Conference summary “Integrating Ukraine into the European defense”

by Eastern Circles

12 March 2025, Paris Defense and Strategy Forum, Military School

(Chatham House rules)

Speakers:

1. Géraud Brun, Deputy Director of Industrial Policy Directorate, General Direction of Procurement (DGA), French Ministry of the Armies.
2. Artem Moroz, Head of Investor Relations, Deputy Director of Brave 1 for International Cooperation.
3. Edward Lucas, Columnist of Times newspaper, Senior Advisor to the Center for European Policy Analysis, former Senior Editor of The Economist, co-author of the Rearmament Report.

Moderator: Anastasiya Shapochkina, President of Eastern Circles.

Key discussion points:

• Since 2022, European military industrial sector is torn between a growing political pressure to ramp up production and a lack of funding to ensure the business model in the long-run.
• The European Commission announced on March 4 a defense package of 800 billion euros for European rearmament to respond to the existing military threats to European security and to step up support for Ukraine in the face of US foreign policy changes.
• However, 650 billion euros from this package are not new money. Instead, they should come from the national budgets as a spending allowance by the Commission, while only 150 billion of newly borrowed money under negotiation with the EIB.
• Concerning defense cooperation with Ukraine, this means that more emphasis should be put on B2B interactions through joint production.
• Ukraine’s national production capacity has risen sharply since 2022, with Ukraine supplying 40% of the weapons it needs from own production today, compared to 10% three years ago. However, Kyiv is able to fund only 1/3 of domestic production capacity.
• While the Danish model of financing Ukrainian industry directly (instead of financing Western technology exports to Ukraine) works for countries with relatively small defense industry, major European defense exporting countries will not emulate it, privileging B2B cooperation and the confiscation of Russian assets instead.
• While big European defense companies can access bank loans to some extent, borrowing is extremely difficult at the sub-prime level, especially for deftech SMEs, which often drive innovation today.
• To address this gap, a Rearmament bank proposal has been submitted to the British and Norwegian governments, which proposes the creation of an institution similar to the EBRD, with a mission similar to that of the EBRD in the early 1990’s, when ex-communist states could not access foreign financing.
• The Rearmament bank, like the EBRD, would not be a profit-maximizing bank, but a financial institution by the coalition of the willing (possibly non-EU European countries and other non-EU NATO allies to avoid long and unproductive EU decision-making processes). The Rearmament bank would finance interoperable defense projects with the leverage of 10 billion euros paid in capital by the member-states to raise 90 billion euros of borrowed money on international markets toward defense projects with Ukraine.
• The main motivation behind the Rearmament bank initiative is a growing realization by numerous European nations which have bought US equipment such as F-35 that they might have bought “a billion-dollar paper weight.”
• As a European defense partner, Ukrainian deftech companies are faster and more agile than European counterparts, producing modular modern weapons, able to scale and adjust technology to the changing innovation on the front lines: a single major drone producer in Ukraine is producing more drones than all of European drone producers combined.
• In addition to drones and EW systems, Ukraine has restarted missiles production, including the most recent version of Neptune missiles with 1000 km reach.
• Ukrainian government keeps growing its production capacity, including by placing orders and investing in private deftech through Brave 1, which in 2025 will invest 70 million euros in grants to Ukrainian deftech start-ups and SMEs to develop new and scale up developed products.
• The worst-case scenarios vary:
  • from insufficient cooperation, which in turn results in the under-preparedness of the European industry to the challenges of modern warfare (focusing on irrelevant technology and ignoring the deftech innovation imposed by the war in Ukraine),
  • to Ukrainian deftech becoming part of the Russian-Chinese arsenal (if Ukraine loses the war) put to fighting European armies.
• The best-case scenarios for Ukraine-Europe defense cooperation consist in overcoming the competition-driven mindset by major European defense companies, and integrating Ukraine into the European military-industrial complex through joint ventures with European companies. This would allow European defense industry to integrate the lessons learnt during the war in Ukraine into the defense technology, which raising productivity and lowering production cost.