Changes from report parliamentary committee draft to plenary report

Europe, faced with a resurgence of geopolitical threats, must invest heavily to upgrade its defence system. For thirty years, the European Union has underinvested in its defence, with dire consequences for its military capabilities and industrial base. The number of battle tanks in Europe has fallen from 16 851 in 1992 to 3 383 in 2021 (a drop of 80%). Taking into account the ‘accumulated backlog’, the European Commission estimates that an additional EUR 800 billion will be needed to renew and modernise Europe’s arsenal. Despite increased financial efforts since 2022, the effective build-up of European armed forces remains hampered by divergences in national budget planning, administrative inertia, the fragmentation of markets and the difficulty of pooling industrial efforts.

In order to meet these needs, on 5 March 2025, the President of the European Commission presented her ‘ReArm Europe’ plan. This plan, which is intended to raise an additional EUR 800 billion for EU defence, is based on five proposals, each of which is set out in Chapter 4 (‘Funding options’) of the White Paper on the Future of European Defence.

However, the ‘ReArm Europe’ plan focuses mainly on the budgetary facilities that could be granted to Member States to finance their increased defence spending, and does not address the issue of how defence industrial companies can gain access to debt and capital financing. According to a study conducted by the European Commission in January 2024, during the period 2021-2022, two-thirds of defence companies did not seek equity financing, and nearly 50% did not seek debt financing (compared to an average of 6.6% for EU SMEs during the same period). The main reasons identified by the Commission for these difficulties are:

1. The length and complexity of procurement procedures and payment delays between main contractors and subcontractors in the defence sector, limiting visibility of market potential and cash flow;

2. The overly strict and cautious interpretation of ESG criteria, leading banks and investment funds in the EU to adopt exclusion policies;

3. The screening of foreign direct investment in defence assets, combined with a limited market of late-stage investors in the EU, constraining exit opportunities.

The objectives of this own-initiative report are:

• to enable Parliament to take a position on each of the proposals in the ‘ReArm Europe’ plan;

• to add further proposals. To this end, around 40 interviews were conducted between November 2024 and June 2025 with various institutional and private actors in the defence sector to identify the current obstacles to defence financing in Europe and the proposals that could be supported to remove them.