The European Union and defence industrial cooperation: from market rules to capacity-building through offsets?

Since the mid-2010s, and especially following Russia’s invasion of Ukraine in 2022, the EU has adopted a markedly more interventionist posture across a range of economic and industrial sectors. International political economists have called it the “geo-dirigiste” turn of the EU industrial policy. In parallel, security studies scholars have begun charting an EU shift from market liberalisation to industrial policy in the defence sector. This article argues that existing accounts underestimate the extent of this transformation. The central change is not simply a move from liberalisation to industrial policy, but a shift from an efficiency-oriented model of defence integration towards one prioritising scalability and redundancy. This shift has facilitated the reconceptualisation of defence offsets – from market-distorting practices to instruments of military capacity-building. Practices once criticised for fragmenting the European defence market are increasingly valued because they contribute to surge capacity and wartime preparedness. Drawing on process tracing, elite interviews, and a systematic examination of procurement strategies, EU initiatives, and offset agreements between 2022 and 2026, the article traces the changing status of offsets within European defence policy. In doing so, it contributes to debates on the EU’s defence-industrial turn, the evolving role of offsets, and agency in European defence policy.