Luxembourg on Thursday presented its first strategy for a domestic defence industry, with defence minister Yuriko Backes and economy minister Lex Delles arguing that rising military spending should also strengthen the domestic industrial base.

The move comes as European governments face a sharply worsening security environment, driven by Russia’s war against Ukraine, pressure to strengthen military capabilities and growing uncertainty over the future of US security commitments in Europe, while also trying to rebuild parts of the defence industrial base after decades of outsourcing.

“This is the first time Luxembourg has adopted a strategy for a defence industry,” Backes said, presenting the move as a shift in how the country approaches defence.

Strategic case

She argued that the country could no longer think about military capability separately from the industrial base needed to support it. “We need both the capabilities and the industrial base to support them,” she said.

By that logic, the strategy is meant to do more than respond to pressure for higher defence spending. It seeks to connect defence policy with industrial policy, turning a budgetary obligation into a potential source of domestic economic activity and a route into European and allied value chains.

Backes also pointed to supply-chain exposure as part of the case for action. “We have to strengthen our resilience and reduce dependencies in critical supply chains,” she said.

Industrial logic

Delles set out the economic case for the strategy, focusing on where Luxembourg could carve out a role in the defence value chain without trying to build a heavy manufacturing base from scratch.

“We are not going to build ships or planes in Luxembourg,” he said.

Instead, he pointed to areas where Luxembourg already has relevant strengths, including cybersecurity, space and data. “Our focus is on innovation, startups and scale-ups, and where we can add value in the supply chain,” he said.

Value chain

The government wants to support companies from research to market entry and to integrate them into European programmes and supply chains. “The objective is to integrate Luxembourg companies into European programmes and supply chains,” Delles said.

He also made the economic case more explicitly. “If we increase defence spending, it should also benefit our economy,” he said.

Tools first

To support that ambition, the government plans an innovation fund through the Société nationale de crédit et d’investissement (SNCI), a Defence Campus described as a secured hub for innovation and industrial development, and support for startups and scale-ups.

It also wants the defence ministry, where possible, to act as an early customer to help companies test and scale solutions. That would give the ministry a more direct role in helping companies bring new technologies into use.

No financial envelope or timetable for those instruments was disclosed at the press conference, leaving the scale of the initiative unclear.

Legal frame

Delles also said a legal framework was being prepared to support the sector, including measures covering production of defence-related products, administrative procedures and export controls. He said the government was targeting adoption before the summer.

The strategy is to be overseen at ministerial level and implemented through an interministerial structure with an action plan.

Luxembourg already has “around 109 companies active in defence-related activities”, Delles said, citing a Luxinnovation mapping, though he did not specify the depth or nature of that activity.

Small-state model

Rather than trying to build a full-spectrum defence industry, Luxembourg is positioning itself in selected parts of the value chain, particularly in dual-use technologies where it already has capabilities.

That reflects both the country’s scale and existing strengths in areas such as digital infrastructure, space and financial services, while also aligning with broader European efforts to expand industrial capacity.

Backes framed that positioning as part of a wider effort to strengthen Luxembourg’s place within allied structures. “Defence only works if we have the right partners — in industry and among our allies,” she said.

She described the strategy as a starting point rather than a finished framework. “This strategy is an important start, not the end of the process.”