Between army and market – can increased defence spending result in concealed state aid to undertakings active in both civilian and military markets?

One of the means by which Europe is responding to current security challenges is through expanding defence production capacity. This area is characterised by a constant process of technological progress and adjustment to ever-changing battlefield conditions, with many civilian technologies being used in combat with little or no adaptation. One element of building a robust European defence industry is to enable civilian companies with technologies of potential military application to diversify into the arms market. Funding of defence-related production falls outside State aid law. As an increasing number of undertakings are simultaneously engaged in manufacturing goods for both civilian and military markets, the analysis focuses on whether financing the latter operations may confer an unmarketlike advantage on the former component. Consequently, the paper addresses the question of whether there exists – and, if so, how significant – a loophole for granting concealed State aid outside its control system.