23.10.2025
Legal Alert | EU Defence Readiness and State aid rules
The European Commission has published the ‘Defence Readiness Omnibus Package’, which provides for investments of up to €800 billion to strengthen European defence by 2030 and clarifies that certain infrastructure and measures to support defence production do not constitute state aid or may be compatible under Articles 346 and 107(3) TFEU. The Commission is preparing additional guidelines and gathering input from Member States and stakeholders to define their scope.
I. Introduction
The European Commission recently adopted the Communication Defence Readiness Omnibus (DRO). In terms of public and private investments in the defence sector and respective articulation with State aid rules, the Commission recognises in the DRO that substantial public and private investment are essential for the scale up to reach the EU defence readiness 2030 objective (unlocking up to EUR 800 billion for an expenditure surge on European defence). As part of this endeavour, Member States can now use the opportunities offered by the mid-term review of the Cohesion funding for supporting defence industrial capacities and military mobility under the ReArm Europe Plan, as well as resources from their recovery and resilience plans and the respective national budget. These additional opportunities to also use EU funds for defence further strengthen the volume of available resources and therefore the rationale for removing unnecessary obstacles or administrative burdens to the effective deployment of defence investments.
II. State aid defence guidance
The Commission recalls in the DRO that state measures to support investments in general infrastructures, such as widening of railway tunnels or reinforcing of road or railway bridges to create mobility corridors, do not constitute State aid, as they are public-remit activities related to the exercise of State prerogatives and that the same is valid for the functions of the Member States’ armed forces, which generally also fall within public-remit activities. The DRO emphasises that Member States do not need to notify these measures to DG COMP.
Furthermore, the DRO states that there is a compelling Union as well as national interest in ramping up defence production and an observed failure of market operators to respond sufficiently timely to this need due to a number of objective factors (e.g. fragmented procurement markets, uncertainty of demand over time, access to finance). As such, pursuant to the DRO, the specific case of State aid measures to support investment in production capacity for defence products and services can normally be deemed to support essential security interests without adversely affecting the conditions of competition in the internal market and thus would fall within the scope of Article 346 of the Treaty on the Functioning of the European Union (TFEU).
Hence, where Article 346 TFEU applies to State aid measures, Member States do not need to notify such measures to the European Commission. Under Article 346 TFEU and the related case-law, the necessity and proportionality of national measures to protect essential security interests is examined case by case for each such measure, having regard to its context and effects.
In addition, where public support constitutes State aid and does not fall under Article 346 TFEU, it may be covered by the compatibility possibilities offered under existing State aid guidelines, frameworks or the General Block Exemption Regulation.
Such aid, either in the form of individual aid or of aid schemes, can also be approved directly under Article 107(3)(c) TFEU. Under this provision, the Commission may consider aid to facilitate the development of certain economic activities, including also essential inputs for the production of defence products and services, to be compatible with State aid rules, provided it does not adversely affect trading conditions to an extent contrary to the common interest. In the overall balancing of the positive effects against negative effects on competition and trade, the Commission, according to the DRO, will take due account of the measure’s contribution to the defence readiness 2030 objective, as well as the specificities of the defence market, where demand comes from Member States, who control acquisition of defence-related products and technologies, including exports.
III. Potential next steps
According to the DRO, the European Commission will provide appropriate and timely guidance on the assessment of public support for the defence sector – including, if so needed, through a vade mecum of relevant precedents or an interpretative notice to self-binding Commission guidelines.
With a view to understanding whether such State aid guidance is required and, if so, its possible scope, the Commission is now proactively seeking inputs, through a continuous dialogue with Member States (including jointly all relevant authorities, e.g. those responsible for State aid, industry and defence) and other stakeholders.
