Defense firms need full access to EU cash as Putin haunts Europe, Draghi says

European defense firms must not fear red tape as they ramp up weapons production, according to a new report seen exclusively by POLITICO.
As Russia’s full-scale invasion of Ukraine continues with knock-on effects for European security, the Continent’s defense companies should have full access to EU cash, while mergers shouldn’t be blocked regardless of competition concerns, according to a draft chapter of a competitiveness report prepared by former Italian Prime Minister Mario Draghi.
“The EU’s defense industrial base is facing structural challenges in terms of capacity, know-how and technological edge. As a result, the EU is not keeping pace with its global competitors,” Draghi warned in the draft.
The former European Central Bank chief is finalizing his much-anticipated report for European Commission President Ursula von der Leyen, looking at how European industry can regain advantages on the global stage.
“With the return of war in the EU’s immediate neighborhood, the emergence of new types of hybrid threats and a possible shift of geographic focus and the defense needs of the United States, the EU will have to take growing responsibility for its own defense and security,” read the draft document.
The draft made reference to several challenges faced by the EU’s defense sector, including insufficient public spending — the EU as a whole spends roughly one-third of what the U.S. does on defense, it said.
European arms companies also operate in small domestic markets, while EU countries don’t coordinate on procurement and depend 80 percent on international suppliers largely from the U.S., Draghi wrote.
Recommendations include introducing a “European preference principle” to incentivize European defense solutions over competitors; defining a governance model across the Commission, the European External Action Service and the European Defence Agency; and finally creating a centralized “Defence Industry Authority” to procure centrally on behalf of EU countries.
“The authority would be managed by the European Commission and co-chaired by the HRVP/ Head of the European Defence Agency and the Commission,” the document said. “It would be advised by sector-specific groups composed of representatives from industry and EU Member States.”
A draft of the section dealing with the defense industry, dated June 20, called for Brussels to remove the barriers for defense companies to access EU funding. It floated modifying the European Investment Bank’s lending policies on the exclusion of defense investment and modifying the EU Sustainable Finance Frameworks and Environmental, Social and Governance (ESG) to benefit the sector.
Draghi will discuss the report in a closed-door, high-level meeting at the European Parliament on Wednesday and is planning to publish it the second week of September.