The Defense Readiness Omnibus and its associated legislative package is a clear and credible signal that the EU is confronting some of the long-standing structural barriers to its defense industrial capacity. Streamlining permitting, revising state aid rules and adopting a more pragmatic stance on environmental licensing are crucial first steps, but the defense industrial complex cannot be effectively reformed without broader civil-military technological convergence.
This integrated perspective is also reflected in the Draghi Report on EU competitiveness, which addresses the importance of the defense sector in both ensuring strategic autonomy on the face of external security threats as well as in driving innovation through spillovers across the broader economy. Beyond regulatory fine-tuning, an underlying shift in how defense, industrial strategy and environmental policy are reconciled is essential. Focus on dual-use technologies, the role of SMEs and startups in foundational sectors, components manufacturing, and the growing centrality of energy and raw materials policy all point to a more layered and realistic industrial logic needing to take shape.
In its Communication to the European Parliament and the Council, the European Commission laid out a comprehensive strategic framework, setting out to "build a future free from coercion and aggression". This Communication forms part of a broader cross-sectoral push driven by the European Commission in an attempt to "anticipate, prevent and respond to defense-related crises" at a pivotal moment in an increasingly volatile geopolitical landscape.
The message in the Joint White Paper for European Defense Readiness 2030 (the "White Paper") is clear: "a new international order will be formed in the second half of this decade and beyond. Unless we shape this order – in both our region and beyond – we will be passive recipients of the outcome of this period." This wartime mindset must be redirected towards the long term, fostering synergies and economies of scale across the European technological and industrial base and thereby laying the groundwork for a reindustrialisation suited for times of peace.
1. Defense Readiness in practice.
The development of a common European defense policy has long exposed the delicate balance between national sovereignty and a deeper integration, particularly in an area so closely tied to core state functions. Defense remains one of the last bastions of sovereign authority, alongside taxation, education and healthcare, often protected by constitutional limits at the national level. According to the White Paper, "[s]ince 2007, in the framework of the European Defense Agency (EDA), Member States have agreed a common target of 35% of total defense equipment procurement to be done collaboratively."
In Portugal, the Constitution specifically foresees the dissolution of political-military blocs, in an effort to guarantee military independence (as per article 7) but the revisions that followed EU integration have mitigated this perspective, article 275 now reading that "[t]he Armed Forces are charged, as laid down by law, with fulfilling the Portuguese state's international commitments in the military field". These signal a broader movement towards unification of military policy, further developed through this legislative package which may help lay the groundwork for deeper institutional integration later. We highlight four main areas of intervention:
Permitting: The package establishes a single point of contact in each Member State to reduce administrative burdens, increase predictability, and enable faster project launches. A fast-track mechanism introduces a rebuttable presumption of approval if deadlines lapse without response. Projects linked to defense readiness will receive expedited handling across all administrative and judicial channels, a particularly impactful change for SMEs needing agility and legal certainty.
State aid: Where Article 346 TFEU applies, i.e., where a Member State's essential security interests are at stake, notification is not required. A coordinated activation of the National Escape Clause allows for fiscal flexibility of up to 1.5% of GDP over four years. The Commission also indicates that aid may be compatible with internal market rules if it does not distort competition to a degree contrary to the common interest. Still, blurred boundaries between sovereign discretion and market distortion call for nuanced legal interpretation on a case-by-case basis.
Procurement: The Commission encourages Member States to suspend import duties on defense-related equipment, per Council Regulation 2021/2278. Procurement thresholds will increase, from €443,000 to €900,000 for supply and service contracts, and from €5.5 million to €7 million for works contracts, easing the burden on smaller-scale procurement. Additional tools, such as innovation partnerships, open procedures, and a dynamic purchasing system, are introduced. Joint procurement is encouraged through relaxed antitrust constraints and model cooperation agreements. That said, legal clarity, not just Commission guidance, will determine uptake.
Environmental Licensing: The Commission urges broader use of existing derogations on public interest and safety grounds to include defense readiness, alongside established exemptions for military purposes. It calls for more flexible use of derogations under REACH Regulation) and other EU regulations to facilitate the development and maintenance of defense materials. Overlapping sustainability regimes (CSRD, SFDR, Taxonomy, CSDDD, NFRD, EuGB, and others) create redundant reporting obligations, inconsistent definitions, and compliance burdens, particularly for SMEs. Streamlining is necessary to unlock innovation and competitiveness.
2. Defense Investment as Industrial Strategy.
Defense readiness relies on robust, deployable industrial capacity, which includes infrastructure, mobility, communication, cyber capabilities and space assets and services. Civil-military synergies, particularly in dual-use technologies, are essential to ensure that defense-driven investment leaves behind durable, scalable industrial capacity.
While end-use technologies like drones, semiconductors and satellites are among the most visible examples of civil-military technological convergence, the development of a truly sovereign and resilient European industrial complex requires far more than innovation at the cutting edge. Long-term industrial resilience requires sustained capacity in foundational areas: battery technology, advanced materials, precision engineering, energy security, and access to critical raw materials.
Europe's SMEs and startups are well-placed to play a decisive role, not only as sources of innovation, but as agile contributors to new industrial value chains. As it was recently noted in a The New Yorker article, post–Cold War America saw a steep decline in defense industrial capacity, leaving the Pentagon with fewer suppliers and lower resilience. Europe must avoid a similar fate by embedding long-term R&D investment into its defense strategy.
At the same time, EU efforts to green the economy have generated regulatory friction. Leading by example has its limits when overlapping rules lead to compliance fatigue and production offshoring. The Not In My Backyard (NIMBY) effect contributes to carbon leakage and rising emissions from global freight, while weakening domestic job creation and strategic autonomy.
Streamlining licensing and bundling procedures is therefore key to boosting industrial readiness. EU defense capabilities lag significantly behind the U.S. and China, due in part to fragmented legal frameworks and lengthy approval timelines. A shift from aspirational regulation to practical execution is now essential.
3. Looking Ahead.
The Defense Readiness Omnibus reflects a significant strategic pivot: from regulation as constraint to regulation as enabler. Accelerated permitting, simplified procurement and expanded access to defense-linked public funding lower some of the long-standing barriers to entry for firms operating in or adjacent to the sector.
Implementation will be decisive, however. Key legal uncertainties remain, particularly around state aid, environmental exemptions, and competition law. National-level interpretations will strongly influence outcomes and may determine whether these measures achieve the necessary scale, speed and cohesion.
Over the medium term, these changes will extend beyond the defense ecosystem. Industrial resilience, secure energy supply, and raw material access will increasingly drive strategic positioning, and regulatory agility may prove just as important as technical capability, affecting a wide range of industrial players.
The ReArm Europe Plan mobilises over €800 billion for defense through EU backed loans and fiscal flexibility, while also lifting lending restrictions for the European Investment Bank.
Public procurement, permitting, and environmental licensing will become key strategic frontiers, particularly as the Commission seeks to streamline overlapping regulatory regimes. SMEs, scale-ups, and innovative firms may benefit from streamlined procedures and fast-track mechanisms but will need targeted legal support to ensure compliance and manage risk.
If the Omnibus is to deliver on its ambitions, it will require not just regulatory alignment but sustained political will and industrial realism. Businesses that engage early, assess exposure, and adapt strategy to this new context will be best positioned to shape – and benefit from – Europe's next industrial chapter.
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