Julien Malizard publishes the article «Financing defence: new mechanisms to overcome budgetary constraints?», in issue 21 of Defence & Industry, Journal of the Foundation for Strategic Research (FRS)
On 20 March 2025, leaders from the financial sector and the defence industry met at Bercy. The meeting confirmed the importance of the issues involved in financing the defence sector, both for these players and for public decision-makers.
The issue of funding for the defence sector is a special one. It is a sovereign sector, in which the State is the sole purchaser. This obviously constrains «defence demand». Supply is therefore dependent on the public authorities, in a market known as the «defence market".« demand pull« . However, some technologies are dual-use. The use of civilian technologies, particularly in the digital field, is increasingly important, and the internationalisation of the activities of defence companies is blurring the boundaries of this industry2. So, in addition to public funding for orders, private funding, whatever its origin, is essential to support the financing of innovation and production facilities. Finally, the European dimension is becoming increasingly important, with the emergence of the European Commission as a major player through the ReArm Europe.
The current period is atypical in that it is the first time since the end of the Cold War that the level of demand is substantially higher than in the past. The question of financing therefore has three dimensions:
- National public funding, and therefore changes in defence spending over the next few years.
- The European scale, given the potential for economies of scale, but also the emergence of new resources implemented by the European Commission.
- Private funding, to support the defence industry as it ramps up to meet additional demand.
The purpose of this article is therefore to discuss these three complementary points, which are designed to enable European countries to transform their defence capabilities in the long term, given the current strategic upheavals.
