The European Union is preparing to overhaul its rules to encourage greater investment in its defence industry, aiming to strengthen Europe’s military readiness amid continued threats from Russia’s war in Ukraine. In a landmark move announced Tuesday, the European Commission proposed adjustments to merger rules and clarified environmental compliance standards to make the defence sector more attractive to private and institutional investors, the Financial Times reported.
“We are sending a clear political signal: Europe is serious about defence,” said Henna Virkkunen, the Commission’s vice-president for security. “We are cutting through bureaucracy to help member states and industry act faster, invest smarter, and strengthen our collective deterrence.”
Defence mergers to be favourably evaluated
Under the proposal, the European Commission would treat “defence readiness” as a positive factor when assessing mergers or acquisitions within the arms industry. This change is meant to signal to companies that deals enhancing Europe’s military capabilities will be welcomed rather than scrutinised under the bloc’s competition rules.
“When it’s a potential merger in the field of defence, it will have an initial positive starting point,” said one EU official, adding that such transactions would be seen as contributing to the bloc’s strategic autonomy and readiness.
Environmental compliance clarification opens investment gates
The Commission also moved to clarify how defence companies are treated under the EU’s environmental, social and governance (ESG) rules. Except for those involved in the production of internationally banned weapons like landmines, most defence companies will now be considered compliant with ESG standards.
This clarification is designed to dispel long-standing investor concerns that participation in the defence sector could be incompatible with sustainable investment mandates. “This will really open up other funding opportunities for defence companies,” an official said.
However, the move has raised alarms among environmental campaigners. “These changes risk diverting capital away from climate and environmental initiatives at a crucial time,” said Vicky Sins of the World Benchmarking Alliance, arguing that Europe’s long-term resilience depends equally on environmental stability and military strength.
Dispute over spending EU funds on non-EU weapons
While Brussels tries to streamline investment flows into the sector, a separate debate continues among EU capitals over how to spend €1.5 billion in grants earmarked for defence production. Negotiations have stalled for 18 months over disagreements about whether EU funds can be used to buy non-European weapons—particularly the U.S.-made Patriot air defence system.
A potential compromise under discussion would allow EU funds to be spent on Patriot missiles and ammunition produced within Europe, as long as there is a pathway to eventually transfer the underlying technology to an EU-based manufacturer.
This package is separate from the much larger €150 billion defence fund backed by the EU’s budget earlier this year, which will be disbursed as loans to support joint weapons production and strategic military projects across the bloc.
Together, the new merger policy, ESG clarification, and spending proposals mark a significant pivot in EU policy—aimed at turning a once-taboo sector into a pillar of the continent’s security and industrial strategy.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
