Luxembourg is stepping up its defence capabilities. The day after the State of the Nation address from the Prime minister, Luc Frieden (CSV), the minister of Defence, Yuriko Backes (DP) addressed MEPs on Wednesday 20 May during the joint meeting of the Committee on Defence and the Committee on Foreign and European Affairs, Cooperation, External Trade and the Greater Region, as well as the Luxembourg delegation to the Nato Parliamentary Assembly. She outlined the new budgetary trajectory, which is set to increase defence spending to 2.3% of gross national income (GNI) by 2029.

The government has approved an annual increase of 0.1 percentage points in GNI until 2029. According to Statec’s projections, it is expected to reach €65.374bn in 2027, €68.769bn in 2028 and €72.375bn in 2029. By that date, defence spending is projected to stand at €1.665bn, compared with €1.373bn in 2027 and €1.513bn in 2028.

For Yuriko Backes, this build-up represents “a reasonable response to the challenges arising from the geopolitical context”. A cautious statement, as the Grand Duchy fully embraces the rearmament drive launched by Nato allies following Russia’s invasion of Ukraine. Luxembourg is now aligning itself with the target set at the Nato summit in The Hague in June 2025, where the allies committed to spending 5% of GDP – or GNI in Luxembourg’s case – on defence and security by 2035. Of this total, 3.5% must fund military capabilities in the strict sense and 1.5% must cover security-related expenditure in the broader sense.

An economic lever

But behind the military figures, the government is also developing an industrial strategy. The statement released on Wednesday is a direct extension of the launch, at the end of April, of the new National Defence Fund (FND), with a budget of €150m over five years and managed by the SNCI. This fund is intended to provide financing for innovative companies active in dual-use technologies, for both civilian and military applications.

The government is thus seeking to ensure that the surge in military spending does not result solely in the purchase of equipment from abroad. The idea is now widely accepted: to transform a budgetary constraint imposed by Nato into an economic lever for Luxembourg. When Yuriko Backes refers to investments that are “high value-added with a significant economic return”, she is specifically talking about the sectors targeted by the FND: cybersecurity, space, artificial intelligence, robotics and advanced production technologies. The government wants to foster the emergence of a local industrial base capable of integrating into future European defence value chains.

This line of thinking now underpins the government’s entire discourse. The Chancellor of the Exchequer, Gilles Roth (CSV), had already described the FND as a tool designed to attract private capital to strategic technologies. The minister for the Economy, Lex Delles (DP), emphasised the aim of creating skilled jobs and attracting new businesses to Luxembourg without seeking to develop a traditional heavy military industry.

A future binational battalion

The new budgetary trajectory adds a new dimension to this strategy. With €1.665bn earmarked for defence in 2029, the government aims to demonstrate that Luxembourg will no longer be merely a small, symbolic contributor within the Atlantic Alliance, but also a player capable of developing its own technological and industrial capabilities. In detail, this ramp-up will involve, in particular, the establishment of the future Belgian-Luxembourgish binational combat reconnaissance battalion as well as through the development of integrated air and missile defence capabilities, which have become a priority in the European security context.

The government is, however, avoiding setting a fixed course beyond 2029. In that year, Nato is due to review its strategic priorities and redistribute new capability targets amongst its allies. The domestic political calendar also plays a part in the equation: general elections are scheduled for 2028, leaving it to the future government to redefine the way forward. Finally, military support for Ukraine remains a central pillar of this strategy. “The defence of Europe begins in Ukraine,” insisted Yuriko Backes, stating that this plan reflects Luxembourg’s “full solidarity” with Kyiv and its armed forces.