EU urged not to forget about defence R&D

Experts are urging policymakers not to forget about research and development when they set about boosting Europe’s defence capabilities. As yet, the flurry of political activity following the US decision to suspend military aid to Ukraine has found little place for R&D. 

First, European Commission president Ursula von der Leyen announced the ReArm Europe plan, which she claims “could mobilise up to €800 billion” by adjusting fiscal rules and providing member states with loans for joint procurement. The Commission will present the full proposal later this month, but so far there has been no mention of R&D.

Then, at a special European Council meeting held last week, EU leaders called on the Commission to propose additional funding sources for defence, and urged the European Investment Bank (EIB) to increase its defence funding and review its list of excluded activities.

In its conclusions, the Council “underlines the importance of continued support for research, innovation and development through the European Defence Fund (EDF)”. It also identifies several priorities for EU action, including air and missile defence, drones, military mobility and artificial intelligence.

“We are so far behind that it’s embarrassing,” said Fredrik Erixon, founding director of the European Centre for International Political Economy think tank. He recently co-authored a paper calling for Europe’s collective resources for R&D and defence to reach 8% of GDP. Currently, R&D spending represents around 2.3% of GDP in the EU, while defence spending is 1.9%.

Decades of underinvestment have left European armies with “a lot of gaping holes,” he said. Filling them will require investment in basic things like tanks, drones and attractive salaries, but modernisation projects are also important.

“The future type of wars we're talking about require a completely different type of capability in terms of flexibility, agility, adjustment, constant innovation, and if we don't have that, a lot of these investments are just not going to be able to deliver the capabilities we need,” he said. Future deterrence will require companies to deliver an “evolutionary innovation process,” where equipment is constantly being improved.

According to Erixon, all types of defence planning “require much, much more research than anyone in Europe is capable of doing right now”. He argues that far too little R&D goes into the European defence industry, and for that to change, governments will need to pay.

“A lot of public-private R&D needs to happen, because that is the essence of defence R&D,” he said. It will also require greater efforts in dual-use technologies, such as material science, satellites and artificial intelligence.

Meanwhile, in a paper published last month, trade association DigitalEurope urged the EU to allocate at least 25% of new defence spending to digital and dual-use technologies, and to prioritise joint investment in emerging technologies.

International cooperation

To remain competitive, Europe must foster civil-military innovation ecosystems rather than relying solely on ReArm Europe, says Said D. Werner, affiliate director at the MIT Murray Lab for Deep Tech and Geopolitics.

Werner suggests Ukraine’s experience since the Russian invasion in 2022 can provide the blueprint. “The full-scale invasion triggered the creation of multi-stakeholder innovation ecosystems, integrating start-ups, defence primes, research institutions, government actors and diverse capital sources to rapidly scale drone production,” he said.

While the Commission’s plans are a strong show of support for increased defence investment, Werner argues cooperation with the US and NATO remains both possible and necessary.

“Europe simply lacks sufficient capacity to scale-up its defence production without its non-EU allies,” he said. “Excluding the US economy from EU procurement contracts and prioritising domestic spending without coordination risks destabilising NATO and triggering a supply shock in the European market.”

As the EIB primarily supports European companies, and the EDF focuses on R&D rather than scaling production or market entry, Werner believes a new multilateral institution is needed.

He is part of a team advocating the creation of a Defence, Security and Resilience (DSR) Bank involving NATO and EU nations and others including Japan and Australia. The idea behind the DSR Bank, first proposed by Rob Murray, NATO’s former head of innovation, is to leverage a AAA credit rating to support long-term defence investments and expand public-private cooperation.

This would include direct lending and guarantees for commercial lending institutions and other capital providers, which would “unleash an unprecedented wave of capital to finance R&D-intensive companies,” Werner said. SMEs in the defence sphere currently face major barriers to financing, including EIB rules against funding military equipment.

Proponents of the DSR Bank are hoping to use the NATO Summit in June to gain commitments from governments for its formal establishment as a multilateral credit institution.

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European Defence Fund

EU funding for military research is a relatively recent development, with the launch of the EDF in 2021 building on the three-year Preparatory Action on Defence Research.

With a budget of €7.3 billion over seven years, the EDF funds collaborative defence research and capability development projects. The proposed EDF budget was originally €13 billion for 2021-27, but it was cut due to the COVID-19 pandemic.

Meanwhile, the EU’s main research and innovation programme, Horizon Europe, only funds projects with exclusively civilian applications. Many believe this is an outdated distinction, as many of the technologies it helps develop, from semiconductors to satellites, also have military potential.

Last year, the Commission launched a consultation on opening Horizon Europe and its successor, FP10, to dual-use research. The proposal divided opinion, with academic and research organisations mostly in favour of maintaining the existing rules, and businesses more open to change.

In March 2024, the EU executive unveiled the first ever European Defence Industrial Strategy, which says that, by 2030, member states should procure at least 40% of their defence equipment in a collaborative manner and spend 50% of their procurement budget within the EU.

Von der Leyen has previously hinted that innovation would be central to ensuring Europe has technological superiority in future conflicts. “Europe should strive to develop and manufacture the next generation of battle-winning operational capabilities,” she told MEPs last year. In September, the EU opened a Defence Innovation Office in Kyiv to promote joint initiatives with Ukraine.

The Commission is due to present a white paper on the future of European defence on March 19. On Wednesday, the European Parliament adopted a resolution outlining its position.