Analysing the European Defence Fund’s

Introduction

The establishment of the European Defence Fund (EDF) marked a significant change in EU Member States’ approach to defence-industrial integration. With the EDF, so far, the most ‘promising […] step on the long and winding road to European defence market integration’ (Calcara & Simón, 2021, p. 873), it was decided to allocate common funds, on a systematic basis, to defence-related activities – specifically, to multinational research and capability development projects. This is not to say that prior efforts to promote inter-European collaboration in the defence-industrial field had been absent. Cooperative projects between European countries have a history dating back to the Cold War. Additionally, two important legal measures – EU directives – were adopted in 2009 to facilitate defence integration (see, e.g., Blauberger & Weiss, 2013; Terpan & Saurugger, 2019). Among other things, these directives sought to stimulate the dynamics of integration of EU Member States’ defence industries.

However, both these lines of action are associated with significant limitations. The directives, one on defence procurement and the other on arms transfers, have resulted in limited dedicated efforts on behalf of national governments, primarily due to the availability of exemption clauses. As for bilateral and multilateral cooperative projects, they remain ad hoc and concern specific players of the defence sector. These projects therefore fail in systematically enhancing inter-European cooperation as they do not yield structural (whole-of-sector) outcomes. In other words, the dynamics of cooperative projects are unlikely to lead to defence-industrial integration, which implies meaningful distributional political and economic consequences. Calcara and Simón (2021), for instance, argue that, on the one hand, defenceindustrial consolidation at the supranational level is likely to lead to efficiency gains, potentially lowering defence production costs; on the other hand, EU Member States with smaller defence markets face the risk of losing their autonomy, including their national preference to purchase from the United States or even to define their capability development policy. While the authors reveal noticeable tensions between selected countries representing both large and small defence markets during the negotiations on the EDF, market size alone does not predispose EU members to specific positions on issues of defenceindustrial integration. Strategic culture and economic-industrial governance have also been highlighted in the literature as influences on national political preferences towards and, therefore, positions on the concerned integration. However, there is a lack of systematic empirical evidence of the actual dynamics that characterise the integration of European defence industries. Such an analysis has the potential to offer a crucial additional perspective to the existing scholarship of defence integration more generally, shifting the focus away from EU countries’ initial (pre-EDF) political preferences to their actual engagement with defence-industrial integration. This article raises the question whether national motives remain consistent once effective integration is underway. Specifically, what are the drivers behind national participation in the EDF? 

Consistency between motives, including their political nature, identified pre-EDF, and those characterising EU countries’ actual engagement in defence-industrial integration through participation in the Fund will provide further insight into EU countries’ ongoing concerns about balancing autonomy and efficiency (Calcara & Simón, 2021; see also Moravcsik, 1990). Available novel data on bycountry distribution of the EDF project financing (Masson, 2024), following two calls for proposals (2021–2022),2 allow for an analysis of systematic patterns of effective defence-industrial integration dynamics across EU Member States. Here, I use quantitative data to re-examine the primary motives that have been identified in the literature as underlying EU countries’ diverse approaches to defence integration, including its industrial dimension. These revolve around strategic culture, market size and economic-industrial governance (the relationship between the state and defence-industrial players). Although the latter two factors are rooted in political economy, their empirical political-economic potential has yet to be fully explored. This is because they are used to explain national political positions on issues related to defence-industrial integration, without thoroughly examining the actual economic repercussions that defence integration produces. Furthermore, I investigate an additional factor – a country’s institutional quality –, which remains overlooked in relevant research. The findings present a more nuanced picture of EU countries’ engagement with defence-industrial integration than previously anticipated by the political perspective. While there is a positive relationship between participation and market size, strategic culture does not influence EU members’ involvement in EDF projects.

Furthermore, while a country’s institutional quality has a significant positive relationship with participation in the EDF, economic freedom is negatively associated with it. The article reveals more complex dynamics of EDF implementation than suggested by the political perspective on defence integration pre-EDF. The remainder of this article proceeds as follows. The first section reviews theoretical accounts on defence-industrial integration, with the focus on what we already know about national preferences. The second section provides an overview of the EDF, including its status as a flagship initiative in defence-industrial integration. The third section describes the data and how variables are operationalised, followed by the empirical analysis. Conclusions, including avenues for further research, follow.

1. What explains EU countries’ support for defenceindustrial integration?

What does previous research reveal about the factors that predispose EU countries to support, rather than resist, the integration of defence in general and of the defence industry in particular? Three main explanations have emerged: strategic culture (Atlanticism vs Europeanism), market size and economic-industrial governance. These explanations primarily offer a political perspective on EU‑level cooperation in defence, focusing on how they shape national preferences and influence Member States’ positions on defence integration, including its industrial dimension. Actual participation in the EDF, however, involves more than political considerations; it represents EU countries’ effective engagement in defence-industrial integration, a multi-stakeholder experience that is not limited to the political perspective alone, especially considering that EU-level instruments are expected to influence actors’ incentives and, ultimately, preferences. Moreover, in line with the possibility of more complex dynamics of defence integration, I argue that participation in the EDF is correlated with a country’s institutional quality. Analysing actual defence-industrial integration reveals its diverse aspects beyond political preferences and provides a valuable additional perspective for better understanding defence integration.

Defence-industrial integration has recently gained renewed momentum, driven by the increased focus on defence in the EU agenda throughout the 2010s, particularly thanks to initiatives such as Permanent Structured Cooperation (PESCO) and the EDF itself (Calcara, 2019). This revival ignited a widespread debate among scholars, experts and policy community members about defence policy integration more generally. Central to this debate became the concept of strategic autonomy, which was articulated, at the EU level, in the defence context in 2013 (European Commission, 2013). The defenceindustrial angle became an integral part of the debate, particularly due to its close connection to civilian security (Martins & Mawdsley, 2021; see also Kuokštytė, 2023), an area in which the European Commission had already seen its competencies increase. In other words, this connection made defence industry, traditionally an intergovernmental domain, face the immediate potential pressure of supranationalisation. 

In the context of strategic autonomy, Europe’s long-lasting dependence on US armaments was regarded as challenging by the European Commission and especially France, wishing to strengthen the EU as a security actor (see, e.g., Mauer, 2010; Rieker, 2022). Variation in national preferences towards defence-industrial integration has primarily come to be associated with differing strategic cultures – specifically, with governments’ Europeanist orientation, as opposed the Atlanticist one (see Becker & Malesky, 2017). EU countries that rely heavily on the United States, particularly for NATO security guarantees, are likely to resist defence-industrial integration and claim their own autonomy to strategic choices (Anicetti, 2024; Kofroň & Stauber, 2023). On the other hand, EU members that are committed to enhancing the EU’s Common Security and Defence Policy and enabling Europe to play an autonomous role in defence and security, especially France, are expected to be strong advocates for defence-industrial integration (see Moravcsik, 1990). France is not alone, however. NonNATO European countries are also relatively more predisposed towards the Europeanist orientation. Germany, for instance, can be considered as occupying an in-between position, with its support for European integration as a matter of principle (see Béraud-Sudreau & Pannier, 2021; Calcara & Simón, 2021). Italy has also been described as ‘traditionally pro-EU’ (Anicetti, 2024, p. 448). This perspective, which underscores the distinction between the Europeanist orientation and the Atlanticist one, is referred to as a ‘grand strategy’ thesis in scholarly literature (see Becker & Malesky, 2017; Calcara & Simón, 2021). It extends beyond security and defence issues to encompass broader foreign policy preferences. Another explanation of variation in EU countries’ differing predispositions to support defence-industrial integration is rooted in political economy. Moravcsik (1990, p. 65), for example, analysed the causes and consequences of ‘internationalising the West European defence-industrial base’ in the immediate aftermath of the Cold War. For the author, at that time such internationalisation was becoming a trend within the broader context of globalisation. Issues, such as the ‘European preference’ to be attributed to defence products at the expense of those from abroad, were at the centre stage of Moravcsik’s analysis. More specifically, the author approached the possibility of the European or ‘community preference’ as a consequence of ‘actively protectionist’ US procurement policy (Moravcsik, 1990, p. 78). 

Although, over time, the anticipated outcomes of this internationalisation did not materialise as expected, recently the political-economic logic underlying much of Moravcsik’s arguments has been elaborated in terms of market size. Calcara and Simón (2021) argue that EU countries with larger defence markets, or the so-called ‘first tiers,’ are likely to favour defence-industrial integration. This is because they may expect to strengthen their relative position in the European market and, because of that, globally. More specifically, defence firms from larger countries are more likely to act as regional system integrators – this implies participation in defence procurement from the inception of acquisition programmes through the definition of standards to client support (Calcara & Simón, 2021, p. 868). Furthermore, system integrators, often representing large firms, typically possess advanced technological know-how, further reinforcing their dominant position. Conversely, ‘second and third tiers’ (see Calcara, 2019) tend to resist integration, representing their companies’ concerns – these companies fear losing their market position, even if niche, to system integrators that are able to pick and choose their suppliers.3 That is, they prioritise autonomy vs efficiency.

Calcara and Simón (2021) produced a comparative analysis of EU countries’ political positions concerning governance of the EDF, its eligibility criteria and access to its project financing. It reveals that France and Germany, as expected, were in favour of integrationist (supranational) governance and rather liberal eligibility criteria (as opposed to, e.g., national or geographical quotas), yet they were against access to third parties. On all these points, Sweden and Poland – ‘second tiers’ – held a position opposing that of France and Germany. Third-party access to EDF project financing, in particular, was regarded during the negotiations as leverage at the disposal of smaller countries to hedge against ‘first-tier dominance’ (Calcara & Simón, 2021, p. 871), rather than revealing their Atlanticism.

However, the explanation based on the market size argument suffers from an inherent deterministic element. There is a lack of nuance among EU members within each tier, which is particularly problematic in smaller countries due to their share number (Chovančík & Krpec, 2023). What are other plausible influences potentially contributing to EU countries’ preference for autonomy? To distinguish between small countries’ responses to defence-industrial globalisation more generally, DeVore (2015) suggests an institutional – economicindustrial – approach (see also DeVore & Weiss, 2014). Drawing on the varieties of capitalism theory (Hall and Soskice, 2001), DeVore (2015) finds that Israel, which represents a liberal market economy, adapted to international pressures to liberalise its defence industry differently compared to Sweden, a coordinated market economy. Israel introduced even greater liberalisation while Sweden, for example, chose the elements of its national military industry to be opened for foreign investment selectively, and this was on the basis of close cooperation with defence interests (DeVore, 2015, p. 570).

The argument over countries’ liberalisation strategies in defence industry is also meaningful in the context of EU countries’ political preferences towards and positions on this issue. According to Calcara and Simón (2021), liberal market economies are inclined to pursue efficiency through integration, which levels the playing field for fair and equal competition beyond the domestic arena. In contrast, countries that closely cooperate with defence interests and prioritise their protection are more likely to resist integration. While the authors don’t find support for this explanation in the context of intergovernmental negotiations on the EDF, it is worth noting that this approach remains problematic in descriptive comparative studies. Notably, there are inconsistencies in treating the variable of a defence-industrial regime,4 hence the need for a systematic analysis.

So are national motives, which inform EU countries’ political preferences and influence their positions, consistent once effective integration is underway? Specifically, what drives actual national participation in the EDF? Given that the Fund is primarily a supranational instrument (see the following section), and therefore can be approached as a political issue, the behaviour of EU countries towards it after its establishment is still likely to continue reflecting their capitals’ previously established political positions, as identified in the literature. These positions are expected to correlate with their level of engagement in EDF activities. Specifically, a strong Atlanticist orientation is likely to be negatively associated with participation in the EDF, while the factors of a larger defence market and a liberal industrial-economic regime are expected to be correlated with higher participation. Furthermore, an analysis of actual EDF implementation can be expected to better reveal the economic aspect of the explanatory power of market size and economic-industrial governance, as the Fund operates primarily as an economic-industrial instrument through its activities. As a consequence, they may better explain EU countries’ varying participation than strategic culture. 

Finally, the institutional perspective suggests another explanation, which is institutional quality. It may be thought of as being closely connected to liberal-model economies, where the application of level-playing-field rules and transparency is crucial for ensuring effective market functioning (see DeVore, 2015). Yet institutional quality is equally important for other economic models. Cooperative arrangements, which underpin consensus-building in coordinated market economies, rely heavily on institutional transparency and impartiality (see, e.g., Kassen, 2022).

The quality of institutions reveals a distinct dimension, which bears relevance for participation in EDF projects. Strong institutional governance has several key implications, including more effective policy implementation strategies, and enhanced administrative and technical capabilities, as well as higher standards of transparency and accountability. These factors help attract partners and foster collaboration. Participation in the EDF largely depends on multi-country consortia and domestic cooperation between national institutions and defence-industrial stakeholders, necessitating a complex administrative and technical structure. Therefore, institutional quality is expected to positively correlate with EU countries’ participation in the EDF.

2. The European Defence Fund

The EDF, which (co-)finances research and capability development in the defence field, represents a culmination of renewed EU deliberations on the need to strengthen cooperation in security and defence policies, as well as in foreign policy more broadly. This trend could be observed throughout the 2010s when, for instance, the concept of strategic autonomy made its way to an EU document – the European Commission’s communication on defence issues (European Commission, 2013). In 2013, a thematic debate on defence was held for the first time at the European Council since the Lisbon Treaty (European Council, 2013). However, it was not until 2016 that more concrete efforts finally emerged (see, e.g., Blockmans & Crosson, 2021). It was the year when the EU’s Global strategy for foreign and security policy replaced the previous European Security Strategy (2003). In 2017 PESCO was set up, along with the Coordinated Annual Review of Defence and Military Planning and Conduct Capability. While it took more time for the EDF to be launched (2021), it featured the EU Council’s conclusions already in 2016, whereby Member States recognised ‘the Commission’s intent to submit a proposal to create a European Defence Fund to finance capabilities agreed by Member States’ (Council of the EU, 2016, p. 11).

The EDF, which has a budget of almost EUR 8 bn for the period 2021–2027, marks a significant step in strengthening EU-level defence efforts, primarily due to the fact that never before was financing provided from the EU budget to defence activities on a systematic basis. The already mentioned bilateral or multilateral intergovernmental collaboration on defence projects follows a separate logic, insofar as their distributional implications differ from those of defence-industrial integration projects (Calcara, 2019). Specifically, contrary to the latter, they do not aim to systematically promote inter-European defenceindustrial cooperation across entire national defence sectors and remain ad hoc. Their distributional effects are thus limited, whereas those of integration projects are expected to be structural and extend across defence sectors in the long term (Ianakiev, 2019).

An important aspect underscoring the significance of the EDF as a flagship initiative is its supranational character. The fact that its funding originates from the EU budget signifies an enhanced role for EU institutions, particularly the European Commission and the European Parliament, which, along with the EU Council, determines the annual budget. The European Commission’s role has expanded not only procedurally but also substantively, as it has added the stewardship of defence-industrial integration projects to its list of competencies (Håkansson, 2021).

Most scholars tend to analyse this development in terms of political power over decision-making, that is, in those of intergovernmentalism vs supranationalism (see, e.g., Fiott, 2023; Håkansson, 2021). Yet once the establishment phase was completed, the EDF largely revealed itself as an economic-industrial instrument (Martins & Mawdsley, 2021; Kuokštytė, 2023). The Fund has a specific focus on seeking efficiency in the European defence-industrial sector and is predominantly concerned with enhancing the competitiveness of the European defence-industrial base. It is tempting to compare the EDF to the civilian European Security Research Programme. The latter was started in 2007 (see Oikonomou, 2009) and was primarily concerned with civilian security issues. However, the EDF is characterised by a reverse order of priorities, in that it ‘is formally presented as industrial policy’ and promises contributions to the EU’s economic and innovation policies (Martins & Mawdsley, 2021, p. 1467). Notably there was great concern, within the Commission, that decreases in EU countries’ defence budgets, including those regarding research and development, would lead to the decreased competitiveness of European defence contractors (Martins & Mawdsley, 2021; European Parliament & Council of the EU, 2021). These concerns align with the role of the European Commission, particularly the Directorate-General for Internal Market, Industry, Entrepreneurship and Small and Medium Enterprises (SMEs), which is primarily responsible for enhancing competitiveness of European industries. As also supported by Calcara and Simón (2021, p. 866), ‘more supranational approaches, centred around EU institutions, would arguably be the best way to inject efficiency into the European defence market and clear the path from national vetoes and divergent industrial preferences’.

The emphasis on enhancing European defence-industrial efficiency and competitiveness within the context of the EDF has significantly helped the EU to underscore the non-political aspect of this instrument’s governance and, thus, minimise the risk of formal blockages caused by national vetoes. In terms of governance of the Fund, the European Commission has the primary role to establish annual work programmes whereas Member States, acting within the framework of a committee, are entitled to assist the Commission (European Parliament & Council of the EU, 2021). During the development phase of work programmes, the Commission has the right to assess possible cases that would duplicate already existing capabilities, whereas the role of the Member States’ committee is formally only consultative (European Parliament & Council of the EU, 2021). 

Furthermore, the EDF operates through competitive calls for proposals, with a focus on SMEs. The oversight of these calls is managed by the EU’s executive. Only in ‘exceptional circumstances’ can a competitive call be bypassed and, even then, the Commission plays the primary role in assessing these cases, particularly in ensuring their alignment with the Fund’s objectives (European Parliament & Council of the EU, 2021). Such governance contrasts with the recent institutional setting, where it was the European Defence Agency (EDA) that had ‘the exclusive task of supporting joint development and defence research’ (Håkansson, 2021).

Finally, another important aspect of the EDF, which contributes to unprecedented EU-level efforts to strive for more competitiveness in the defence-industrial field, is its focus on fostering cross-national collaboration. This involves heterogeneous actors, starting from governments to defence contractors driven by their search for profit to research organisations to higher and secondary education establishments (Martins & Mawdsley, 2021, p. 1467; Masson, 2024; see also Martins & Küsters, 2019). Governments’ role, however, is indispensable as they must support an entity’s participation in a consortium that is submitting a proposal and decide whether a topic proposed by an interested stakeholder for inclusion in the work programme is worth considering; Member State endorsement is regarded as crucial for ensuring alignment with national defence strategies and facilitating the necessary coordination and resource allocation, hence the reference to national participation in EDF projects (see, e.g., Deblauwe, 2023).

These insights support the notion that the EDF is a good empirical case to try to address a gap in research on defence integration that has predominantly concentrated on national political positions. So far, it has not challenged them in the context of ongoing defence-industrial integration. Do national motives, which inform EU countries’ preferences and influence their positions, remain unchanged once effective integration is underway? This gap is noteworthy given that EU-level instruments are expected to influence actors’ incentives and may offer an alternative or at least a more comprehensive perspective to predominantly political views on defence-related issues. A relevant analysis has the potential to provide a crucial additional perspective on the issue of defence-industrial integration, shifting the focus from EU countries’ initial political positions to their actual engagement in defence-industrial integration, which can be defined as non-political. Specifically, we need to investigate whether EU Member States’ motivations identified pre-EDF are consistent with those characterising their actual participation in EDF projects. 

3. Variable operationalisation, data description and empirical analysis

My dependent variable is EDF project financing (in Euros) at the country-year level, which I define as national participation in the Fund, during the period 2021–2022. The data, which encompass funding for both research and development collaborative projects, come directly from Masson’s (2024) report ‘European Defence Fund. Beneficiary profile after two calls for proposals (2021–2022)’. The report contains information on 60 EDF projects that were selected during the 2021 call (results announced in June 2022), and 41 projects selected during the 2022 call (selected in June 2023, updated in January 2024) (Masson, 2024, p. 2).

The data in the report were originally sourced from official platforms, including the official website of the Directorate-General for Defence Industry and Space, which features project factsheets, the EDA and the EU Funding and Tenders Portal (Masson, 2024, p. 2), among other sources. The data exhaustively cover EU countries, with each having two observations in the sample5 As of January 2024, Masson’s report was unable to include several 2022 EDF projects due to a lack of available data.6 Figure 1 shows the distribution of EDF project financing per EU Member State during both years (2021 and 2022).

The exception is Slovakia in 2022 – see Note to Table 1. Additionally, the sample includes Norway, a participating country, providing two extra observations. Norway is also excluded from the analysis to test the robustness of the results. 6 These projects were ARMETISS (smARt Multifunction tExtiles for integrated Soldier Systems), EC2 (European Command and Control System), TIRESYAS (Technology Innovation for Radar European SYstem ApplicationS), and E-NACSOS (EU NAval Collaborative Surveillance Operational Standard) (EU, 2023a, 2023b, 2023c, 2023d), and they represent around 15 per cent of the EDF funding in 2022 (Masson, 2024, p. 25).