The EU is now taking concrete steps to build a European Defence Union. The current defence policy environment is characterised by the ambition to strengthen the competitiveness and innovative capacity of the European defence industry by deepening cooperation and building an internal market for military equipment and defence services.
The foundation was laid in March 2025 with the adoption of the White Paper on European Defence Readiness 2030. The White Paper sets out the overarching strategic vision for EU defence, as well as industrial objectives, and marks an important step towards a more coherent European Defence Union, in which Member States retain control over their national defence while benefiting from deeper cooperation within the EU. The aim is to create better conditions for rapid production ramp-up and more efficient movement of military resources within the Union, thereby strengthening Europe’s overall defence capability.
As regards financing, the ReArm Europe Action Plan, which was adopted at the same time, encompasses a total financing framework of EUR 800 billion for EU defence initiatives. The Action Plan proposes, among other things, easing EU fiscal rules to enable Member States to increase defence spending, as well as introducing joint borrowing for financing of defence investments. The financing framework is intended to cover a broad spectrum of defence-related areas, from materiel and technology to infrastructure and supply chains.
Defence readiness is the EU’s most important defence policy objective. The Defence Readiness Roadmap 2030, presented in October 2025, seeks to guide the EU towards full defence readiness within five years. It translates policy ambitions into clear objectives and concrete milestones across four priority areas (monitoring the EU’s eastern flank, drone defence, air and missile defence, and space defence), combined with efforts to close capability gaps and facilitate defence investments. The European Council has confirmed its determination to deliver at pace and at scale on the objective of ramping Europe’s defence readiness by 2030.
One result of this development is the introduction of several new legal and financial frameworks. Below is an overview of key EU instruments to consider when investing in the European defence market.
EDIP is a legal and financial framework offering concrete financing avenues for actors in the defence sector. The framework entered into force on 30 December 2025, with an allocation of EUR 1.5 billion for the period 2025–2027.
In brief, EDIP supports four categories of measures: cooperation in joint procurement of defence products; industrial reinforcement measures such as capacity expansion and cross-border partnerships; European defence projects of common interest; and supporting measures relating, inter alia, to interoperability and security of supply. Eligibility generally requires establishment in an EU Member State. Further, an entity may not be controlled by a non-associated third country, although exceptions may be granted following screening in accordance with the EU Foreign Direct Investment Regulation, subject to sufficient safeguards for the Union’s security interests.
EDIP opens up the possibility of obtaining support in the form of loans, equity or blended finance through the Fund Accelerating Defence Supply Chains Transformation (FAST Fund). The Fund targets small and medium-sized enterprises (SMEs), small mid-cap companies and start-ups that face difficulties in accessing financing and that plan to become, or already are, active on the European defence market.
In addition to financing, EDIP provides access to joint procurements with larger volumes and more predictable demand, as well as support for scaling up production and investing in increased capacity. It also creates opportunities to participate in cross-border supply chains.
Furthermore, cooperation between Member States is reinforced through the establishment of a legal structure for European armament programmes (SEAP – the Structure for European Armament Programme). Under a single set of harmonised rules, SEAP enables the joint development, procurement and management of defence materiel throughout its lifecycle. A consortium of at least three members – which may include Member States, EFTA-EEA States or Ukraine but needs to consist of at least two Member States – may use the structure.
The EDF is a fund aimed at promoting cooperation between European defence companies and strengthening their innovative capacity. It is also open to other types of actors – universities, public authorities, and research institutes – who engage in research and development of products and solutions that can enhance the EU’s defence capability.
The Fund was established in 2017 to coordinate, complement and reinforce national investments in defence research, prototype development and procurement of defence materiel and technology. For the period of 2021–2027, the EDF has been allocated nearly EUR 9.5 billion, of which approximately EUR 3.2 billion is earmarked for collaborative defence research and approximately EUR 6.3 billion for collaborative capability development projects. According to the recently presented Action Plan on Drone and Counter-Drone Security, EUR 200 million of EDF funding will be invested in drone technology over the next two years. Financial support is primarily provided through grants covering up to 100% of eligible costs, depending on the activity concerned.
Within the EDF framework, two specific instruments may be highlighted.
The first is EUDIS, which supports SMEs, including start-ups and non-traditional actors in the European defence sector, with the aim of fostering innovation. The instrument ensures increased access to the EDF by lowering entry barriers to the defence sector for smaller actors and innovators, with a focus on technological maturity and market readiness.
The second is STEP, which coordinates and leverages resources from eleven existing EU investment funding programmes, including the EDF. Through an amendment in December 2025, the scope of the STEP structure was extended to include investments in defence technology, in order to enhance EU competitiveness and strengthen strategic autonomy. Within the framework of STEP, an additional EUR 1.5 billion has been allocated to support the EU defence industry and drive investments in critical technologies in Europe.
These legal developments create new opportunities and incentives for the EU and the Member States to support defence-related investments, including through the allocation of EU cohesion policy funds. All available funding calls under STEP, including for defence technology, are accessible via the STEP portal.
SAFE is a financial instrument supporting Member States looking to make industrial investments in defence. The instrument can provide up to EUR 150 billion through long-term, favourable loans to Member States upon request. Its purpose is to increase production capacity and address existing capability gaps.
As a general rule, eligibility requires that the relevant investment relates to joint procurement between at least two Member States in an area covering prioritised capabilities. SAFE thus incentivises large-scale procurement in order to generate stronger demand on the European market.
The defence sector is no exception to the European Commission’s simplification agenda. In the summer of 2025, the Defence Readiness Omnibus was presented, an initiative aimed at facilitating and accelerating defence investments within the EU. The proposal includes measures to shorten permitting procedures, reduce bureaucracy, simplify procurement and financing rules, and adapt chemicals legislation to Member States’ growing defence-related needs. The objective is to strengthen the EU’s defence capability, increase predictability for defence industry companies, and enable faster and more efficient joint investments between Member States.
The proposal is currently being negotiated between the European Parliament and the Council, with the aim of reaching an agreement in the first quarter of 2026.
The Military Mobility Package is intended to enable rapid movement of military personnel and defence materiel across Member States’ territories, representing a step towards a “military Schengen area”.
The proposal introduces the first comprehensive and harmonised EU framework for military transport. It is expected to increase legal certainty and predictability for companies operating in the transport sector that cooperate with and carry out assignments for European armed forces.
The proposal was presented in November 2025 and is currently under negotiation between the European Parliament and the Council.
In 2026, the European Commission is expected to present several initiatives to further strengthen EU defence efforts. The focus will be on non-binding strategies translating political ambitions into concrete action plans.
During the first quarter of 2026, a communication on the internal market for defence materiel is expected, aimed at strengthening and future-proofing the European Defence Technological and Industrial Base (EDTIB). In connection with this, an announcement is also expected regarding expanded support for Ukraine through the Qualitative Military Edge Programme. Later in the year, an Action Plan for a European Space Shield is expected to address the protection of European space infrastructure. In the legislative field, a proposal for regulatory simplifications in defence procurement is expected in the autumn as part of the evaluation of the EU Defence Procurement Directive.
Recent developments demonstrate a clear political ambition to deepen European defence cooperation and establish common frameworks for financing and procurement. The EU’s focus on readiness, market integration and capital mobilisation will gradually transform the defence sector from a fragmented market into a more integrated European defence ecosystem. The EU is laying the foundation for a continental technological and industrial base – the EDTIB – and thereby sending clear signals of increased demand and creating incentives for private investment. Several instruments specifically target SMEs and mid-cap companies, with the aim of facilitating their upscaling.
For market actors, these developments mean a changing landscape that offers new business opportunities but also requires careful analysis of the legal framework. The defence sector is characterised by specific requirements, including export controls, transfers of defence-related products, foreign direct investment screening and specific procurement rules. An understanding of how EU legislation and the national laws of relevant Member States affect operations is essential for actors considering investments in the European defence market.
Martin Johansson
Partner / Advokat
EU, Competition & Regulatory
Brussels
Isak Lefvert
Associate
EU, Competition & Regulatory
Brussels
