Luxembourg doubles defence spending by 2025, focusing on innovation and SME integration.

Luxembourg is increasing defence spending to 2% of Gross National Income by end of 2025.

The country focuses on innovation and business, integrating SMEs into European defence supply chains.

Luxinnovation collaborates with the Directorate of Defence to create a security and defence industry community.

After decades in the wilderness, Europe’s defence industry is back in vogue. For Luxembourg, more than most, this sometimes means creating something from nothing, which is equal parts challenge and opportunity.

There is no getting around the fact that geopolitics is rapidly changing Europe. Putin’s invasion of Ukraine put the EU’s defence firmly under the microscope for the first time in more than three decades. Since then, President Donald Trump has distanced the US from its traditional allies. To a greater or lesser extent, Europe is on its own, and Luxembourg’s leaders insist the Grand Duchy is going to pull its weight.

The country started by agreeing to up its defence spending to 2% of Gross National Income by 2030, before deciding this May to bring the goal forward to the end of 2025.

While laudable, no amount of Luxembourg spending or military recruitment could transform the country’s small army into a force capable of turning the tide of a major conflict. The authorities know this and have decided to double down on what the country does best: business and innovation.

“The ambition of the Defence Directorate is to give visibility and credibility to our companies and research centres. The fact that Luxembourg Defence supports its companies and researchers in the various European cooperation frameworks and at Nato level shows our partners that we have serious and capable defence (industrial) players with whom it is possible to work in a multitude of capability areas of interest to the EU and the Alliance,” the Directorate of Defence, which is part of the Ministry of Foreign and European Affairs, told the Luxembourg Times in an email.

“Above all, we seek to help our SMEs integrate defence supply chains at the European level, to exploit opportunities for cross-border cooperation and to make their products stand out,” a spokesperson said.

Joint calls for collaboration on defence were issued by the directorate in 2022 and 2024, bringing multiple bodies together around the issue – including the national innovation agency Luxinnovation.

The agency started working with the directorate even earlier: “We know the innovation ecosystem well, the industry and research actors, and this brought us in 2020 to the point with the Directorate of Defence to establish a collaboration in view of creating a security and defence industry community in Luxembourg’s priority sectors,” said Alexander Link, Luxinnovation’s defence technology and innovation coordinator, in an interview.

Alexander Link, Luxinnovation’s defence technology and innovation coordinator © Photo credit: Luxinnovation

“We’re looking at empowering companies to innovate today to be ready for tomorrow and this has been part of our DNA for over 40 years,” Link said, noting that driving innovation in business is similar, regardless of sector. “The mission is basically to help our companies to innovate on one hand, and then the other hand is to look at the ecosystem as a whole and see how we could contribute through innovation flagship projects.” 

As a country without an arms industry in the traditional sense, Luxinnovation was charged with creating a community of companies from the country’s priority sectors – such as space, health tech, logistics and IT – which could prove equally useful for defence as well as for the civilian economy.

Another of Luxinnovation’s missions “is to help this community […] our national industry and research to integrate into the European defence value chain and facilitate their access to EU and Nato innovation and procurement programmes” in support of the Directorate of Defence, Link said.

Building the hub

One part of Luxinnovation’s defence drive has been to create a defence and security catalogue of Grand Duchy companies which offer dual-use goods or services in demand across the continent. The 2024 edition featured 90 companies and organisations. The 2025 version, slated for release on 16 June at the Paris Air Show, will showcase as many as 110 businesses, according to Link.

Among the 90 entries in the 2024 catalogue are familiar names like Post Luxembourg, Luxtrust, SES and Ceratizit. There are big names from the country’s start-up scene, like Circu Li-ion, Helical, Hydrosat and Solarcleano. There are also research organisations and public bodies like the University of Luxembourg’s SnT research centre, the Luxembourg Institute of Science and Technology (List), Luxprovide and Luxgovsat.

“Ceratizit is proud to be featured in the Luxinnovation 2024 Defence Catalogue, showcasing our commitment to innovation and excellence in the defence industry,” Andreas Lackner, spokesman of the Executive Board told the Luxembourg Times by email.

“Our involvement in this field is longstanding, and we have been actively contributing to the growth and development of the Luxembourgish and European defence industry. We maintain regular, direct communication with Luxinnovation and the Ministry of Defence to ensure our solutions meet the highest standards and address the evolving needs of the sector, within its regulatory framework,” he said.

Most of the time, Ceratizit manufactures hardened metal components for industry, including cutting tools and drilling heads, which can also be used in military hardware.

Nato partners share technology, which is where Luxembourg sees itself as most useful © Photo credit: Guy Jallay

Luxtrust, meanwhile, is best known as the authentication app that protects people’s online bank accounts. With cybersecurity now central to overall defence, there are again clear crossovers.

“As a 100% European partner in digital trust, Luxtrust specialises in cybersecurity and digital identity. Our core mission is to secure critical IT infrastructure across multiple strategic sectors such as defence, space and aviation,” a spokesperson said. “We aim to build and reinforce trust in digital systems while actively safeguarding European data sovereignty – a priority we see as essential in today’s geopolitical and technological landscape.”

Luxtrust is part of several defence projects, including SESIOP (Single European Sky and InterOPerability), which aims to improve the interoperability between civil and military air command and control systems in line with Single European Sky regulations. It is also responsible for designing a civil-military interoperability model.

Overlapping opportunities

“We are not starting from scratch. We are basically adding a defence layer to what has been done by the government as part of the diversification strategy within the last 10, 15, 20 years, to develop the new different sectors,” Link said. “When you look at the priority sectors of Luxembourg – with space,  with cybersecurity, with materials and manufacturing, with data, with automobility, etc – I mean these are all areas where you develop deep-tech, disruptive technologies, like AI or advanced materials, space technologies, which can also be of use for defence.” 

The Directorate of Defence believes its work with Luxinnovation to map Luxembourg’s business landscape, its actors and products, which culminated in the Luxembourg Industry and Research Capabilities for Security & Defence catalogue is a first step, not a last: “We now have a better picture of all the actors of the private sector, which enables further cooperation.”

While national defence is a political matter, coordinated by national authorities, defence development fits well with the private sector.

“When we look at defence, we are basically looking at the five operational domains: land, air, naval, cyber and also the space domain,” said Link. “And in all these domains, if you want to develop defence capabilities you need of course to have the adequate technologies to do that. And what we have seen is that the development of disruptive technologies is taking place at a much quicker pace in the civil domain today.”

The Directorate of Defence is the central point where all the elements come together, including the Luxembourg army and the private sector, as well as politicians, Nato and European partners.

“The development of our national defence capabilities is mainly aligned with the capability targets determined by Nato,” according to the directorate. “Nato has plans on how to collectively defend the Euro-Atlantic Area. The capability targets assigned to each of the 32 Allies are derived from these plans and the capabilities needed for their implementation.”

Luxembourg has dedicated strategies within Nato for space and cyber defence, as these are two of the country’s priority areas in the wider economy.

“When we look at where Luxembourg can compete in terms of defence technologies, we’re basically looking at the prioritised sectors from Luxembourg,” Link said. “If I dive into what the current Luxembourg defence industry and security community is doing, it’s basically a focus on space technologies, it’s a focus on cyber and AI, on digital transformation, and on advanced materials.” 

In other words, although Luxembourg would struggle to rescue Europe, by focusing its energy smartly, it is trying to pull its weight as promised.