IntroductionIn this newsletter, we address the Council of the European Union’s formal adoption of the European Defence Industry Programme (EDIP) - a landmark regulation designed to strengthen the EU’s defence readiness by enhancing the European Defence Technological and Industrial Base (EDTIB).
With a total budget of €1.5 billion for the period 2025–2027, including €1.2 billion for EDIP and €300 million earmarked for the Ukraine Support Instrument, the regulation represents the EU’s most ambitious effort to date to coordinate defence industrial policy and procurement. The regulation will be signed on 17 December 2025 and enters into force the day after publication in the Official Journal of the EU.
We outline the key features, eligibility requirements, funding mechanisms, and perspectives for the defence industry and investors.
Main Features of the ProgrammeEDIP aims to increase EU defence readiness by strengthening the competitiveness, capacity, and responsiveness of the European Defence Technological and Industrial Base (EDTIB).
- Budget and timeline: €1.2 billion for EDIP and €300 million for the Ukraine Support Instrument for 2025–2027. Member States and third parties may contribute additional funding.
- Entry into force: The regulation will enter into force the day after publication in the Official Journal following its signing.
- Eligible actions: EDIP supports joint procurement (minimum three participating countries, at least two of which must be EU Member States), industrial strengthening actions (capacity expansion, partnerships, surge capacities), support activities (interoperability, SME access, innovation), and deployment of European Defence Projects of Common Interest (EDPCIs).
- Funding rates: Joint procurement may receive up to 15% of contract value (up to 25% under specific conditions); industrial strengthening actions up to 35% (up to 50% for SME-majority consortia or via Special European Actions Programmes – SEAPs); support activities may receive up to 100% EU financing. These rates are indicative and will be further specified in Commission work programmes.
This structure reflects the EU’s strategic commitment to strengthen defence readiness and ensure timely availability of defence products throughout the Union.
Eligibility and Supply Chain RequirementsThe regulation contains strict eligibility criteria:
- Establishment and control: Recipients must be established and effectively managed in the EU or EEA (associated countries). Entities under the control of non-associated third countries may be eligible only if national authorities provide a guarantee following a security screening.
- Supply chain restrictions: Components from non-associated countries may not exceed 35% of total component costs for supported procurement or production. Recipients must retain full freedom to determine design and modifications without restrictions from non-associated third countries.
- Infrastructure location: Infrastructure used in EDIP-supported actions must be located in the EU or EEA. Derogations for infrastructure outside this area do not allow eligible costs.
These requirements represent a significant legal threshold and will necessitate immediate supply chain mapping and restructuring for companies seeking EDIP funding.
Security of Supply FrameworkEDIP establishes the first EU-level mechanism to ensure defence supply chain resilience:
- Crisis activation: The Council may declare a “security-related supply-crisis state” for up to 12 months, renewable. This allows priority requests for defence products, fast-track processing of intra-EU transfers (max two weeks), and expedited environmental and permit assessments when justified by overriding public interest.
- Legal obligations: Companies may be required to provide information and comply with priority requests/orders, subject to Member State acceptance, proportionality, legal certainty, and fair pricing. Fines and periodic penalty payments apply for non-compliance.
- Governance: A Defence Security of Supply Board will provide advice, coordinate measures, make recommendations, and conduct stress tests.
This framework provides legal certainty for priority orders and fast-track permitting in times of crisis while creating compliance obligations for companies in the supply chain.
Key Perspectives
- For the EU: EDIP provides the institutional, financial, and legal tools to translate political commitments to strategic autonomy into concrete industrial capacity.
- For Member States: Substantial co-financing opportunities (up to 50% for certain actions under specific conditions) reduce the national cost of defence modernisation while ensuring interoperability and economies of scale.
- For industry: EDIP creates predictable demand signals, reduces market fragmentation, and opens new pathways for SMEs and mid-cap companies. The 35% non-EU component threshold creates both constraints and opportunities for supply chain restructuring.
- For investors: The programme signals long-term EU commitment, with substantial co-financing and dedicated investment vehicles (FAST blending facility), improving the risk-return profile for defence companies and dual-use technology providers.
- For Ukraine: The €300 million Ukraine Support Instrument, with support rates up to 100% for certain actions, provides a unique opportunity to modernise Ukraine’s defence industry and establish long-term partnerships with European companies.
Our CommentsThe Council’s adoption of EDIP marks a shift from aspiration to binding legal obligations and substantial funding. Companies must act quickly on three fronts: supply chain mapping to ensure compliance with the 35% threshold and control requirements; consortium formation to meet cross-border collaboration rules; and early engagement with national defence authorities and the European Commission.
Nordic defence companies, with strong technological capabilities and compliance frameworks, are well-positioned to compete for EDIP funding. Denmark’s ongoing DKK 58 billion air defence procurement, combined with EDIP opportunities, creates exceptional prospects for Nordic companies and investors.
The regulation enters into force in December 2025. Early movers completing eligibility assessments, forming consortia, and engaging with authorities will have a competitive advantage.
