European defense industrial woes need a transatlantic remedy

Brussels is still recovering from former Prime Minister of Italy Mario Draghi’s European competitiveness report, which provided a dramatic assessment of industrial capacity in the European Union (EU) and an even more controversial set of recommendations to accompany it. Published on September 9, the report paints a dire picture of the EU’s economic landscape, citing slowing productivity, lagging investment, and a sclerotic bureaucracy. To address these problems, it calls for an additional $884 billion in investment each year to reverse Europe’s economic decline and enable the bloc to successfully compete with the United States and China.

Given Europe’s dilapidated industrial landscape, Draghi’s report provides a clear blueprint for the new European Commission to create a more coherent industrial strategy and develop a plan for continental defense and security. In an interconnected world, European economic ambitions are dependent on international security and stability, and Brussels is waking up to that fact. However, the success of Europe’s growing industrial and defense strategy will hinge on the EU’s ability to assert its own interests without alienating its allies and partners, most importantly the United States.

Greater geopolitical conflagration and increasing cooperation among authoritarian actors necessitate a decisively transatlantic response to global challenges. Despite Draghi’s report arguing that Europe and the United States maintain diverging approaches on security, it outlines several top defense issues for Europe that align broadly with US global strategy. The report identifies China as a strategic threat, calls for insulating supply chains from geopolitical shocks, and recommends ally-shoring critical mineral mining, sourcing, and refining capabilities. Yet despite the similarities in threat perception, both Europe and the United States adopt different time horizons to similar challenges and compete economically on issues of defense industrial capacity. Instead, Europe and the United States need to adopt a more cooperative approach to defense industrial strategy in order to produce the necessary capabilities to confront growing challenges on the global stage.

Draghi’s report builds on the European Defense Industrial Strategy (EDIS), which was released earlier this year and offers recommendations to slash regulatory burdens, streamline defense investment, and revitalize small and medium-sized defense enterprises. Identifying a lack of capacity due to chronic underinvestment, weak demand signals, and industrial fragmentation as the main hurdles to Europe’s ambitious defense goals, Draghi’s report advances several important proposals that build on recommendations laid out in the EDIS. These proposals include increasing EU defense funding and deepening defense industrial policy at the EU level to ensure that Europe can produce at both speed and scale. The EU implementing recommendations from the EDIS and Draghi’s report would transform Europe’s defense industrial base and equip the bloc with capabilities commensurate to its current challenges.

Yet despite the urgency facing EU member states, Brussels must confront crucial political and institutional hurdles to implementing its broader defense industrial ambitions. In the past, lack of political will has prevented joint defense procurement and cooperation. Years of underinvestment in defense and security have left European defense industrial bases dilapidated (though since Russia’s annexation of Crimea in 2014, European defense spending has trended upward). Following Russia’s full-scale invasion of Ukraine in 2022 and amid growing anxiety over the United States’ continued commitment to European security, member states seem to be warming up to the idea of a coordinated continental defense and integrated defense industrial base. This is evidenced by programs such as the European Defence Fund and the inaugural appointment of an EU defense commissioner. Yet, these efforts face an uphill battle, with institutional hurdles and restrictive funding measures in place that hamstring efforts to consolidate European defense industries under one common approach.

In the face of these obstacles, Europe should aim to develop a more coordinated transatlantic defense industrial base. The strategy laid out in the Draghi report, which echoes some of the protectionist measures listed in the EDIS, does not create enough space for collaboration and cooperation with allies and partners. Unlike the United States’ defense industrial strategy, which emphasizes partnering with likeminded nations, the European approach fails to capitalize on the tangible benefits of harnessing the total might of defense industrial bases on both sides of the Atlantic. Both partners have a long way to go in building more cooperative defense industrial bases—as laid out in the NATO Defense Industrial Pledge, which was adopted earlier this year at the Washington summit. However, Europe has an opportunity to prioritize procuring necessary defense equipment from allied sources in the immediate term while investing heavily in consolidating its defense industry and providing stronger demand signals for industry partners in the medium and long term. Capitalizing on the United States’ growing appetite for cooperation with allies in the Indo-Pacific on defense industrial cooperation, Europe should similarly seek programs designed to more closely integrate US and European defense industrial production to ensure both sides of the Atlantic are fit for purpose.

The EU faces an economic and security crisis that demands bold action to both achieve strategic independence and safeguard its interests. However, failure to coordinate with the United States risks weakening both partners’ ability to address shared threats effectively, leaving them vulnerable to economic coercion and strategic surprises from China and Russia. Washington and Brussels now have a unique opportunity to strengthen their cooperation and enable a more effective response to emerging geopolitical challenges. By working together on countering China’s economic coercion, securing critical supply chains, and developing a coordinated industrial policy, both sides of the Atlantic can better deter Russian aggression and Chinese ambitions while advancing long-term policies to revitalize their defense industrial bases.

Kristen Taylor is a program assistant with the Transatlantic Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security.

Luka Ignac is an assistant director for the Transatlantic Security Initiative.

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Image: A view of a Leopard 2 tank at a production line as German Chancellor Olaf Scholz and Defence Minister Boris Pistorius visit the future site of an arms factory where weapons maker Rheinmetall plans to produce artilleries from 2025, in Unterluess, Germany February 12, 2024. REUTERS/Fabian Bimmer.