Written by: Matilde Sacchi

Edited by: Zoi Sofologi

Supervised by: Syuzanna Kirakosyan

On April 18, 2024, former Italian Prime Minister Enrico Letta released his long-awaited report “Much More Than a Market”, which the European Council had called for back in June 2023. While the report’s main scope is the future of the European single market and its content is mainly economic, it envisions some perspectives specifically for the defence market and for the EU’s security.

Speed, security and solidarity are perceived as intertwined goals that shape the direction for the future development of the single market. Security, in particular, concerns the defence market. Together with telecommunications, energy and financial services, this is one of the new pillars of the single market that previously laid exclusively in national competences (European Parliament, 2024).

Nevertheless, in the report Letta describes defence as an especially problematic domain, characterised by underinvestment and fragmentation of the demand, which prevent “the realisation of potential economies of scale that could arise from pooling defence equipment production efforts across European companies” (Letta, 2024, p.70). The situation is further deteriorated by the absence of budget synchronisation, national defence industrial policy considerations, or inadequate national expertise within procurement and acquisition agencies (Letta, 2024).

Facing those challenges, Letta reaffirms the need enshrined in the European Defence Industrial Strategy (EDIS) to invest “more, better together, and European” (European Commission & High Representative of the Union for Foreign Affairs and Security Policy 2024, p.2). Practically, in order to achieve this goal, Letta endorses the European Industry Defence Programme (EDIP), recently proposed by the Commission as an opportunity to address challenges faced by the European defence industry, such as the security of the defence supply chain and the support of the Ukrainian defence industry (European Commission, n.d.). With regards to the text of the EDIP proposed by the Commission, many Member States showed reluctance in conceding the Commission powers over their military priorities, purchasing rights, and access to supply chain-related information (Pugnet, 2024).

Nevertheless, Letta advocates for increasing harmonisation of defence regulations, strategic planning, and incentives for corporate cooperation (Letta, 2024). This industrial model proposes large, integrated defence companies with economies of scale based on the Airbus and MBDA models, mentoring and integrating innovative startups and small and medium enterprises. Among the many options envisioned in the report, Letta proposes using the European Stability Mechanism (ESM) as a specialised credit line to support defence spending through European means. According to Letta (2024), a Defence Support Line could provide loans of up to 2% of a country’s GDP at exceptionally favourable interest rates, specifically earmarked for defence and security expenditures, mirroring the Pandemic Crisis Support framework.

The Commission warmly welcomed the Letta report, in the immediate aftermath of its publication. In the joint press conference on April 18, 2024, President von der Leyen stressed the need for European industrial cooperation in defence. According to the President, on the one hand, there is a “clear national competence for the armed forces” regarding their structure, deployment, doctrine and training. On the other hand, there is also the possibility to “develop a real defence single market if we look at the defence industrial base” (European Commission, 2024). This last project would provide better defence capabilities by achieving economies of scale, as well as improving interoperability between the respective armed forces.

Until now, some favourable feedback by from member states has concerned the eventual loosening of competition rules for defence procurement, as mentioned by President Macron on the 25th of April with direct reference to the Letta report (Araud, 2024). However, relaxation of state aid rules risks undermining one of the key achievements of the single market, namely a level playing field and the absence of subsidy competition between member states (Berg & Meyers, 2024). After all, a selective acceptance of the report’s recommendations would not resolve the national political resistance to a unified defence market undermining the overall efficacy of the suggestions.