The European Union has taken the final political step towards its first dedicated defence industry scheme, after EU governments in the Council on 8 December formally adopted the European Defence Industry Programme (EDIP).
The regulation, agreed with the European Parliament in November, will provide €1.5 billion in grants between 2025 and 2027 to support joint procurement, expand production capacity and draw Ukraine’s defence sector into the EU’s industrial framework.
The regulation is due to be signed on 17 December and then published in the EU’s Official Journal, after which it will enter into force. It builds on the European Defence Industrial Strategy (EDIS) and earlier emergency instruments such as the Act in Support of Ammunition Production (ASAP) and the European Defence Industry Reinforcement through Common Procurement Act (EDIRPA), which were designed to respond rapidly to gaps revealed by Russia’s full-scale invasion of Ukraine in 2022.
At the core of EDIP is a grant budget of €1.5 billion from the existing EU long-term budget, channelled into joint projects involving at least three member states and aimed at boosting manufacturing capacity, interoperability and supply security for key defence products. Of this amount, €300 million is reserved for a Ukraine Support Instrument (USI), intended to help modernise Ukraine’s defence industry, integrate it with the European Defence Technology and Industrial Base (EDTIB), and support procurement of equipment produced in Ukraine, including for Ukraine’s own armed forces.
To protect EU industry while keeping the door open to partners, the legislation includes content rules for equipment financed under the scheme. At least 65% of a product’s components will generally have to originate from the EU, EEA or Ukraine, with components from other countries capped at around 35% of total component costs. This responds to long-running arguments between countries favouring a strict “buy European” approach and those insisting on continued access to US, UK or other non-EU systems.
Budget and burden-sharing
In budgetary terms, EDIP is modest next to overall European defence spending, which is projected to reach roughly €392 billion in 2025. The €1.5 billion envelope, spread over three years, is unlikely on its own to alter the structure of Europe’s defence industrial landscape. However, it is designed to act as an incentive for member states to coordinate orders and to use EU-based suppliers more consistently.
The regulation also allows for voluntary additional contributions from member states or third parties, leaving open the possibility that the headline figure could increase over time. In parallel, the EU has been preparing a much larger loans-for-arms scheme, worth up to €150 billion, intended to help governments finance defence purchases through joint borrowing. How these different financial instruments interact in practice – and which member states make extensive use of them – will determine whether the financial burden is spread evenly or falls mainly on a smaller group of countries with higher defence ambitions.
A second question is how far EDIP money will be additional, rather than replacing national spending that would have taken place anyway. National parliaments will continue to control core defence budgets, and the regulation does not oblige governments to shift procurement towards common projects.
Competition with US and other non-EU suppliers
Debate over EDIP has highlighted tensions between those member states pressing for a more protectionist industrial policy and those prioritising access to non-European systems, notably from the United States. France and several southern member states argued for strict limits on non-EU content in EDIP-funded projects, while others, including the Netherlands and some Central European countries, pushed for greater flexibility to continue buying equipment such as US-built fighter aircraft and missile systems.
The compromise now agreed, built around content thresholds and caps on third-country components, will be closely watched by US and UK defence manufacturers, which have taken a large share of recent European orders. EDIP does not exclude their participation, but it is likely to favour consortia built around EU-based primes and European or Ukrainian supply chains.
For EU institutions, the programme is also a test of whether industrial policy tools can shift member states away from fragmented national purchasing towards collaborative projects. The Commission and member states have set a target for 40% of defence procurement to be conducted collaboratively by 2030, and EDIP is one of the main levers to reach that level.
Ukraine’s defence industry and integration
The Ukraine Support Instrument is one of the most politically sensitive elements of the new programme. The €300 million earmarked for Ukraine is intended to support direct investment in production lines, joint ventures between EU and Ukrainian firms, and purchases of Ukrainian-made equipment. It follows repeated calls from EU officials for a deeper industrial partnership with Kyiv, including in drones, electronic warfare and other high-demand capabilities.
The pace at which Ukrainian companies can access EDIP funding will depend on how quickly the Commission can put in place the detailed work programmes and how rapidly firms are able to meet EU regulatory, quality and security standards. Physical security is another factor, given that many Ukrainian industrial facilities remain within range of Russian strikes.
For Kyiv, integration into European supply chains offers potential long-term advantages beyond the immediate conflict, including access to finance, technology transfer and more predictable demand for its products. For the EU, Ukrainian production capacity may contribute to filling gaps in ammunition, drones and other high-consumption items, at a time when European factories are still scaling up.
The coming months will show how attractive EDIP’s incentives are to national defence ministries and industry. Once the regulation is signed on 17 December, attention will shift to the first calls for projects and to the composition of consortia bidding for funds – including whether Ukrainian companies appear as significant partners from the outset.
