10. 04. 2025
AUTHOR: Julian Popov
The political shift in the US and growing multi-dimensional threats from Russia prompted the European Commission to launch an unprecedented defence package: the ReArm Europe Plan/Readiness 2030. This initiative aims to reallocate €150 billion of the remaining NextGenerationEU loans to support Member States in strengthening their defence capabilities through common procurement, potentially mobilising up to €800 billion in defence investment. The plan will significantly boost EU industry demand, as 65% of the cost of procured products must be Made-in-Europe. This defence agenda will serve as a major driver for European industry, such as the steel and aluminium sectors, autonomous mobility, satellite and drone technology, batteries and others.. Allocating this investment to the right priorities—including areas that link decarbonisation and military spending—can also help address other critical EU security challenges, such as economic and energy security. A resilient industrial base is essential for a strong defence effort.
At the same time, Europe remains committed to reaching climate neutrality by 2050, which is strategically tied to national security and the competitiveness goals outlined in the Draghi Report. The Joint White Paper for European Defence Readiness 2030 highlights the immense strain that “transnational challenges such as rapid technological change, migration, and climate change” could place on Europe’s political and economic systems. Can Europe combine its security, competitiveness and climate priorities?
Boosting Innovation Through Defence R&D
Defence spending presents a powerful lever to accelerate research and development (R&D) in critical sectors. Historically, defence-related R&D has spurred technological breakthroughs with wide-ranging applications. Many technological advancements from the Internet, satellite technology and AI-driven analytics, to touch screens and autonomous vehicles originated in defence projects but have since revolutionised civilian industries.
Currently, the EU lags behind global leaders like the United States in defence R&D. Increasing investment in dual-use technologies such as the new generation of solar panels, efficient engines and batteries, artificial intelligence, cybersecurity, and advanced materials can close this gap. The EU can benefit from prioritising defence R&D because it:
- Enhances military preparedness through cutting-edge technology;
- Strengthens the competitiveness of European industries in high-tech sectors; and
- Drives economic growth by supporting innovation ecosystems.
The EU can ensure that spending contributes to long-term strategic resilience by aligning defence budgets with industrial innovation goals.
Leading government spending on defence research and development (R&D) among OECD members in 2021, by country (in the share of R&D budget). Source: Statista
Incentivising Decarbonisation Through Defence Investments
The European Union faces an urgent challenge: reconciling the demands of defence, competitiveness, and decarbonisation within tight fiscal constraints. With rising geopolitical tensions, the need for industrial resilience, and an accelerating net-zero transition, policymakers must channel investment into sectors that advance all three priorities simultaneously. This necessitates a recalibrated industrial policy, targeting areas such as advanced energy technologies, sustainable defence manufacturing, and dual-use innovations. By fostering domestic capabilities in these fields, the EU can reduce reliance on external suppliers, reinforce economic sovereignty, and enhance security, while maintaining its position at the forefront of the clean energy transition.
A more integrated investment strategy would also provide a crucial solution to Europe’s budgetary dilemma. Instead of maintaining distinct funding streams for defence, industrial growth, and climate goals, the EU should adopt a coordinated approach that maximises impact across all three. Green hydrogen, for example, not only decarbonises energy-intensive industries but also bolsters strategic autonomy by reducing dependence on imported fossil fuels. AI-driven manufacturing enhances industrial competitiveness while advancing next-generation defence capabilities. Meanwhile, innovations in battery technology support both energy resilience and military mobility. By aligning clean technology with security imperatives, the EU can strengthen its global standing and ensure long-term stability in an era of heightened economic and geopolitical competition.
The Clean Industrial Deal outlines a framework to support lead markets for zero-carbon technologies, ensuring predictable demand for these innovations. Defence spending can amplify this effort by:
- Offering a stable market for zero-carbon materials and energy solutions;
- Incentivising private-sector investment in decarbonisation technologies; and
- Strengthening supply chain resilience by reducing reliance on fossil fuels.
These efforts benefit European industry by reducing emissions and positioning the EU as a global leader in the clean technology race.
By expanding funding for multiple-use R&D, fostering public-private partnerships, and adopting strategic procurement policies, the EU can lead in the interconnected domains of defence, innovation, and decarbonisation. Integrating these priorities addresses the multiple security gaps the EU is facing.
