Increasing EU defence spending will need creativity and wider application, say experts

Andreas Haak and Andrew Brydon of Pinsent Masons said freeing up funds to be invested in defence initiatives must also be matched by other policy and financing decisions, to meet the objective of strengthening Europe’s independent defence capabilities.

Haak and Brydon were commenting after the European Commission announced fresh plans to increase European defence investments with the EU budget, building on the ‘ReArm Europe plan’ set out by Commission president Ursula von der Leyen last month.

Under the proposed new regulation, the scope of the Strategic Technologies for Europe Platform (STEP) would be broadened – and existing funding programmes such as the Horizon scheme, European Defence Fund and Digital Europe programme modified – to enable more EU public funds to be channelled towards defence-related technologies and industry.

The STEP regulation already provides scope for EU funding to be used to support investment in certain technologies – including AI, cybersecurity technologies or drones. However, the Commission said “it appears necessary to increase the potentialities of development of research, industry and innovation in the defence area by setting out a fourth strategic sector in STEP focussed on defence technologies” specifically.

In practice, it said, this should facilitate greater investment in defence technologies such as drones, air and missile defence, artillery systems, and cyber, AI and electronic warfare.

The changes proposed would enable investment not only in research and development initiatives but in objectives and activities related to improving the competitiveness of the European defence technological and industrial base too – including AI factories.

“There has been much talk about European strategic autonomy and ‘Zeitenwende’ – a term that describes a shift in German security and defence policy – in recent years,” said Düsseldorf-based Haak, an expert in public procurement, export controls and trade law.

“Since the geopolitical context and Europe's threat landscape are changing dramatically and at an unprecedented speed, action is urgently required. Fortunately, there are several action tracks underway on European defence,” he said.

“Germany altered its constitution recently, allowing the country to increase its military spending. This will lead to further significant procurement measures for the Bundeswehr – Germany’s armed forces – in the future. The chancellor in waiting, Friedrich Merz, said during the coalition talks that Germany and Europe must quickly strengthen its defence capability and do ‘whatever it takes' in this regard now. However, the EU at large must do more to support the urgent need to increase European defence investments within the EU budget,” he said.

“The European Commission is set to present a specific omnibus package for defence by June 2025. One thing is sure: rearming Europe requires creativity to unlock funds. Coming months will be crucial – keeping the momentum is of utmost importance,” Haak said.

London-based Brydon, who specialises in technology contracts and projects, said increases to defence budgets will be welcomed across Europe but will not be enough on their own.

“There will also need to be corresponding increases in budgets and appropriate policy decisions in other areas as well – energy, infrastructure, technology and financing – to enable the overall objectives to be achieved,” Brydon said. “This will bring opportunities and, of course, additional challenges – both commercially and in terms of policy development and implementation. States and commercial entities will need to work together more and more closely over the coming years to ensure the safety and security of Europe – both in terms of responding to potential hostile threats, and also economically.”