On Tuesday 13 October 2026, Fondation IDEA asbl published Working Paper No. 39, “Financing Luxembourg’s Defence Industrial and Technological Base”, by senior economist Jean-Baptiste Nivet, examining the financing of Luxembourg’s defence industrial and technological base (BITDL).

According to the report, strengthening the BITDL is one of the pillars of Luxembourg’s national defence strategy. Luxembourg’s defence expenditure is expected to rise from €464 million in 2021 to nearly €1.66 billion in 2029, while the European defence market already amounts to €454 billion in 2026.

The study noted that the challenge was both to support projects by established companies and to encourage the emergence, attraction and growth of innovative start-ups. It argued that the development of the BITDL should go beyond meeting national defence capability requirements and aim to establish a competitive industrial sector on a European scale. The BITDL comprises 122 actors operating in areas including space, cybersecurity, advanced materials and autonomous systems.

Luxembourg already has a general innovation financing ecosystem covering the different stages of business development, including research and development (R&D) support, programmes offered by the Luxembourg National Research Fund (FNR), Fit 4 Start and the Luxembourg Future Fund. More recently, a dedicated defence financing ecosystem has emerged around the €150 million National Defence Fund, defence R&D calls for projects and strategic partnerships between industrial companies and the defence administration, particularly in the satellite sector.

According to the analysis, these mechanisms complement European Union and NATO financing instruments and make it possible to support defence companies from the research stage through to scaling up their activities. However, the study noted that the recently introduced initiatives, while demonstrating a commitment to developing the BITDL, may not be sufficient to support its expansion.

Drawing on financing mechanisms used in other European countries, Jean-Baptiste Nivet proposed several measures to broaden financing opportunities for Luxembourg’s defence industrial and technological base.

The recommendations include attracting private co-investors to a defence investment fund, following the French model, and creating a fund open to individual investors to channel private savings towards defence companies. The study also suggested closer cooperation with the Defence Angels European Network (DAEN) to facilitate business angel financing and investment in European start-ups.

Another proposal involves co-financing expenditure incurred by companies participating in European Defence Fund consortia, as practised by Business Finland, to support the participation of Luxembourg SMEs and start-ups in European technology programmes.

The analysis also recommended adopting a mission-oriented approach to financing the different stages of innovation, development and maturation of military solutions, drawing on the Dutch model. It further proposed introducing state-guaranteed loans, similar to a mechanism used by Poland’s public development bank, to reduce the risks associated with commercial bank financing of investments in military and dual-use activities.

Additional recommendations include concluding reciprocal purchasing agreements with other Member States, following approaches pursued by France and Sweden, and examining the financing needs and potential difficulties faced by BITDL companies. The study also called for an evaluation of recently introduced and forthcoming support measures.

The full working paper, in French, is available here.