The engine of global technological innovation has executed a profound reversal. During World War II and the Cold War, the pattern was clear: Defense led. Government R&D programs, like DARPA, drove foundational technologies (like radar, GPS and the Internet) which later ‘spun off’ into the civilian economy. Today, the reality is precisely the opposite: Industry leads. Innovations in AI, quantum computing, satellite communications and high-volume manufacturing now originate in the commercial sector. Fueled by private venture capital, defense is compelled to ‘spin on’ these dual-use technologies to maintain its competitive edge. This inversion is the central challenge to European sovereignty, and former ECB President Mario Draghi’s recent report on competitiveness provides a blunt, urgent diagnosis of the stakes.
Why the shift matters: Draghi’s warning on sovereignty
The dependence on industry-led innovation is not merely a path to cost-saving, it is a geopolitical necessity linked inextricably to economic resilience. Draghi’s report warns that Europe faces a critical triple dependency, encompassing the innovation gap with the U.S. and China, the decarbonization mandate, and the urgent need to shore up defense. He argues forcefully that Europe cannot afford to choose between these priorities, as they are deeply intertwined.
The reliance on industry is critical because the commercial sector iterates faster, meaning if a European Ministry of Defence (MoD) cannot rapidly integrate private-sector breakthroughs in AI edge computing or drone technology, it will inevitably fall behind adversaries unconstrained by traditional acquisition timelines. Furthermore, Europe’s fragmented defense industry has created a systemic vulnerability with costly duplication, a problem that can only be fixed by harnessing the scale of the private sector through dual-use production, thereby reducing dependency and creating essential economies of scale. Defense must field affordable capability, such as thousands of cheap counter-drone systems, and since government R&D cannot fund this scale, industry-led mass manufacturing is the only viable path to reversing the negative cost exchange ratio.
The impact on industry: Opportunities and reckoning
The dual-use imperative creates an enormous, complex opportunity for the European technology industry, but success demands radical internal change. The rising tide of European defense spending, fueled by Draghi’s analysis, signals a predictable, high-value demand signal never before seen in peacetime Europe, which offers a mandate for scale. Companies that embrace dual-use design can secure long-term, stable government contracts (anchor tenancy) to fund their capital expenditure, which effectively de-risks the long development cycle inherent in deep tech. Defense procurement, when done correctly, simultaneously forces standardization and modularity, making the company’s product line more efficient and competitive in the global commercial market.
To seize this opportunity, adaptation is critical for all players. Industry must embrace the dual-use model by designing hardware around COTS components and modular architectures that can serve multiple markets. This is to ensure the product is cheap enough for commercial scale and robust enough for security. Start-ups, for their part, must invest in bridging the cultural divide by actively engaging with defense innovation hubs and developing the necessary expertise in security compliance and government accounting. This helps them move beyond small grants to secure large procurement contracts. Critically, industry must avoid the fatal trap of fragmentation and duplication by resisting the urge to lobby for bespoke national contracts, a practice that ultimately weakens the EU’s industrial capacity..
Building the new space and dual-use ecosystem
The complexity of orchestrating this pan-European industrial and cultural shift requires specialized expertise. Verhaert’s strategic innovation model plays a vital role in accelerating this transformation by helping build the necessary ecosystems for CASSINI for new space and EUDIS for European Defence Industry actions. The teams actively facilitate business acceleration by leading entrepreneurship within scientific areas, incubating new start-ups and accelerating promising scale-ups across Europe. Moreover, they connect early-stage space companies with investors across the continent through dedicated matchmaking events. This process not only validates dual-use start-ups but also strengthens the European innovation community, providing the infrastructure and networks required to transform fragmented national capabilities into a cohesive, strategically resilient, European-wide industrial base.
In short, the dual-use mandate—reinforced by Draghi’s urgent call for economic security—presents the European industry with a clear challenge: scale up, specialize and integrate, or risk ceding both commercial leadership and strategic autonomy to foreign competitors.