EIC will invest in dual-use start-ups, Commission says

The European Innovation Council (EIC) and the planned TechEU Scale-up Fund will both be permitted to invest in dual-use technologies, the European Commission has announced. This marks a change in role for the EIC, which as part of Horizon Europe only supports technologies with civilian applications.

The changes are set out in the Commission’s white paper on the future of European defence, presented on March 19, which seeks to maximise spillover effects between civilian and defence industries.

The current moment presents a “once-in-a-generation opportunity to strengthen Europe’s industry, boost innovation and create a market for defence equipment,” said Kaja Kallas, High Representative for Foreign Affairs and Security Policy, during a press conference to present the plans.

The proposal to change the EIC’s role will feed rumours in Brussels about a possible transfer of responsibility for the council from the Commission to the European Investment Bank (EIB), which already invests in dual-use projects. 

In its Competitiveness Compass, the Commission said it would work with the EIB Group and private investors to deploy a new TechEU investment programme to support disruptive innovation, which is also now expected to support dual-use projects.

However, it’s unclear what the reform would mean for other parts of the Framework Programme. The expert group led by Manuel Heitor recommended in its report that the next programme, FP10, should embrace dual use, but a recent consultation on the question divided stakeholders. Science|Business has asked the Commission for more details.

The EIC board welcomed the statement, noting that the programme already supports many breakthrough technologies for civilian applications such as cybersecurity, drones and AI, which could subsequently have defence customers. This is in line with Horizon Europe rules.

“The EIC board discussed defence and dual use at its February meeting and advised the Commission that this is an important issue and that bridges with the European Defence Fund (EDF), which is also supporting disruptive innovation, should be pursued,” its president Michiel Scheffer said in a statement shared with Science|Business.

Some are calling for the EU to go even further. Riho Terras, vice-chair of the European Parliament’s new Committee on Security and Defence, wants to see the Framework Programme support military R&D, not just dual use.

“We are in a war, why are we afraid of investing in the technologies that will defend us, that are currently being used on the battlefield in Ukraine every day?” Terras told Science|Business. “The term dual use was invented because nobody wanted to invest in defence, but today there is a willingness there, and there is an investment need.” 

Spillover effects

“Technology will be the main feature of competition in the new geopolitical environment,” the white paper notes. It highlights the potential for defence investments to have “spillover effects” in other parts of the economy, including aeronautics, space and AI.

Meanwhile, the EU will come forward with a European Armament Technological Roadmap later this year, to leverage EU, national and private investment into dual-use advanced technological capabilities, starting with artificial intelligence and quantum, according to the white paper.

Cecilia Bonefeld-Dahl, director general of industry association DigitalEurope, said the proposed roadmap is “exactly what we asked for: an opportunity to invest in Europe’s strengths in dual-use technologies like AI, quantum and secure communications.” But, she warned, “without dedicated funding and large-scale EU procurement, it risks becoming just another policy document.”

Many of the proposals in the white paper are lacking in detail, while the EU’s main instrument for supporting defence R&D projects, the EDF, is only mentioned in passing. The Commission explained it did not want to make concrete proposals in relation to the next Multiannual Financial Framework from 2028 before presenting the overall budget proposal. “If we put something very concrete forward right now, then everyone wants their projects in,” Kallas said.

Focus on technology

Boosting research and development is listed as one of six strategic directions where the EU should support the European defence industry.

Kurt Deketelaere, secretary general of the League of European Research Universities, welcomed this inclusion but noted the proposals focus on “short-term innovation potential,” with little mention of research.

Brussels expects modern battles to be defined by new technologies, including AI, cloud and quantum computing, autonomous systems and alternative energy sources. When it comes to AI-powered military robots, the report claims there is “ample opportunity for Europe to excel,” but warns “the window of opportunity is very narrow” as competitors are already investing.

“In the context of substantially increased defence expenditure, a higher share needs to be invested in defence research and development and technology, concentrating efforts and resources on common European projects,” it says.

The Commission also wants to simplify and speed up EDF rules and procedures as part of broader efforts to cut red tape and incentivise innovation. In June, it will present a “defence omnibus,” a series of simplification measures including faster permitting for industrial projects.

While he supports the push for simplification, Terras believes more concrete measures are needed to support SMEs and to encourage large defence companies to invest in disruptive technologies.

“How will we force the European industry to invest in future technologies, at a time when the big primes are overloaded with producing 20th century products? If you have no enforcing mechanisms to bring on board modern technologies, the easy answer is we will earn our money by producing more tanks,” said the Estonian MEP.

There is also a focus on skills, with a need for workers in the defence sector to be able to exploit new technologies.

Overall, the report identifies critical capability gaps in seven areas: air and missile defence; artillery systems; ammunition and missiles; drones and counter-drone systems; military mobility; AI, quantum, cyber and electronic warfare; and strategic enablers and critical infrastructure protection.

More spending

The Commission also presented its ReArm Europe plan on Wednesday, which it claims could mobilise up to €800 in European defence spending over the next four years.

It plans to raise up to €150 billion on capital markets to be distributed to member states in the form of loans. The funds will be used to support joint procurement, which is intended to reduce costs, ensure interoperability of equipment and provide the European defence industry with predictability.

The EU executive has also invited member states to activate the national escape clause of the Stability and Growth Pact, which would allow them to spend an additional 1.5% of GDP on defence over the next four years without breaking EU fiscal rules.

European defence industry association ASD welcomed the announcements and highlighted the need for joint procurement and long-term orders. “The industry is at a critical juncture: after decades of underinvestment, it must now scale up production dramatically and at an accelerated pace,” it said in a statement.

For Terras, the white paper does not reflect the urgency of the situation, as it will not force countries spending less than 2% of GDP on defence to increase their investments. 

“Estonian pensioners and children need as much social care as those from Spain, Austria or Ireland. Why should we take the burden on us, but the rest are enjoying their nice lives as they were before the war?” he asked.

To further support investments, the EIB will adjust its eligibility criteria so that excluded activities are more precisely defined and limited in scope, according to the white paper. The EIB has faced calls from member states to review its rules against funding purely military equipment.

Despite uncertainty around US commitment to NATO, the Commission insists the alliance and a “strong transatlantic bond” remain crucial for Europe’s defence. It also underlines the need for cooperation with neighbouring countries, and says the EU should explore opportunities for defence industrial cooperation with Indo-Pacific partners, including Japan, Korea, Australia and New Zealand.