs and mid-sized companies which are at the heart of supply chains and key players in innovation - is vital for the EU’s competitiveness and resilience. It is therefore essential to improve access to finance for the defense sector by raising awareness among financial investors of the defense industry’s contribution to the Union’s security. In addition, public banks, including the EIB, need to invest more assertively in defense-related activities.