Draghi's Alarm for the European Defence Industry - The EU is Lagging Behind Competitors

 

European defence companies should not fear bureaucracy as they increase weapon production, according to a new report seen by POLITICO.

As Russia's full-scale invasion of Ukraine continues with unpredictable consequences for European security, defence companies on the continent should have full access to EU funding tools. At the same time, mergers should not be blocked regardless of competition concerns, according to a draft report on competitiveness prepared by former Italian Prime Minister and President of the European Central Bank, Mario Draghi.

"Europe’s defence industrial base faces structural challenges in terms of productivity, expertise, and technological edge. As a result, the EU is not keeping pace with its global competitors," Draghi warns in the draft.

The former ECB President concludes his long-awaited report for European Commission President Ursula von der Leyen, examining how the European industry can regain an advantage on the global stage.

"With the return of war to the EU’s immediate neighbourhood, the emergence of new types of hybrid threats, and a possible shift in US geographical focus and defence needs, the EU must take greater responsibility for its own defence and security," the draft notes.

The draft highlights several challenges facing the EU's defence sector, including insufficient public spending—the EU as a whole spends about a third of what the US does on defence. European defence companies also operate in small domestic markets, and EU countries do not coordinate their procurement and depend 80% on international suppliers, primarily from the US.

Recommendations include introducing the principle of "European preference" for defence equipment procurement to incentivise European defence solutions over competitors. It also suggests establishing a governance model across the Commission, the European External Action Service, and the European Defence Agency, and creating a central "Defence Industry Authority" to centrally procure on behalf of EU countries.

"The authority will be managed by the European Commission under the joint presidency of the High Representative/Vice-President of the Commission/Head of the European Defence Agency," the document states. "Advisory roles will be filled by special industry groups composed of industry representatives and EU member states."

The draft—dated June 20—emphasises that Brussels should remove barriers preventing defence companies from accessing EU funding. It also promotes amending European Investment Bank lending policies regarding defence investments, as well as EU sustainable financing frameworks and environmental, social, and governance (ESG) criteria to benefit the sector.

Draghi will discuss the report in a closed-door, high-level meeting at the European Parliament on Wednesday, with the report expected to be published in the second week of September.