Why Europe must think of its defence industry as a defence capability

Europe’s security landscape has shifted dramatically in recent years, demanding a fundamental rethink of how we approach defence. In a recent EU Perspectives podcast, Burkard Schmitt, Security and Defence Director at ASD, joined European Parliament member Jan Farský (EPP/CZE) and economist Juan Mejino-López, research analyst at the Bruegel think-tank to discuss the challenges of European rearmament. 

Post-2022 reality check

The discussion began with panellists highlighting how the geopolitical landscape has fundamentally shifted since Russia's full-scale invasion of Ukraine in February 2022. Burkard Schmitt said that whilst "a lot of things have changed since 2022, we were not fast enough and not bold enough" in responding to these new realities.

Transforming defence industry capabilities could not happen overnight, particularly given that the sector's customers are governments. "It is a particular challenge because this industry depends on national governments as customers so they can only follow what member states and national governments as customers tell them to do ... One of the problems is that as long as we procure nationally we have small production volumes and this is not good from an industrial perspective because it brings up the costs per unit".

He highlighted the stark contrast between European and American approaches to defence procurement. While Europe operates 178 different defence systems, the United States manages with just 30, meaning there's a greater concentration of resources on research and development with longer-term orders.

Addressing strategic dependencies

Part of the podcast discussion focused on Europe's strategic dependencies, particularly on defence procurement from the United States. Burkard Schmitt said that "what we have seen over the last decades is not only that we invested very little, but Europe also entered into a kind of a voluntary dependence on the US".  He warned of the potential risks inherent in this.

Reframing defence industry as strategic capability

Burkard Schmitt advocated for a fundamental shift in how European policymakers think of the defence industry. "I think we should reconsider how we think of the defence industry because we used to consider it as an economic sector, true, but in the times that we are living I would advise that we consider the defence industry as a defence capability.” In other words, defence industrial capacity is a critical element of national and European security infrastructure. “We need to ask – what technologies must we control to safeguard strategic autonomy?”

Burkard Schmitt noted that while defence companies have invested significantly in ramping up production, they require concrete contractual commitments to justify major capacity expansions. "From an entrepreneurial point of view you can only do it to a certain point and then you have to have the contract that ensures you that the equipment will actually be bought, then you can ramp up your own investment."

He also explained why production scaling timelines varied significantly. While ammunition production has increased substantially, "the more complex the equipment becomes the more difficult it is also to ramp up production; if you want to ramp up the production of main battle tanks or combat aircraft this takes more time because you have the whole supply chain that you have to mobilise with you".

Financial sector evolution and barriers

The podcast discussion also looked at evolving attitudes within the financial sector toward defence investments. Burkard Schmitt said he’d observed a shift in recent years: "We have seen over the last two years that this is changing; investors’ behaviour is changing”. However, challenges remain, particularly regarding Environmental, Social, and Governance (ESG) criteria and sustainable investment frameworks. The impact, he explained, extended beyond direct investment restrictions. "We heard from our members for example that they even had difficulties to open a bank account because they are in the defence business they are not allowed to buy renewable energy because it goes for the defence industries".

In his closing remarks, Burkard Schmitt called for substantial EU budget allocation for defence initiatives. "I think it would be important to have in the next MFF a budget line for defence. If the EU wants to make a difference and wants to have the means to push for greater cooperation you have to have something in your own budget as well" ... You have to be able as a European Union to really support your financial instruments your programmes and defence instruments with the necessary envelopes.”

Across the podcast discussion, he underlined the need for coordinated action across multiple dimensions: industrial policy, procurement practices, financial frameworks, and institutional cooperation. The industry stands ready, but needs clear political commitment, adequate funding mechanisms, and sustained cooperation among European partners to build the defence capabilities necessary to keep Europe safe.

Images: © European Parliament