The European Defense and Space Industry: Charting a Course Towards Open Strategic Autonomy

On November 30, APCO hosted a forum titled “Space, Defense, and the EU’s Path to Open Strategic Autonomy.” Key figures in EU defense and space policy, including Bruno Dupré, Ph.D., Security and Defense Adviser to the Secretary General of the European External Action Service; Ugo Celestino, Policy Officer at the European Commission; and Lisa Lacroix, Space Policy Expert, gathered to discuss the European Union’s role and aspirations in the defense and space sector. Milan Seghier, APCO’s space and defense team lead, moderated the event.

In the context of the upcoming 2024 elections, the forum focused on the EU’s strategic vulnerabilities and the necessity of internal sector cohesion. The discussions emphasized the crucial balance between pursuing strategic autonomy and maintaining vital international alliances, especially the transatlantic relationship. The value of leveraging the EU’s collective resources through public-private partnerships and member state collaboration was also a focal point. Below are some key takeaways from Bruno Dupré’s introductory remarks at the event.

The European Defense Industry: A Cornerstone of European Security and Economy

In the wake of major global crises, including financial upheavals, the COVID-19 pandemic, and the Ukraine conflict, the European Union has been awakened to the vulnerabilities and external dependencies of its strategic sectors, encompassing space, defense, health, energy, and digital technology. The European defense industry, boasting a turnover of €90 billion, stands as a vital pillar in this landscape. Employing nearly 200,000 people and involving 2,500 small and medium-sized enterprises (SMEs), the industry spans an array of technologies from missile systems and nuclear technology to aeronautics and digital communications. However, the industry’s market structure, characterized by a few dominant players and a monopsony customer base, presents unique challenges.

Unveiling Complex Vulnerabilities and Dependencies

Bruno Dupré’s analysis underscored the European defense industry’s multifaceted vulnerabilities and dependencies, further highlighted by recent global events. The industry’s substantial reliance on the United States for vital systems, sub-systems, and components, coupled with a dependence on China for essential high-tech elements and rare earths, significantly affects its strategic position. This reliance is further compounded by the emergence of competitive pressures from nations like Turkey and South Korea. Internally, the European defense industry grapples with significant disinvestment over the last 15 years, diminishing its resilience, and overfragmentation. This fragmentation, alongside barriers to market entry for SMEs and startups in the defense internal market, has led to equipment redundancy and limited production volumes. The industry’s tendency to favor off-the-shelf solutions, largely sourced from the U.S., exacerbates these vulnerabilities.

Strategic Autonomy and Transatlantic Relations

The discussion at the forum acknowledged a significant tension between the pursuit of European Strategic Autonomy and the importance of the transatlantic partnership. While many EU Member States (MS) value the transatlantic link as a key component of European security, there is an increasing debate on the need for more strategic autonomy within the European Defence Technological and Industrial Base (EDTIB). The concept of European Strategic Autonomy is seen as essential in addressing critical security challenges that go beyond the scope of the transatlantic partnership. These include safeguarding maritime strategic routes and supply chains, ensuring independent space observation and communication capabilities, protecting critical infrastructures, and maintaining territorial defense, especially in scenarios where the U.S. might be engaged in multiple conflicts. Recognizing the need for a balanced approach, EU MS understand the importance of not forsaking the transatlantic link with the U.S. and NATO. Simultaneously, they see the necessity for Europe to enhance its own defense and security capabilities.

The European Union’s Strategic Response

In response to these challenges, the European Union has developed several strategic measures, including a broad industrial policy toolbox known as the Economic Security Strategy. This strategy encompasses various aspects such as technology protection, investment control, export control, anti-coercion measures, rare earth materials production and diversification, off shoring, and strategic stocks. Additionally, a dedicated toolbox for the European Defense Technology and Industrial Base is being crafted, with the upcoming European Defense Industrial Strategy, set to focus on protecting key ecosystems, promoting joint procurement and maintenance, pooling, and sharing resources

Navigating Reforms and Sustainable Development

While these measures contribute significantly to reinforcing the EDTIB for greater strategic autonomy, they are not sufficient to fully overcome the industry’s structural vulnerabilities. Essential reforms include increasing sector and segment concentration, particularly in land and naval sectors, as well as further concentration in the aeronautics sector. Raising awareness among future engineers about the defense business, creating European supply chains, and ending industrial compensation deals are crucial steps. Additionally, securing bank support for investment, revising national legislation hindering cross-border cooperation, and enhancing industry awareness of EU funding and support mechanisms are vital.

The Imperative for Cultural Change and Future Prospects

The forum underscored the necessity of a radical cultural shift within both EU Member States and the industry to adapt to current trends and fortify strategic autonomy. The European defense industry, currently at the center of EU institutions’ attention for preserving innovation, research and development, and funding, is on course for more strategic autonomy as outlined in the Strategic Compass. However, a significant cultural transformation is required to alter the current trend and enhance the industry’s strategic autonomy. As Europe advances, the European defense industry must navigate a landscape filled with challenges and opportunities. The insights from this forum provide a crucial roadmap for the industry’s future direction and its critical role in shaping Europe’s defense capabilities and global standing.

APCO alumnus Milan Seghier co-authored this piece.