EU Proposes Initial €1.5 Billion to Galvanize Defense Sector

Natalia Drozdiak and Alberto Nardelli
·3 min read
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(Bloomberg) -- The European Union is setting aside an initial €1.5 billion ($1.6 billion) to boost the bloc’s defense industry, in a proposal that could face pushback from nations wary of Brussels grabbing too much power.

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The funding for the strategy would be allocated for 2025 until 2027 and would act as a bridge until the EU agrees on its new budget, a European Commission official said Tuesday on the condition of anonymity, adding that the initial amount would be insufficient over the long term.

The EU wants to boost the bloc’s defense industry amid increasing doubts about the US commitment to European security. With Russia’s invasion of Ukraine and the prospect of a return by Donald Trump to the White House, EU leaders have urged the bloc to bolster the sector. Most European nations are now increasing their military budgets.

But the initial funding would fall far short of the spending needed for a major overhaul of the EU’s defense industry after the sector atrophied following years of underspending by member states, according to some nations. EU industry commissioner Thierry Breton has urged the bloc to consider spending €100 billion, while some European leaders have called for joint bonds to meet that level of defense spending. Such measures are unlikely to take off before EU elections in June.

Further complicating the commission’s efforts, national defense ministries may be cautious about the EU strategy and giving up too much control to the bloc in areas linked to national security.

The bloc’s defense strategy also includes measures to develop Ukraine’s industrial defense sector and foster closer ties with the EU’s market. The EU said it could top up funding for the Ukrainian defense industry using part of the interest generated by frozen Russian assets, if member states agree. Breton told reporters the discussions are ongoing.

Under Tuesday’s proposals, the EU would aim to buy at least half of its weapons systems from within the bloc by 2030, reversing a trend of buying most of its military equipment from third countries. Bloomberg previously reported a draft of the strategy.

At the same time, the EU’s executive urged the European Investment Bank to change its lending policies by the end of the year to facilitate access to financing for defense companies.

In addition to encouraging joint procurement, the strategy outlines measures to ensure that critical supplies can be immediately ramped up in the event of a crisis, including by possibly repurposing civilian production lines. It also designates military projects for EU funding, including on space and air and missile defense.

The commission’s proposal now goes to member states and the European Parliament, which will propose their own changes – a process that can take months, if not years. Another EU official said the commission aimed to finalize the proposal in 2025.

The EIB has faced heat from some member states over its policy to invest only in products used both for civilian and defense purposes, which excludes weapons and ammunition from financing.

The commission, along with defense firms, has been urging the bank to change its policies to send a signal to the wider market and encourage other investors to buy or lend. The EIB’s board, made up of member state representatives, would need to agree to a policy change.

--With assistance from Katharina Rosskopf.

(Updates with details in sixth paragraph)

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