Filenews 6 April 2025 - by Andreas Andreou
The European Union's (EU) defence industry is now one of the most important pillars of its strategy to develop and strengthen its security and autonomy.
Various geopolitical developments, such as the war in Ukraine and the rise of hybrid threats, have highlighted the need for a stronger and more competitive defense industry. In this context, the EU has set defence and security as priorities, while Mario Draghi's report also highlights the challenges and opportunities of the sector. At the same time, EU financial instruments are opening up new avenues for small and medium-sized enterprises (SMEs), including Cypriot businesses.
Why the EU cares about defence
The EU has turned its attention to defence and security due to the changing geopolitical landscape. Russia's invasion of Ukraine in 2022 highlighted how vulnerable Europe is to conventional and hybrid threats, while the potential shift of US priorities in other directions has reinforced the need for strategic autonomy.
The defence industry is considered crucial not only for the protection of member states, but also for strengthening the EU's industrial competitiveness and technological innovation. In addition, defence cooperation reduces dependence on third countries, such as the US or China, for critical equipment and raw materials in times of need, and enhances the interoperability of Member States' armed forces.
The Draghi Report
According to Mario Draghi's report, published in 2024, the EU lags behind the US and other defence powers, spending just a third of the amount the US invests in defence purposes.
Draghi points out that defense spending is insufficient and fragmented, and companies in the sector face significant barriers to accessing finance. It proposes the lifting of restrictions on the European Investment Bank's lending policies for defence projects, the amendment of ESG criteria to take into account the specificities of the defence sector, and the introduction of "European preference" in equipment procurement. Draghi stressed that the EU must take greater responsibility for its security, especially in an environment where threats and geopolitical tensions are rising.
The White Paper on Defence
Within this framework, the European Commission very recently (20 March 2025) presented the White Paper on European Defence for 2030, which is the strategic direction for strengthening European defence and strengthening the defence industry.
The Commission underlines the need for increased cooperation between Member States, investment in critical defence capabilities and strengthening the industrial and technological base of European defence.
The White Paper identifies seven priority areas, including air defence, artillery systems, drones and cybersecurity, with the aim of strengthening Europe's defence industry and Europe's preparedness for modern security challenges.
EU financial instruments
The EU has developed a number of financial instruments to support its defence industry, with the aim of boosting production capacity and innovation, which are expected to be further strengthened by the implementation of the White Paper.
- The most important tool for funding is the European Defence Fund (EDF), which has been in operation since 2021 and has €8 billion. Until 2027, to support cooperation projects in the field of research and development. EDF supports the development of technologies and equipment, with a focus on the involvement of SMEs.
- In addition, there is the European Defence Industry Programme (EDIP) with a budget of €1.5 billion. It aims to strengthen industrial readiness and promote joint procurement. EDIRPA (European Defence Industry Reinforcement through Common Procurement Act) with €310 million. It started in 2023 and provides incentives for joint procurement between member states.
- Also, the ASAP (Act in Support of Ammunition Production) with €500 million. It focuses on increasing ammunition production, addressing bottlenecks in supply chains.
- Finally, the European Peace Facility (EPF) finances actions such as the supply of ammunition for Ukraine, with €2 billion. Which have already been allocated for this purpose.
Cyprus' policies
The Republic of Cyprus has already announced six important policies for the substantial upgrade and boost of the Cypriot defence industry, strengthening its position on the European defence map. These include the preparation of legislation to institutionalize a high-tech defense industry, the institutionalization of industrial cooperation programs for defense, the establishment of the Defense Research, Technology and Industry Council – which has already been established – the creation of a National Register of Defense Industry Manufacturers, the increase in funding for defense research and development, and the funding of national pavilions at major international defense exhibitions Annually.
It is worth noting that the CCCI, which has undertaken the creation of the National Register, has already proceeded with the preparation of a preliminary draft, which is under discussion with the competent ministry, accelerating the implementation of this initiative.
How Cypriot SMEs can benefit
Cypriot SMEs have significant opportunities to leverage these tools, given the ability of our businesses to participate in innovation programmes. The Cyprus Association of Research and Innovation Enterprises (CCCI) affiliated to the CCCI has already achieved remarkable successes in promoting the Cypriot defence industry.
More specifically, Cyprus, despite its small size, has managed to strengthen its position on the European defence map, taking advantage of its participation in European programmes, such as the European Defence Fund (EDF), where Cypriot companies participated in 25 projects with a total value of €312 million. The JRC acts as a bridge between Cypriot businesses and the EU, facilitating their participation in financial instruments, such as EDF and EDIDP, and maintains close cooperation with the relevant ministry.
*Deputy Secretary General of the CCCI
