Europe and the United States need to revolutionize their defense industrial bases—and how they cooperate

Europe & Eurasia NATO Security & Defense Technology & Innovation United States and Canada

Report December 10, 2024

Europe and the United States need to revolutionize their defense industrial bases—and how they cooperate

Defining the traditional defense industrial base
Need for redefinition
Historical overview and status quo
Use cases
Financing innovation: A common defense framework
Barriers to defense industrial cooperation
Cultural perspectives and transnational dynamics
Policy recommendations: European-US defense innovation cooperation
Conclusion

The impact of transatlantic defense industrial base relations has been affected by the entanglement of national security with economic stability, environmental sustainability, and rapid advancements in emerging technologies—putting NATO and its members on a back foot in the race to dominate the future battlespace in the face of mounting aggression from near-peer competitors.¹ Put simply, allies need to harness and combine lethality, market power, and green power.

Navigating the complexities of twenty-first-century geopolitics requires a modern vision for transatlantic defense industrial base cooperation. This report articulates such a vision, outlining a set of policy recommendations for bold steps the United States and its allies should take. Recommendations include the establishment of a Global Resilience Bank for pioneering deep technology sectors,² the creation of multilateral defense innovation districts, the conceptualization of a common defense digital currency, as well as establishing a transatlantic climate-neutral defense initiative. The goal of such ideas is to catalyze a redefined cooperative structure that adeptly navigates the realities of both the current and future geopolitical environments, thus helping to realign those strategic objectives of NATO allies and to reinforce collective security and prosperity through the defense industrial base.

As NATO and EU nations deliberate these challenges, they should consider the recommendations found in this report through the wider context of the Alliance’s Defense Production Action Plan, the European Defense Industrial Strategy (EDIS), and the growing realization that NATO’s industrial base now needs to be put on a war footing to genuinely support allied deterrence measures.³

Defining the traditional defense industrial base

The paradigm of the defense industrial base among transatlantic partners has been historically underpinned by the exchange of tangible assets such as weaponry, logistical systems, personnel training, and technology transfers. This model has emphasized procurement and maintenance⁴—exemplified by European NATO members’ acquisition of military aircraft like F-16 and F-35 fighters,⁵ and the subsequent establishment of maintenance facilities. While effective within its context, this transactional approach has often resulted in a static exchange of goods and services between nations, circumscribed by the terms of set agreements and constrained by the rigid defense contracts and often inflexible procurement cycles characteristic of today’s models of cooperation.⁶

In the current climate, and especially after Russia’s illegal seizure of Crimea in 2014 and invasion of Ukraine in February 2022, such an approach has consistently demonstrated its limitations. The 2023 political handwringing by both Germany and the United States about tanks going to Ukraine underscores the challenges of the contemporary model.⁷ Indeed, current approaches to defense and technology cooperation impede agility and adaptation, creating limits in rapidly facilitating broad-based innovation and deep collaborative ventures that could otherwise enhance the collective defense capabilities and technological resilience of NATO allies.

Need for redefinition

In the context of mounting global challenges, this report posits that the existing defense industrial model among transatlantic allies is due for a strategic overhaul. National security can no longer be viewed solely through a military lens; it is inherently interconnected with economic stability, environmental sustainability, and a shifting technological landscape. As COVID-19 demonstrated, the interdependency of global economic systems means that regional disruptions can reverberate globally, jeopardizing supply network integrity and economic security at large.⁸ Climate change poses further risks, with extreme weather events and resource shortages fueling geopolitical instability.⁹ And the breakneck pace of innovation in sectors such as artificial intelligence (AI), cyber capabilities, and robotics commands a new frontier for allied defense strategies, including assuring end-to-end supply chains.

In today’s geopolitical context, with powerful state and nonstate actors challenging the post-World War II international order, coupled with widespread digitalization and climate change threats, NATO allies must rethink traditional defense cooperation to stay relevant.

Historical overview and status quo

Transatlantic defense cooperation

The foundation of transatlantic defense cooperation, notably NATO, has historically focused on mutual defense pacts, military hardware sharing, logistical support, and technology exchange. This traditional model of industrial cooperation has been primarily transactional, catering to immediate defense needs over a unified, long-term strategy. For example, the procurement of US military technology by European NATO members, such as the Sea Sparrow missile system,¹⁰ highlights this targeted yet limited approach. While effective for specific military goals, these transactions often miss the opportunity for broader transformative alliances and deeper connections necessary to address the diverse security challenges of the modern world. These challenges now include economic stability, environmental threats, and a digital battleground (including space).¹¹

The role of defense has fundamentally transformed. No longer are defense ministries or departments the exclusive stewards of national security. A more inclusive view now encompasses various government sectors, reflecting the defense industrial base’s growing influence and its collaboration with numerous stakeholders. This evolution is recognized politically, evident in the 2024 US Senate Defense Appropriations Bill’s notable funding increases for innovative defense programs. It includes $200 million for the Department of Defense Replicator program and a budget expansion for the Defense Innovation Unit from $104 million to $946 million¹²—such funding shifts hint at a re-evaluation of traditional procurement in favor of innovation, underscoring internal debates on modernizing defense strategies.

Internationally, the political consensus among NATO heads of state and government in 2021 to establish NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA) and the NATO Innovation Fund (NIF) signifies a move toward integrating commercial technologies with the traditional defense procurement model.¹³ DIANA has since launched more than 200 test centers in thirty-two countries, allowing start-ups to test their technologies alongside military operators for co-development. Additionally, with five accelerator sites addressing specific problem statements, these initiatives aim to transform start-ups into businesses, supported by plans to introduce a trusted capital marketplace and a rapid adoption and acquisition service. This strategy acknowledges that most technological breakthroughs now emerge from commercial sectors, positioning start-ups at the forefront of innovation.¹⁴

Economic security

Economic security is no longer peripheral to national defense. Supply chain vulnerabilities have come to the forefront of geopolitical discussions, especially in the wake of disruptions caused by the COVID-19 pandemic and increasing great-power competition.¹⁵ Building more resilient, diversified supply chains (supply networks) will be a cornerstone of this modernized framework.¹⁶

One proposal to help support such efforts is the formation of a joint allied wealth fund—which could be housed within a broader umbrella structure: a “global resilience bank”¹⁷—aimed at strengthening the capital needs of critical industries related to defense, such as rare earth mineral extraction, advanced manufacturing, and cybersecurity. By leveraging knowledge and resources through such a fund within the global resilience bank, Europe and the United States could seek to safeguard access to essential materials, thereby enhancing transatlantic economic and defense resilience.

Additionally, joint deep technology ventures could serve as a nexus for innovation, fostering technologies that have dual-use applications, both civilian and military. Consider the potential for multinational defense innovation districts: special zones with fiscal policy incentives aimed at synergizing European and American expertise in areas such as AI, robotics, and quantum power. These districts could incubate ventures that not only advance defense capabilities but also stimulate economic growth and job creation on both continents, while being supported through advantageous tax arrangements.

Climate change and green transition

As climate change accelerates, its impact on global security has become increasingly evident. Rising sea levels, extreme weather events, and resource scarcity all have the potential to trigger or exacerbate geopolitical tensions.¹⁸ Taking into account the diverse geographies and climatic challenges across Europe, nations confront a range of vulnerabilities—from the low-lying regions susceptible to sea-level rise to the areas facing increased droughts and wildfires. Concurrently, the United States contends with its own array of climate-induced challenges, including devastating hurricanes and extensive wildfires, underlining the need for comprehensive and cooperative approaches to resilience and adaptation within the transatlantic alliance.

One proposal to address the climate challenge is the establishment of a climate-neutral defense initiative that could act as a crucial and forward-thinking directive, advocating for trans-European and North American collaboration to drive defense operations toward net-zero emissions.¹⁹ This would involve fostering innovation within the defense industrial base to create sustainable technologies²⁰—from greening supply chains to integrating renewable energy sources into military infrastructures. Recent conflicts, such as those in Ukraine and the Middle East, highlight the tactical shift from mass formations to dispersed forces, driven by the widespread use of drones that effectively target armor and large troop movements. In this new era, extensive logistics operations, particularly fuel convoys, have become significant tactical vulnerabilities. Transitioning to green, self-sustaining energy solutions addresses both sustainability and operational flexibility, reducing dependence on vulnerable supply chains. This shift could also catalyze broader commercial advancements, much like GPS and internet technologies, which initially served military purposes but later transformed civilian industries.²¹ Given the likely expense of these industrial developments, the United States should leverage resources from the Inflation Reduction Act (IRA) to support allied firms (that produce in the United States) and help offset such costs. The US-EU Task Force on the Inflation Reduction Act should be expanded to include all allies and serve as a forum to further develop such initiatives,²² especially considering EU concerns over the subsidy nature of the IRA.²³

Use cases

To illustrate the tangible potential of the expanded conceptual framework for pan-European-North American defense industrial base relations, this section explores potential use cases. These examples encompass both traditional mechanisms, which serve as a basis for further development, and progressive proposals that might elevate cooperation between North America and Europe.

Quantum computing: A frontier of opportunity

Allies are poised to lead in the quantum field. Europe, with hubs like Denmark’s Niels Bohr Institute in Copenhagen that now hosts the NATO Center for Quantum Technology,²⁴ represents the vanguard of quantum research, along with the United States and its robust National Quantum Initiative,²⁵ and Canada’s well-established quantum base.²⁶ A NATO-wide quantum collaboration based on the Alliance’s quantum strategy²⁷ could foster breakthroughs in cryptography and data analytics, bolstering resilience against cyber threats and enhancing intelligence capacities across allied nations. This joint effort would not only be a leap forward in defense technology but also affirm the transatlantic commitment to pioneering the strategic technologies of the future. Such allied collaboration should include “closer liaison between the EU Policy and Outreach Partnership in the USA (EUPOPUSA) and the EU Quantum Flagship initiative,” as a recent Chatham House paper suggested.²⁸

Artificial intelligence and machine learning

The United States leads in AI commercialization, with private firms at the forefront. Meanwhile, Europe’s AI landscape features France’s cutting-edge research, notably at the Prairie Institute.²⁹ Sweden’s Wallenberg AI, Autonomous Systems and Software Program (WASP) also stands out, focusing on autonomous technology research.³⁰

Building on the November 2023 Bletchley Park AI Summit,³¹ a joint European and North American task force involving entrepreneurs, academia, government, risk capital, and corporations could bring together the right experts to focus on developing machine learning algorithms specifically tailored for allied defense applications, such as autonomous drone swarming or predictive maintenance for complex military hardware and setting the appropriate standards and architectures. Adopting a joint approach would not only prepare NATO to leverage AI-based tools to facilitate its transition toward a multidomain-enabled alliance, but the combined market dominance of Europe and North America would position the Alliance to write the rules of the road in a way that is consistent with democratic values and norms, thus reinforcing the current international order.

Nanotechnology: The unseen advantage

Dutch institutions, like the MESA+ Institute,³² are global leaders in nanoscience. Collaborative deep tech initiatives in nanotechnology could result in new materials for armor, enhanced energy storage systems, and more efficient medical technologies for field operations. The United States, with its cutting-edge additive manufacturing firms such as Divergent³³ and Continuous Composites,³⁴ combined with well-resourced labs (such as Johns Hopkins Applied Physics Laboratory³⁵), could offer the perfect platform for scaling innovations emanating from across the transatlantic alliance.

Biotechnology: The next wave in defense

With the United Kingdom’s strong foundation in life sciences,³⁶ and the United States leading in biotech firms,³⁷ a dedicated biotech defense initiative could revolutionize everything from medical response in conflict zones to bioengineering capabilities. Possible use cases might include rapid wound-clotting agents, customized for each soldier’s genetic makeup, or bioengineered bacteria capable of decomposing hazardous waste in conflict zones. Given the exponential growth of both biotechnologies and AI, these areas should be examined in conjunction with one another.³⁸

Integrated data systems and IoT

The Internet of Things (IoT) is transforming military operations, ushering in an era of smarter, highly integrated systems that enhance everything from supply chain logistics to strategic battlefield analytics. The manner with which the Ukrainian military is leveraging such technologies is driving this sector forward at a rapid rate.³⁹ Yet it is Germany that stands at the forefront of this revolution with hubs such as the SmartFactoryKL⁴⁰ and the Fraunhofer-Gesellschaft,⁴¹ which are key players in pioneering IoT applications.

By leveraging synergies between the lessons from the Ukrainian military, the German innovation powerhouses, alongside American technological hotspots, transatlantic cooperation could set new standards in the defense sector. Such a collaboration would not only respond to the rapidly evolving tech competition but could potentially lead it, charting the course of future military capabilities with advanced technological integration. This is particularly relevant for enhancing production within the defense industrial base and moving toward a multidomain approach to warfare as typified by the US Combined Joint All-Domain Command and Control (JADC2) strategy.⁴²

Strategic European high-tech alliances: The Baltic innovation front

The Baltic states—comprising Estonia, Latvia, and Lithuania—offer a particularly compelling case for an enhanced European-North American defense innovation district, each bringing unique strengths to the forefront of technological advancement.

Estonia, leading with its e-Estonia⁴³ initiative, has over 99 percent of its public services available online 24/7,⁴⁴ which underscores its digital infrastructure’s robustness and propels the country’s advanced cyber defenses. In the domain of cybersecurity, Estonia hosts the NATO Cooperative Cyber Defense Centre of Excellence.⁴⁵ In 2021, Latvia was ranked as the most start-up friendly nation in the world,⁴⁶ with a strong focus on deep technologies. Due to its small internal market size, companies in Latvia look to export markets from day one,⁴⁷ which makes it a strong contender to form part of a defense innovation district that has a global outlook.

Lithuania’s strides in laser manufacturing, where it holds approximately 10 percent of the global market share,⁴⁸ indicate a specialization that could be pivotal for next-generation directed energy weapons and range-finding technologies. Between 2009 and 2021, Lithuania’s laser industry achieved a compound annual growth rate (CAGR) of over 16.2 percent, a rate ten times higher than the average growth rate observed in European industries during the same period.⁴⁹

Pooling these Baltic assets into a defense innovation district could yield a multilateral platform that amplifies European technological prowess in the defense sector. It would not only capitalize on the Baltic states’ commendable research and development (R&D) growth rates and their specialized markets, but would also affirm Europe’s role as a central player in the next wave of global high-tech defense initiatives.

Cybersecurity capabilities

While Estonia is rightly regarded as a bastion of cyber prowess, it is also noteworthy that Poland is distinguishing itself as a formidable force in cybersecurity within Central Europe. With its burgeoning tech scene and specialized events like the annual CyberSec European Cybersecurity Forum⁵⁰ in Kraków, Poland is fostering a sophisticated cybersecurity infrastructure. According to industry reports,⁵¹ the Polish cybersecurity market is on an upward trajectory, with projections suggesting a compound annual growth rate of approximately 11.6 percent from 2023 to 2028.

Integrating Poland’s industrial cybersecurity expertise into wider allied defense strategies could significantly enhance cyber resilience across the board. Collaborative ventures with Polish cyber hubs could lead to the development of advanced defense mechanisms, capable of countering emerging cyber threats. The Defense Digital Service (DDS)⁵² within the US Department of Defense could play a pivotal role in facilitating this integration, effectively marrying Polish cybersecurity innovations with the strategic needs of US defense networks. Such a focused alliance promises to not only strengthen cyber defenses but also forge a deeper, more technologically interdependent transatlantic partnership.

Sustainability and green technologies

The Netherlands is at the forefront of sustainability initiatives, from water management to renewable energy. The US Department of Defense is one of the world’s largest consumers of energy. Therein lies a significant opportunity for cooperation in developing renewable energy solutions, such as solar-powered military bases or energy-efficient naval propulsion systems. Companies like Royal DSM⁵³ are pioneering bio-based materials and could offer fresh perspectives on how defense equipment can be made more sustainable.

Dual-use opportunities

In Spain, robust industry partners such as Indra Sistemas have carved a niche in developing dual-purpose technologies. Indra’s work spans air traffic management systems, which are integral to civilian aviation, and sophisticated command and control systems for the military domain. Such systems offer strategic functionalities that can enhance situational awareness and decision-making in both commercial and defense environments. In the sphere of transatlantic defense collaboration, the involvement of innovative European companies in the area of space technology presents a significant opportunity, particularly in the context of the Alliance’s focus on multidomain operations. Netherlands-based ISISPACE (Innovative Solutions In Space)⁵⁴ stands out for advancements in CubeSat and small satellite systems, technologies that offer versatile and cost-effective solutions for a range of applications, from scientific research to defense surveillance. These compact yet powerful satellites can play a crucial role in space-based monitoring and communication, essential components of modern defense strategies.

Another innovator, Hiber⁵⁵, is making strides in satellite-based IoT connectivity. The Swedish company’s approach to remote sensing and communication has immense potential to support defense operations, especially in challenging environments where traditional communication infrastructure is absent. The utilization of Hiber’s technology in defense contexts could greatly enhance situational awareness and operational efficacy in remote or contested areas.

By integrating the cutting-edge capabilities of these firms into a broader European-US framework, the transatlantic alliance could significantly bolster its space technology and multidomain operation capacities. This collaboration would seek to ensure that the alliance remains at the forefront of strategic and technological advancements in space, a domain increasingly vital to global defense and security.

The exploration of these diverse use cases—from space to quantum leaps to cybersecurity fortification—reveals a fertile landscape for further dynamic transatlantic defense industrial collaboration. This patchwork of innovation, underpinned by the collective strengths across the United States, Canada, and Europe, is not just a strategic imperative but also a call to economic action setting the stage for this question: how can these endeavors be sustainably financed?

Financing innovation: A common defense digital framework

In the context of the expanding digital economies in Europe and North America and the advent of cryptocurrencies, a novel concept to consider for helping to finance future initiatives is a common defense digital currency. This could be built on a digital infrastructure, leveraging private distributed ledger technology akin to blockchain and controlled by a state or states, which can underpin defense-related economic activities and be backed by fiat currencies. Such an approach could standardize and secure transactions for joint defense projects, tech transfers, and even intra-alliance procurement.

By integrating UK and Estonian advancements in digital government and cybersecurity, along with US technological prowess, a common defense digital currency and its framework backbone could become a beacon of efficiency and security. Through preestablished smart contracts it could help streamline the cumbersome International Traffic in Arms Regulations (ITAR) process, creating a fast-tracked, secure, and transparent digital pipeline for defense collaborations and a traceable ledger of tech transfers. This transatlantic digital innovation could serve as a protective bubble against economic vulnerabilities, ensuring that the defense sector remains robust even amid financial system fluctuations. The challenges of export controls are one area that needs to be addressed by both American and European policymakers alike.

Barriers to defense industrial cooperation

Despite interest in deepening transatlantic defense and technology cooperation and, in many cases, robust historical relationships between allies on both sides of the Atlantic, barriers remain in the way of such efforts.

International traffic in arms regulations

One of the foremost impediments in European-US defense industrial cooperation lies in the stringent US export-control regulations like ITAR. While designed to protect national security and prevent the theft of sensitive military technologies at the hands of strategic competitors, these rules have the effect of limiting the transfer of defense-related technologies and services—inadvertently stifling innovation and collaboration by creating bureaucratic bottlenecks and curtailing the free flow of knowledge and resources. For Europe, and European countries bound by their own set of regulatory frameworks, navigating ITAR can prove cumbersome and limit the scope of joint projects.
In light of the evolving dynamics within the transatlantic defense sphere, particularly as the United States continues to amend its ITAR regulations to accommodate the AUKUS agreement (involving Australia, the UK, and the United States),⁵⁶ it’s prudent to explore broader applications of these revised policies. The concept of the national technology industrial base (NTIB),⁵⁷ as advocated by experts like William Greenwalt,⁵⁸ former US deputy undersecretary of defense for industrial policy, presents a strategic framework that could be extended beyond its current scope. This extension, akin to an AUKUS+ model, could potentially include other allies, starting with those that already have US security of supply agreements. Such an expansion would not only align with the spirit of deeper cooperation, but also foster a more integrated defense technological base among trusted NATO allies. By leveraging the NTIB’s potential for inclusivity, the United States can facilitate a more robust and interconnected defense collaboration, ensuring that its network of allies is more tightly woven into the fabric of defense innovation and industrial cooperation beginning with nations with strong innovation and industrial capacities such as the Netherlands, Finland, Norway, Sweden, and the Baltic states.

EU defense procurement rules

European Union defense procurement policies add another layer of complexity. These rules aim to harmonize and liberalize the defense and security markets across the EU. For EU member states, this means that any bilateral arrangements with the United States have to be compatible with EU-wide policies. This dual allegiance complicates not just the legalities of EU member state-US ventures, but also impacts the agility with which such collaborations can pivot in response to new challenges or opportunities. Data protection is a good example of such challenges: i.e., the General Data Protection Regulation (GDPR). From the European side, the GDPR represents a challenge. Though aimed at safeguarding individuals’ data, GDPR raises complications in information sharing,⁵⁹ particularly in fields like cybersecurity and intelligence. Since the United States lacks a federal law with equivalent reach, conflicts in data handling and privacy standards can arise, limiting the effectiveness of joint initiatives.
In summary, the strict rules of ITAR, EU defense buying practices, and the GDPR create significant hurdles for allied defense collaboration. These regulations, while protecting security and privacy, also slow innovation and the sharing of critical information. As the United States continues to revise ITAR for the AUKUS agreement,⁶⁰ it also should consider similar adjustments for NATO allies to foster better cooperation. Streamlining these rules could pave the way for more efficient and effective defense partnerships in an era where technology and threats are rapidly evolving.

The European Union

Within the sphere of European defense policy, the EU’s efforts through its Strategic Compass initiative⁶¹ and Common Security and Defense Policy⁶² are aimed at bolstering defense capabilities across the member states, fostering an environment where shared contributions to manpower and technology enhance the collective security apparatus. The alignment of these initiatives with transatlantic strategic interests underscores the inherent interconnectedness of security challenges that span the globe.
Recent strides such as the launch of the European Defense Fund and the activation of the Permanent Structured Cooperation framework⁶³ manifest the EU’s resolve to advance its strategic autonomy. Strategic autonomy, in this sense, is about creating a more balanced partnership with the United States, where cooperation is driven by shared values and equal footing, not dependency. This approach could redefine the Atlantic relationship, making it fit for the challenges of a complex, multipolar world.
The nomination of Andrius Kubilius as the EU’s first defense commissioner, pending approval by the European Parliament, is a crucial step forward. His mission, as outlined in the letter from the Commission President,⁶⁴ focuses on enhancing defense innovation, streamlining procurement, and fostering deeper cooperation with transatlantic allies. He will also drive efforts to strengthen Europe’s defense industrial base, ensuring the EU is better equipped to meet emerging threats while playing a stronger role in the global security architecture.
At the same time, the EU’s growing strength as a defense partner is closely tied to its approach to economic and technological investments. By widening cooperation between the EU and U.S. defense industrial bases, Kubilius’s role could help unlock new opportunities for industrial collaboration, ensuring that Europe remains a key partner in shaping global defense standards and capabilities.

Research and development

The European Union’s framework for R&D is typified by its dynamic collaborative model, leveraging public-private partnerships and multistakeholder processes. This is exemplified by the European Innovation Council (EIC),⁶⁵ which is designed to support breakthrough EU technologies and disruptive innovation, with a fund that encourages visionary projects with the potential for significant societal impact.
Simultaneously, the US Defense Advanced Research Projects Agency (DARPA) is a cornerstone of innovation, known for its role in fostering technologies that have reshaped the global defense landscape.⁶⁶ An innovative model that combines the strengths of the EIC, DARPA, and indeed the UK’s Advanced Research and Invention Agency (ARIA)⁶⁷ could redefine the collaborative mechanisms in R&D, with a focus on scalability and speed of technology transfer.

Trade

Inclusion of the EU-US Trade and Technology Council (TTC) in the context of a wider transatlantic defense industrial collaboration would further enhance the strategic alignment of transatlantic security and the defense industrial base.⁶⁸ The TTC’s mandate to expand and deepen trade and technology ties can serve as a powerful force, ensuring that R&D initiatives as well as armament efforts are bolstered by conducive trade policies and a shared commitment to democratic values in technology governance, with AI being an obvious start.
Engaging closely with frameworks such as the Transatlantic Trade and Technology Council and the European Innovation Council can catalyze a range of transformative benefits for both the United States and European partners. For the United States, this engagement facilitates entry into a broad European defense technology market, ensuring compliance with EU standards in a space where strategic competitors like Russia and China are vying for influence. It allows for a risk-balanced R&D ecosystem, buoyed by EIC grants, which can offset American investment risks. However, such a vision will also come with cultural challenges and the TTC should look to include a partnerships structure that can include other NATO allies not currently represented on the TTC.

Cultural perspectives and transnational dynamics

In contemplating the advancement of a comprehensive defense industrial partnership(s) across the Atlantic, it is imperative to recognize those cultural values that underpin each European nation’s approach to defense and collaboration. From the consensus-driven and multilateral framework often observed in the Netherlands and the Nordic countries to the strategic and historical alliances championed by France and the United Kingdom, Europe presents a mosaic of perspectives that could enrich transatlantic defense dialogue.

These diverse cultural standpoints manifest in varied leadership styles, degrees of risk tolerance, and approaches to governance: e.g., public-private partnerships in Germany and Italy might be driven by different incentives compared to those in Eastern European states. Such distinctions are far from superficial; they underpin the effectiveness and tenor of cooperative endeavors.

To forge a durable and dynamic Europe-US defense relationship and specifically the defense industrial base, it is essential to transition beyond tactical maneuvers toward a deeper strategic synthesis that respects and integrates this cultural plurality. The dialogue must not only respect but leverage these differences, channeling them into a resilient collective posture that enhances not just military capabilities but also contributes to the shared goals of economic stability and sustainable progress. Navigating these cultural waters is not merely beneficial but vital for the maturation of a partnership that is as cohesive as it is diverse, effectively responding to the contemporary tapestry of global security challenges.

Policy recommendations: European-US defense innovation cooperation

Sustainability and green technologies

Climate-neutral defense initiative: Leverage European expertise in renewable energy and sustainable materials for the US Department of Defense’s green initiatives. An annual summit focused on sustainable defense technologies could be beneficial to drive this further forward within the context of the IRA and the European Green Deal.
Allocate IRA funds: Invest in European-led renewable energy solutions that can be adapted for military use.

Defense innovation districts

Establish international innovation districts: Locations should be chosen based on existing centers of excellence in pertinent nations (like the Baltics) and integrated via physical and digital infrastructure, with significant fiscal policy benefits for all actors involved. Such efforts should include EIC and TTC objectives, thus making these zones eligible for various forms of EU funding.
Cross-border academic partnerships: Facilitate research exchange programs and collaborative projects between European and US academic institutions.
Training programs: Initiate joint training programs focusing on high-skills tech areas like AI, cybersecurity, and green technologies. European universities and US defense research institutions could collaborate on these and provide a pipeline of talent to work in the European and US defense industrial base.

Common defense digital currency

Launch a feasibility study: Investigate the technical, legal, and economic implications of creating a common defense digital currency backed by sovereign fiat currencies.
Digital trust protocol: Utilize blockchain technologies to build digital trust and streamline export control processes.

Dual-use technologies and regulation

Trade facilitation agreements: Building on the recent AUKUS technology-transfer authorities, allies should seek to simplify export controls for dual-use technologies, promoting ease of transfer and economic viability across the entirety of NATO.
Create a transatlantic regulatory body: Given the TTC’s focus on coordinating policy and regulation of emerging technologies, Allied policymakers should explore the possibility of a joint transatlantic body that focuses specifically on defense technology standards, thereby streamlining adoption across Europe and North America; this could be achieved by expanding the TTC membership to all NATO allies.
Dual compliance platforms: Develop platforms where all European and US technologies can be verified for compliance with both European and US regulations. This would accelerate deployment and market access for codeveloped defense technologies.

Agile governance models for R&D

Institute a DARPA-ARIA-EIC initiative: Design an agile governance model to steer joint R&D projects from conception to deployment with a focus on AI and biotechnologies.
Stakeholder collaboration forums: Hold regular multistakeholder meetings between public- and private-sector representatives to discuss innovation in defense technology and how to bring it to market, creating the meeting series and managing it at the highest levels of government with clear and publicly declared goals, outcomes, and status updates.

Cybersecurity capabilities

Broaden the defense digital service mandate: Have the DDS examine which European commercial entities it might partner with (e.g., CyberSec) to help bolster cybersecurity in both the United States and Europe.
Develop cybersecurity collaboration frameworks: Formalize exchange programs for professionals and best practices between European and US entities.

Funding and financial mechanisms

NATO innovation fund: Utilize the NIF’s existing governance rules to create a new sub-fund, resourced by the US and France – noting that neither country is yet a member of the fund – to create a dedicated transatlantic defense innovation fund for EU-US projects.
Expand defense budget allocations: Europe and the United States should send clear demand signals to industry by earmarking a portion of their defense budgets to cofund high-risk, high-reward deep technology projects that align with both national security objectives and broader European innovation goals. The financing of this could be facilitated through a joint allied wealth fund, housed within a Global Resilience Bank.

These recommendations are both interrelated and mutually reinforcing, thus forming a coherent strategy for enhanced transatlantic industrial base cooperation. They provide a robust framework that synergizes with European objectives, effectively turning challenges into opportunities for a multilateral alignment of technological, security, and economic goals.

Conclusion

In a world of new security challenges and rapid innovation, the transatlantic alliance must evolve its defense industrial relations to stay ahead. This report has laid out a path for rethinking how the United States could bolster cooperation with transatlantic allies and partners. The allies need to go beyond the basics of defense, considering economic ties, environmental impacts, and the promise of new technologies.

By embracing the strategic steps outlined, European and American allies have the opportunity to enhance their defense industrial relationship. This shift would not just update existing frameworks, it would revolutionize them—ensuring the allies’ combined defense industries are resilient and adaptive enough to face the twenty-first century challenges that have yet to come.

Report author

Fellow

Rob Murray

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Defense Industry Defense Policy

Acknowledgement

The Atlantic Council would like to extend special thanks to Primer AI for its valuable support for this report.

Related program

The Transatlantic Security Initiative, in the Scowcroft Center for Strategy and Security, shapes and influences the debate on the greatest security challenges facing the North Atlantic Alliance and its key partners.

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Image: Soldiers don a prototype of the US Army's Integrated Visual Augmentation System (IVAS) and wield a Squad immersive Virtual Trainer (SiVT) during a training environment test event at its third Soldier Touchpoint (STP 3) at Fort Pickett, Virginia, October 21, 2020. Courtney Bacon/US Army via REUTERS

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Table of contents

Defining the traditional defense industrial base

Need for redefinition

Historical overview and status quo

Transatlantic defense cooperation

Economic security

Climate change and green transition

Use cases

Quantum computing: A frontier of opportunity

Artificial intelligence and machine learning

Nanotechnology: The unseen advantage

Biotechnology: The next wave in defense

Integrated data systems and IoT

Strategic European high-tech alliances: The Baltic innovation front

Cybersecurity capabilities

Sustainability and green technologies

Dual-use opportunities

Financing innovation: A common defense digital framework

Barriers to defense industrial cooperation

International traffic in arms regulations

EU defense procurement rules

The European Union

Research and development

Trade

Cultural perspectives and transnational dynamics

Policy recommendations: European-US defense innovation cooperation

Sustainability and green technologies

Defense innovation districts

Common defense digital currency

Dual-use technologies and regulation

Agile governance models for R&D

Cybersecurity capabilities

Funding and financial mechanisms

Conclusion

Report author

Rob Murray

Acknowledgement

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