In early March, the EU released its first-ever European Defence Industrial Strategy (EDIS), accompanied by a proposed regulation establishing the European Defence Industry Programme (EDIP). The aim is to boost defence capabilities in Europe through greater and more efficient spending. In particular, the strategy seeks to reverse recent trends, whereby 78% of defence acquisitions by EU countries since Russia’s full-scale aggression against Ukraine were made with non-EU producers, with U.S. firms accounting for 63%. It also addresses recent concerns by the defence industry over ESG constraints on obtaining private financing.

The ultimate benchmark for success, as recounted by one EU foreign minister, is whether these measures will help deter Russia and other adversaries. Nonetheless, it reflects greater operational focus of the EU on defence and security issues, and what in practice the European Commission and other EU institutions can do to bolster capabilities in a policy area that will remain the primary prerogative of EU Member States.

Plugging Defence Gaps

Since the end of the Cold War, European defence has suffered from perennial underinvestment and lack of policy support for the defence industry. Whereas Europe collectively spent on defence over half of the U.S. totals in the early 1990s, it now spends about one-third compared to the United States—arguably at a time of much greater security threats to Europe compared to America. There are simply not enough soldiers, tanks, planes, ships, missiles, guns, and ammunition in Europe, nor domestic facilities to produce the necessary weapons systems and materiel. Moreover, EU countries have procured defence products at a national level, exacerbating fragmentation within the European market. This fragmentation has led to the creation of national industrial silos and numerous defence systems that often lack interoperability.

In this context, the Commission argues for a paradigm shift, advocating for significant investments and joint EU procurement. To facilitate this, defence companies, which typically do not engage in substantial self-funded industrial investments, require regulatory support to address issues like access to skilled personnel and raw materials. By providing grants to mitigate industrial investment risks and by adding new structures to facilitate cooperation for joint procurement, the Commission aims to enable faster adaptation to ongoing market changes.

The new EU defence industrial strategy also seeks to balance pooling defence capabilities within EU institutions while respecting existing military organizations like NATO. In particular, the strategy refrains from pushing for an EU army, focusing instead on industrial aspects for which the EU is competent through its internal market. It would also treat Ukraine as a de facto member of the internal market, eligible to participate in EU joint procurement with Ukrainian companies eligible for EDIP funding.

Enhancing European production could come at the expense of non-EU firms, as the Commission outlines three non-binding targets for 2030:

  • Intra-EU defence trade should represent at least 35% of the EU defence market value.
  • At least 50% (by 2030) and 60% (by 2035) of member states’ defence procurement budgets should be allocated to acquisitions from EU firms, increased from around 20% since the Ukraine invasion.
  • At least 40% of member states’ defence equipment should be procured collaboratively.

Unless the overall levels of spending are increased substantially, shifting the majority of European procurement to EU producers could require decreasing procurement from firms based in the United States, United Kingdom, Canada, and South Korea, among other non-EU suppliers. Notably, the UK’s Labour Party, which seems likely to win the General Election at the end of the year, views enhanced cooperation with the EU in the defense and security sectors as a core element of its plans to try and rebuild relations between the UK and the EU. The Labour Party would be keen to create a role for the UK and to ensure that EU defense initiatives do not come at the expense of a greater role for the UK’s defense sector.

Financially, the proposed EDIP regulation, with a limited budget of €1.5 billion, is designed to complement existing EU instruments and provide additional funding over the next two years. Over the medium-term, the strategy calls for an ambitious defence budget in the next Multiannual Financial Framework (2028-2034) to support the successors of the European Defence Fund (EDF) and the proposed EDIP. Some EU officials, such as Commissioner Thierry Breton and MEP Natalie Loiseau, have even called for €100 billion for new EU defence spending, financed by EU-backed loans. Moreover, EDIS urges the European Investment Bank to revise its lending policies to allow investments in defence, currently not permitted.

Finally, the Commission addresses the recent debate over whether there are ESG constraints on private funding for the defence sector. It argues, contrary to widely-shared perceptions, that under “the EU sustainable finance framework, no EU rule, or any EU planned rule, impedes private investment in the defence industry.” To alleviate ongoing concerns, it proposes further consultations with the defence and financial sectors, and underscores that “the defence industry enhances sustainability, given its contribution to resilience, security and peace.”

Fostering Intra-EU Collaboration

The strategy is accompanied by a proposed regulation establishing the European Defence Industrial Programme (EDIP), aiming to address the defence funding gap until 2027 and enhance the EU’s defence readiness. The regulation proposes financial assistance and new structures to bolster the Defence Technological and Industrial Bases of both European and Ukrainian entities operating in the sector. It outlines five key advancements.

First, it includes measures to reinforce the European Defence Technological and Industrial Base, such as the creation of a European Military Sales Mechanism to streamline access to European defence products and a dedicated €1.5 billion package for the 2025-2027 period. Additionally, defence projects would become eligible for other EU financial instruments, and the Commission would be able to identify European Defence Projects of Common Interest. The regulation also suggests allocating windfall profits from seized Russian assets to defence projects. While the text does not go as far as proposing to issue EU defence bonds, it does open the door to Member States teaming up with each other to jointly issue defence bonds.

Second, the regulation proposes a cooperation programme with Ukraine to aid in the reconstruction of its Defence and Technological Industrial Base.

Third, the text introduces a new legal framework, the Structure for European Armament Programme (SEAP), to facilitate and scale up Member States’ cooperation on defence equipment, in full complementarity with the Permanent Structured Cooperation (PESCO) framework. Concretely, SEAP would encompass ad-hoc structures created through implementing acts at the request of Member States to aggregate the demand for defence products.

Fourth, the regulation outlines a comprehensive legal framework to ensure security of supply, remove obstacles, and support defence product production. This includes measures to facilitate joint procurement, accelerate permit-granting processes, and require Member States to adopt a list of national certification authorities. It also proposes mapping key market actors and the defence supply chain, as well as monitoring EU manufacturing capacities, with financial penalties for non-compliance.

Fifth, the regulation proposed to establish a Defence Industrial Readiness Board within the Commission, supported by a high-level European Defence Industry Group serving in a consultative role.

Although the EDIP will now go through the legislative process in the Council and Parliament, which could take up to one year, it is clear that the evolving geopolitical landscape is prompting the EU to increase its involvement in defence, particularly in coordinating public procurement efforts.

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The team at Covington, which cuts across a wide range of regulatory areas, is well placed to advise you on these policy developments, and how to engage with the relevant decision-makers on these questions.

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Photo of Michele Pearce Michele Pearce

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington…

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington, Michele held several senior staff positions within the Department of Defense (DoD) and Congress. Most recently, she served as General Counsel (Acting) of the Department of the Army, providing legal and policy advice to the Secretary of the Army and other service leadership. In this role, Michele was responsible for legal matters related to modernizing acquisition and contracting practices to meet emerging threats, implementing AI and hypersonic systems, and reforming ethics and diversity and inclusion programs.

Prior to her role in the Army, Michele served as Deputy General Counsel (Legislation) at DoD. She was the principal legal advisor to DoD officials, including the Secretary of Defense, Deputy Secretary of Defense, and General Counsel on matters concerning legislation, investigations, and the Department’s Legislative Review Program, which considers more than 400 legislative proposals annually.

Michele also has significant Capitol Hill experience. She was a Senior Defense Advisor to Senator Susan Collins (R-ME), advising on legal and budgetary matters related to authorizations and appropriations for the Departments of Defense, Homeland Security, and Veterans Affairs. Michele also served as Staff Lead/Counsel on the House Armed Services Committee, where she managed one of the largest subcommittees in Congress with a multi-billion dollar budget focused on operations and maintenance activities across DoD. She also served as Staff Lead of the Oversight and Investigations Subcommittee and as Counsel and Professional Staff of the Military Personnel Subcommittee.

Michele also previously served as an Advisor to Andrew Effron, Chief Judge of the U.S. Court of Appeals for the Armed Forces; Military Assistant to the Secretary of the Air Force; Associate Deputy General Counsel for Personnel and Health Policy at DoD; and as an Air Force Judge Advocate General.

Photo of Stephanie Barna Stephanie Barna

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior…

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior leader on Capitol Hill and in the U.S. Department of Defense (DoD). Most recently, she was General Counsel of the Senate Armed Services Committee, where she was responsible for the annual $740 billion National Defense Authorization Act (NDAA). Additionally, she managed the Senate confirmation of three- and four-star military officers and civilians nominated by the President for appointment to senior political positions in DoD and the Department of Energy’s national security nuclear enterprise, and was the Committee’s lead for investigations.

Previously, as a senior executive in the Office of the Army General Counsel, Stephanie served as a legal advisor to three Army Secretaries. In 2014, Secretary of Defense Chuck Hagel appointed her to be the Principal Deputy Assistant Secretary of Defense for Manpower and Reserve Affairs. In that role, she was a principal advisor to the Secretary of Defense on all matters relating to civilian and military personnel, reserve integration, military community and family policy, and Total Force manpower and resources. Stephanie was later appointed by Secretary of Defense Jim Mattis to perform the duties of the Under Secretary of Defense for Personnel and Readiness, responsible for programs and funding of more than $35 billion.

Stephanie was also previously the Deputy General Counsel for Operations and Personnel in the Office of the Army General Counsel. She led a team of senior lawyers in resolving the full spectrum of issues arising from Army wartime operations and the life cycle of Army military and civilian personnel. Stephanie was also a personal advisor to the Army Secretary on his institutional reorganization and business transformation initiatives and acted for the Secretary in investigating irregularities in fielding of the Multiple Launch Rocket System and classified contracts. She also played a key role in a number of high-profile personnel investigations, including the WikiLeaks breach. Prior to her appointment as Deputy, she was Associate Deputy General Counsel (Operations and Personnel) and Acting Deputy General Counsel.

Stephanie is a retired Colonel in the U.S. Army and served in the U.S. Army Judge Advocate General’s Corps as an Assistant to the General Counsel, Office of the Army General Counsel; Deputy Staff Judge Advocate, U.S. Army Special Forces Command (Airborne); Special Assistant to the Assistant Secretary of the Army (Manpower & Reserve Affairs); and General Law Attorney, Administrative Law Division.

Stephanie was selected by the National Academy of Public Administration for inclusion in its 2022 Class of Academy Fellows, in recognition of her years of public administration service and expertise.

Photo of Daniel Feldman Daniel Feldman

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member…

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member of the firm’s Global Problem Solving initiative.

As Chief of Staff and Counselor to Secretary John Kerry when he was appointed the first Special Presidential Envoy for Climate (SPEC) by President Biden, Dan helped drive the U.S. government’s international climate agenda, coordinating high level interagency policy-making, engaging with corporate stakeholders, and contributing to key bilateral and multilateral climate discussions, including last year’s Leaders’ Summit on Climate and the landmark UN Conference of Parties (COP26) in Glasgow.

Previously, Dan served as deputy and then U.S. Special Representative for Afghanistan and Pakistan at the U.S. Department of State in the Obama Administration, as Director of Multilateral and Humanitarian Affairs at the National Security Council in the Clinton Administration, and as Counsel and Communications Adviser to the U.S. Senate Homeland Security and Governmental Affairs Committee. He also has served as a senior foreign policy and national security advisor to a number of Democratic presidential and Congressional campaigns.

Dan has extensive experience counseling multinational corporations on mitigating risk and maximizing opportunities in the development and implementation of their ESG and sustainability strategies, with a particular background in advising on BHR matters. He was one of the first attorneys in the U.S. to develop a practice in corporate social responsibility, and has been cited by Chambers for his BHR expertise. He assists clients in strategizing about their engagements with a range of key stakeholders, including Members of Congress, executive branch officials, foreign government officials and Embassy representatives, multilateral institutions, trade and industry associations, non-governmental organizations, opinion leaders, and journalists.

Photo of Elżbieta Bieńkowska Elżbieta Bieńkowska

Elżbieta Bieńkowska is a senior advisor in the firm’s Brussels office. Elżbieta, a non-lawyer, served as European Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs in Jean-Claude Juncker’s team from 2014 to 2019. In that capacity, she was responsible for much of…

Elżbieta Bieńkowska is a senior advisor in the firm’s Brussels office. Elżbieta, a non-lawyer, served as European Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs in Jean-Claude Juncker’s team from 2014 to 2019. In that capacity, she was responsible for much of the European Commission’s regulatory activity that affects the EU’s 450 million citizens, and all companies doing business in the EU. Elżbieta oversaw all product regulation in the EU, setting the rules for goods and services in sectors as diverse as chemicals, cars, electronics, IT infrastructure, machines, medical devices, and hydrogen. She managed the EU’s treatment of IP, led the Commission’s extensive work on standardization, and ran the EU’s industrial policy.

Before joining the European Commission, Elżbieta served as Minister for Infrastructure and Development of Poland as well as Deputy Prime Minister. In this role, she was in charge of the allocation of European Union funding and responsible for significant investments in Poland’s transport infrastructure.

Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador…

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.

Photo of Bart Szewczyk Bart Szewczyk

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He…

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He also teaches grand strategy as an Adjunct Professor at Sciences Po in Paris and is a Nonresident Senior Fellow at the German Marshall Fund.

Bart recently worked as Advisor on Global Affairs at the European Commission’s think-tank, where he covered a wide range of foreign policy issues, including international order, defense, geoeconomics, transatlantic relations, Russia and Eastern Europe, Middle East and North Africa, and China and Asia. Previously, between 2014 and 2017, he served as Member of Secretary John Kerry’s Policy Planning Staff at the U.S. Department of State, where he covered Europe, Eurasia, and global economic affairs. From 2016 to 2017, he also concurrently served as Senior Policy Advisor to the U.S. Ambassador to the United Nations, Samantha Power, where he worked on refugee policy. He joined the U.S. government from teaching at Columbia Law School, as one of two academics selected nationwide for the Council on Foreign Relations International Affairs Fellowship. He has also consulted for the World Bank and Rasmussen Global.

Prior to government, Bart was an Associate Research Scholar and Lecturer-in-Law at Columbia Law School, where he worked on international law and U.S. foreign relations law. Before academia, he taught international law and international organizations at George Washington University Law School, and served as a visiting fellow at the EU Institute for Security Studies. He also clerked at the International Court of Justice for Judges Peter Tomka and Christopher Greenwood and at the U.S. Court of Appeals for the Third Circuit for the late Judge Leonard Garth..

Bart holds a Ph.D. from Cambridge University where he studied as a Gates Scholar, a J.D. from Yale Law School, an M.P.A. from Princeton University, and a B.S. in economics (summa cum laude) from The Wharton School at the University of Pennsylvania. He has published in Foreign AffairsForeign PolicyHarvard International Law JournalColumbia Journal of European LawAmerican Journal of International LawGeorge Washington Law ReviewSurvival, and elsewhere. He is the author of three books: Europe’s Grand Strategy: Navigating a New World Order (Palgrave Macmillan 2021); with David McKean, Partners of First Resort: America, Europe, and the Future of the West (Brookings Institution Press 2021); and European Sovereignty, Legitimacy, and Power (Routledge 2021).

Photo of Matthieu Coget Matthieu Coget

Matthieu Coget advises multinational companies and governments on EU public policy, trade, and regulatory environmental, social, and governance (ESG) matters.

Matthieu has particular experience advising clients on the European Union’s Green Deal, EU trade law and economic security measures. He also assists Covington’s…

Matthieu Coget advises multinational companies and governments on EU public policy, trade, and regulatory environmental, social, and governance (ESG) matters.

Matthieu has particular experience advising clients on the European Union’s Green Deal, EU trade law and economic security measures. He also assists Covington’s clients in drafting their EU engagement strategies.