Who can forget the surreal scene that unfolded in the Oval Office on 28 February 2025? With the whole world watching on, Donald Trump and his vice-president J.D. Vance humiliated the head of state of a country under attack by a hostile power, sending an implicit message to all those who believed they were protected under the American security umbrella: nothing is certain any more. Against this backdrop of geopolitical upheaval, yesterday’s certainties are crumbling in the wake of armed conflict, systemic crises, technological competition and the compulsive tweets of Elon Musk and other close allies of the US President who are advocating for moves such as the withdrawal of the United States from NATO and the UN. This scene in the Oval Office, which history will remember as a watershed moment, is a wake-up call for the countries of Europe: when it comes to defence, the question of sovereignty is no longer theoretical – it is now profoundly existential. The return of high-intensity conflict to European soil, epitomised by Russian aggression in Ukraine, had already prompted Europeans to step up their defence efforts. They must now do even more and adopt a new mindset. It is no longer simply a question of developing military capabilities. It’s about gaining strategic autonomy.
Luxembourg, which is highly integrated into the Euro-Atlantic area, cannot be an exception to this reconfiguration. As a founding member of the European Union and NATO, it must fully assume its responsibilities in line with its resources. Since 2014, its military spending has risen sharply, with the defence budget set to reach €1.46 billion in 2030, compared with €190 million ten years ago. However, a budget increase alone does not a strategy make. It is not so much the amount invested that determines sovereignty, but rather the ability to transform that investment into national added value and positive externalities for both the economy and society. It is precisely this goal that spurred the Chamber of Commerce to set up a working group in mid-2024, made up of companies and institutions already active in the defence sector, to develop targeted recommendations.
Lux4Defence: a major conceptual shift
The result of this group’s work – the strategic Lux4Defence report, which was submitted to the government a few weeks ago – marks a major shift in thinking. It is no longer a question of thinking of defence as a simple item of expenditure or a commitment to NATO/the European Union, but instead as an industrial, technological and economic policy in its own right – one that combines return on investment with sovereignty and security.
The report offers a clear diagnosis: Luxembourg is structurally lagging when it comes to a domestic defence industry. There are many reasons for this, most rooted in the country’s historic reliance on strategic alliances. Luxembourg lacks a structured industrial base, an enabling regulatory framework, innovation tools focused on military or dual-use applications, and a commercial culture around military-use products and services. But this sobering assessment is not cause for fatalism. That is because Luxembourg also has a high level of expertise in a number of crucial areas: cybersecurity, space, advanced materials, smart logistics, artificial intelligence and soldier systems. The country can also harness the strengths of its financial centre to support Europe’s defence effort. If applied properly, these technological and competitive pillars can form the basis for Luxembourg’s new strategic positioning.
The report recommends a series of structural reforms designed to create the conditions for the emergence of a national defence technological and industrial base. The aim is not to replicate the large-scale military-industrial complexes of major powers, but to build an agile, responsive ecosystem that is capable of meeting the country’s specific needs while integrating into European or NATO value chains. This ambition is based in particular on the creation of dedicated governance, in the form of an interministerial Task Force with an operational mandate, and on the establishment of a Defence Hub – a shared, secure physical space that brings together companies, laboratories and public institutions.
A smoother transition from R to D
Another fundamental focus of the report is the need to improve the transition mechanisms between basic research and practical applications. While Luxembourg does perform well on the academic front, it often struggles to make the leap to industrialisation. The report suggests addressing this gap by introducing suitable tools: public pre-orders, R&D tax credits, a dedicated innovation fund, and, most crucially, greater business involvement in project selection and oversight. This alignment between research policy and industrial strategy is essential for the emergence of impactful innovations.
Infrastructure is another critical issue. The development of defence technologies requires testing and validation capabilities under real-life conditions, but these capabilities do not currently exist in Luxembourg. The creation of a dedicated national centre, one that is integrated into a European testing network, would help to secure the technological development process.
But innovation that stays invisible is innovation that doesn’t sell. This is why we need a genuine marketing strategy for the goods and services produced by our defence technological and industrial base. With that in mind, we are promoting the idea of building a marketplace listing Luxembourg’s industrial expertise and offerings to serve as a showcase for public buyers and European partners.
Investment in defence must produce a multiplier effect by creating jobs, generating technology and skills transfers and attracting talent. This perspective, however, presupposes a proactive approach to offset agreements, i.e. economic compensation in relation to foreign procurement. At present, these mechanisms are still underused due to the lack of a clear strategy and systematic contractual requirements.
The Luxembourg Armed Forces themselves must play a more active role in this process. They cannot simply be a purchaser of off-the-shelf solutions. They need to become a fully-fledged innovation partner, involved from the earliest stages of R&D right through to prototyping and operational evaluation. This cultural shift will not only enable the solutions developed to be better tailored to needs on the ground – it will speed up their implementation as well.
Finally, no strategy can succeed without amendments to the legal framework. Luxembourg’s legal framework still contains grey areas that create uncertainty for businesses seeking to break into the defence sector. These issues must be addressed urgently.
An association to bring stakeholders together
The initiative launched by the Chamber of Commerce goes beyond a simple assessment. It has already resulted in the creation of an association of defence companies that will bring together stakeholders who want to speak with one voice. This association will become a strategic interface between businesses and public authorities – a place for the exchange, representation and coordination of structuring projects. In short: a partner the government can really trust.
Luxembourg has a unique opportunity to transform a strategic obligation into a driver of economic diversification. “Lux4Defence” is not just another report, but rather a call to action in a geopolitical environment that demands it. It is a call for collective intelligence, a strong signal sent to both the entire national ecosystem and our allies.
Our credibility, our security and our future are at stake.