Europe finds itself at a pivotal moment, simultaneously affected by both war and an international order undergoing significant change. In response, the European Commission (EC) has set out its strategy to REARM Europe/Readiness 2030. This ambitious plan aims to enable Member States to “urgently and significantly” increase defence spending and investment by up to EUR 800 billion, as the EU seeks to ensure its own defence and to project deterrence.
To implement this strategy, the EC, in collaboration with the EU’s High Representative for Foreign Affairs and Security Policy, has recently published its Joint White Paper on the Future of European Defence (White Paper). This document serves as the framework to rearm Europe, address critical capability gaps and establish a competitive defence industrial base. In a sector where procurement choices are typically characterised by constrained budgets, a fragmented supplier base across Europe — reflecting governments’ desire to preserve domestic defence industrial capability where it exists — and the increasing success of US defence contractors in some domains, this initiative is a bold step to increase the level and coordination of EU defence spending to achieve policy aims.
Below, we provide an overview of REARM and the associated White Paper before addressing their potential impact on the antitrust enforcement agenda, which includes the following considerations:
- M&A activity is likely to reflect the EC’s acknowledgement of the need for certain consolidation in the defence sector in order to ensure both strategic autonomy and that more European defence companies are globally competitive.
- A significant increase in public investment is expected, with a likely increase in State aid support for EU defence companies.
- JVs and partnerships could play an increased role in providing scale requirements for pan-European joint defence projects, and the EU’s promotion of international cooperation will likely spark more partnerships with companies from third-country allies.
- The EC’s Defence Omnibus Simplification aims to streamline rules impacting defence companies and cut red-tape.
REARM Europe/Readiness 2030
REARM represents a once-in-a-generation surge in Europe’s defence spending through a range of funding measures, including a new dedicated defence instrument. These concrete measures will be coordinated at the EC level to ensure Member States spend “better together and invest more European.”
The specifics of the EC’s strategy incorporate some of the key defence policy proposals set out in the Draghi, Letta and Niinistö reports, and the EC’s Competitive Compass. In addition, REARM aims to meet the moment, by directly responding to the ongoing threat from Russia, as well as changes to geopolitical rivalries.
White Paper
The primary aim of the White Paper is to provide a framework for the EC’s REARM strategy by setting out the necessary steps to rearm Europe, support Ukraine and establish a strong and competitive defence industrial base in Europe. These objectives require significant coordination across all defence domains.
Amongst these steps, the EC details a ‘buy European’ preference for defence procurement, the role of partnerships, the necessity of consolidated scale and the importance of dual-use technologies.
A ‘Buy European’ framework, while partnering with allies
The White Paper provides that Member States should purchase eligible products from entities established and headquartered in the EU, EEA/EFTA States and Ukraine.
However, it acknowledges that partnerships will remain key. EU-NATO cooperation is said to be indispensable for the development of the EU’s security and defence dimension but third-country participation in REARM will depend on Defence and Security Partnerships.
Consolidation and scale
While Europe boasts several globally competitive defence companies, the White Paper highlights structural weaknesses within the EU defence industrial base — in particular, a fragmented structure based on national players. Amongst other things, the EC proposes to address this by implementing the:
- Defence Omnibus Simplification by June 2025, which will involve a “Strategic Dialogue” between the EC and the defence industry; and
- EC’s Competitive Compass, which aligns the Draghi Report’s call for European defence companies to develop sufficient scale to be globally competitive and for EU strategic autonomy.
Dual-use technology
Beyond the arms race, geopolitical rivalries have ignited a global technology race. In response, the White Paper emphasises the need to boost innovation in foundational technologies in Europe, such as AI, quantum, biotech, robotics and hypersonic. These dual-use technologies are essential for “long-term economic growth and military pre-eminence.”
Antitrust considerations
M&A
An increased regulatory appetite for consolidation amongst EU defence companies seems likely, reflecting the need to reach the scale necessary to compete globally. This could influence merger control, with a tilt towards the creation or augmenting of EU defence champions.
The EU promises to provide “necessary predictability to industry and reduce red-tape.” There have been suggestions this could include the relaxation of merger control rules for defence companies. Enhanced “predictability” may also emerge from the EC’s review of the EU merger guidelines this year, while “reduced red-tape” could materialise through a greater acceptance of efficiencies as the antidote to potential antitrust concerns in defence transactions creating European champions, which will require a notable shift in approach.
There will also be a potential rebalance in the relationship between European and third-country defence companies through EU-led dealmaking and funding to retain innovative defence tech in Europe.
Joint defence projects
An uptick in JVs and partnerships is anticipated, aimed at facilitating collaboration and specific scale requirements, subject to application of general antitrust rules. This includes opportunities for companies from third-country allies seeking to access pan-Europe joint defence projects.
Public investment
REARM is set to drive a significant increase in public investment across the European defence sector. This will likely not only result in increased EU funds dedicated to defence spending, but also lead to a rise in Member States providing support to defence companies through State aid measures. Existing mechanisms, such as those under the “defence exemption” in Article 346 of the EU Treaty, allow Member States certain flexibility on specific national security grounds. The EC’s Defence Omnibus Simplification initiative could see a targeted relaxation of State aid rules for the defence sector even as regards dual-use technology.
In sum, meeting the significant challenges set out in the White Paper will inevitably require changes to EU antitrust enforcement in the defence sector.
