Picture a map of Europe today. The world feels less certain, the winds of conflict blow closer, and the Old Continent finds itself speaking a word it thought it had left behind: rearmament. The European Union, sensing the urgency of the moment, is preparing to invest heavily in its security.
Now, imagine one of Europe’s tiniest countries, a Grand Duchy smaller than most European regions, stepping forward not with tanks or armies, but with something far more powerful: strategy, innovation, and speed. Could Luxembourg, with its modest size but outsized influence, become a shield for Europe?
In this blog, we will explore how Luxembourg, despite its small size, can use its unique ecosystem of finance, space, Artificial Intelligence (AI), and research to become a catalyst for innovation and resilience in Europe’s defence strategy.
Luxembourg’s secret weapon: agility
Luxembourg has a long history of turning its size into an advantage. Without sprawling lands or natural resources, it built one of the most sophisticated financial centres in the world. It bet early on the space industry, becoming a European pioneer in satellite technologies and the introduction of the Space Campus in 2026. Now, it is setting the stage for a future powered by AI and its already world-class Meluxina-Q supercomputer.
Taken together, these elements form a powerful ecosystem, one that can reshape Europe’s defence capabilities. Unlike other nations, Luxembourg doesn’t need to move mountains to change course. Its small size means short political paths: decisions that might take years elsewhere can be made in months, or even weeks. That agility, combined with strong ties between government, business, and research, creates fertile ground for innovation.
At the very start we would like to acknowledge the existing efforts by the Luxembourg Government, Luxinnovation, and LuxDefence at the heart of this ecosystem, in helping companies access European Defence Funds, among other initiatives.
Since 2020, Luxinnovation, acting under the mandate of the Luxembourg Directorate of Defence, has been fostering a national defence community and supporting the development of cutting‑edge security and defence technologies by facilitating access to national and European research and innovation funding and to NATO innovation and procurement programmes, and by integrating Luxembourg players into European defence value chains.
LuxDefence supports the growth of a strong industrial and technological defence base in Luxembourg and actively contributes to the national dialogue in the defence-related ecosystem. It also collaborates with international organisations to secure a long-term position for Luxembourg actors within major European and transatlantic defence value chains.
At the same time, there is broad recognition that these efforts must accelerate. Or to put it in Yuriko Backes, the Minister of Defence’s own words in her forward to the Luxembourg Industry and Research Capabilities for Security and Defence*, “Luxembourg, alongside the EU and NATO, must strengthen their deterrence and defence. We need to step up and rearm, in particular by reinforcing the European pillar of NATO.”
Rethinking defence: the dual-use strategy
Of course, Luxembourg will never compete with Europe’s military heavyweights in sheer defence spending. But here lies its opportunity: investing smartly in dual-use technologies: innovations that serve both civilian and military purposes. One specific example on how this can be done are the recently published Defence Bonds, an initiative recently praised by NATO Supreme Allied Commander Europe, Alexus Grynkewich. In fact, perhaps an understated priority for Luxembourg is its potential to become a financing hub for defence investments (infrastructure, ammunition factories, transitions from civil to defence). There are many alternative funds and infrastructure funds in Luxembourg, and the European Investment Bank (EIB)/European Investment Fund (EIF) are also looking to invest. While many countries are struggling to deploy investments, Luxembourg is already moving in this direction with LuxDefence.
Speaking about the new defence technologies, most that are currently being developed are almost dual use in nature, as they are linked to AI or, more generally, to digitalisation. Think of satellites. In times of war, they guide military navigation and secure communications. In daily life, they power GPS, weather forecasting, and internet access. AI follows a similar pattern: one day it enables autonomous drones in the battlefield, the next it optimises healthcare or transportation.
This built-in duality is not just a by-product; it’s a strategy. By focusing on technologies that benefit society as a whole, Luxembourg can ensure that every euro spent on defence also generates civilian value.
And the approach doesn’t stop at public spending. In a world where public budgets are under pressure, Luxembourg is uniquely positioned to attract private investment into defence innovation, multiplying the impact of every euro. Finally, it would be wise to focus on European collaboration. Luxembourg’s small size penalises the country in terms of scale. To compensate for this, we should consider a virtuous circle in which the Grand Duchy would play a kind of incubator role by financing innovative companies in dual-use technologies and allowing them to take advantage of the unique ecosystem we have just mentioned, so that they can then achieve continental reach thanks to European instruments and funds.
Where should Luxembourg aim its sights?
If Luxembourg is to play this role, certain topics are particularly strategic in the field of dual-use technologies and should therefore be prioritised for investment.
Several fields stand out:
- Space: Advancements in satellite technology, space-based defence systems, and space situational awareness.
- Cyber: Cybersecurity tools and strategies to protect critical defence infrastructure, in particular satellite networks. Investing in quantum‑resilient cybersecurity and secure satellite operations is urgent, as recent reports of Russian satellites interfering with European geostationary spacecraft illustrate how space systems can be exploited in hybrid conflicts and how vulnerabilities in satellite networks pose real strategic risks. Luxembourg’s space ecosystem positions it to help develop secure, resilient and sovereign satellite operations that support European strategic autonomy.
- Finance and scale mechanisms: This includes the defence bonds mentioned earlier, but also Venture Capital mobilisation and the facilitation of EU/NATO pathways. Here Luxembourg is in prime position with its strong alternative funds industry, and the presence of the European Investment Bank. As one of the world’s leading financial centres, Luxembourg can play a key role in the funding of defence infrastructure projects, and in the transition for certain companies from civil to defence, and in building ammunition factories, for example.
- Materials: Next-generation materials and solutions enhancing durability, efficiency, and performance.
- Autonomous systems and AI: Autonomous platforms and AI‑driven solutions that transform operational capabilities, for example drones and autonomous vehicles able to continue their mission even under communication jamming. Selected as a host of an EU AI factory, Luxembourg will need to balance rapid innovation with regulatory compliance and ethics to deploy these technologies responsibly.
Focusing on these areas, in which we already have well-established players, will enable us to achieve rapid results and a short-term return on investment. Both areas align perfectly with Luxembourg’s ecosystem and promise not just long-term potential but rapid, visible results.
The role of the public sector, research, and collaboration
Building a credible, competitive, and sustainable defence and dual-use technology ecosystem is something no country — and certainly no small one — can achieve alone. Luxembourg’s path lies in collaboration and orchestration.
The public sector has a key role to play in bringing stakeholders together and providing the assistance and tools needed to create a dedicated defence ecosystem. In other words, it must create a suitable framework within which Small and Medium-sized Enterprises (SMEs) will have the conditions that will enable them to discuss their needs, innovate, apply for European funding and make them visible and bankable in the eyes of private investors, while reinforcing industrial policies to adopt the domestic development of dual-use technologies and draw additional industrial capacity to Luxembourg. This requires establishing a strategy that addresses questions relating to the financial needs and instruments required to achieve the objectives set and then implementing it by effectively releasing the funds. Tools like the European Defence Fund (EDF) and the NATO Innovation Fund (NIF), domiciliated in Luxembourg, provide fertile ground, investing in start-ups in the defence sector, among others.
As for the world of research, it is the cradle of innovation. Many start-ups are actually spin-offs from academic projects. It is therefore important that players such as the SnT (Interdisciplinary Centre for Security, Reliability and Trust), the University of Luxembourg and other research centres, communicate about the obstacles they encounter in accessing the funding they seek. Sometimes, simple practical considerations such as access to adequately secured premises can lead to additional funding. It is therefore essential that these needs are expressed and that the public, private and research sectors work together towards the same goal. It is therefore essential that these needs are expressed and the public, private and research sectors work together towards the same goal.
PwC’s role: building the bridge
Andrea Lucchini and David Bernard, Director and Senior Manager respectively in the Industry & Public Sector Advisory Department at PwC Luxembourg, see their role as both architects and accelerators. Strategically, they work with governments to define and implement the framework best suited to the country’s priorities. They regularly carry out this type of mission at the European level in collaboration with institutions such as the European Investment Bank (EIB) and the Directorate-General for Defence Industry and Space (DG DEFIS).
At a more operational level, they help structure the instruments identified thanks to their expertise in the financial sector, acting as a bridge between the various players in the ecosystem (public or private), between the financial sector and defence innovation, between start-ups and global investors, between Luxembourg’s unique strengths and Europe’s urgent needs.
In this way, they help innovative companies reach a level of maturity sufficient to attract private investors and access European funding, supporting them in structuring their business model to facilitate their expansion into other markets. Moreover, PwC Luxembourg’s experts in fields such as cybersecurity and its international network enable the mobilisation of foreign specialists in certain niche areas to support Luxembourg players in innovative projects.
A shield made of innovation
So, the question remains, can Luxembourg really become a shield for Europe? The answer may lie not in steel or firepower, but in innovation, resilience, and agility.
If the Grand Duchy chooses its battles wisely by focusing on dual-use technologies, using private capital, and positioning itself as an incubator of European defence innovation, then the answer is yes, Luxembourg could well punch far above its weight, as it has done in other areas before. Innovation, resilience and agility are in the country’s DNA.
In the end, its strength may come not from the size of its army, but from the sharpness of its ideas and the speed of its execution. And in today’s Europe, that may prove to be the most powerful shield of all.
Want to know more? Go to our Defence and security page or reach out to one of our contacts.
*If you are interested in greater details, download the “Luxembourg Industry and Research Capabilities for Security and Defence” brochure produced by Luxinnovation and the Luxembourg Government.
This blog is an expanded and modified version of an article, “Le Luxembourg, un bouclier pour l’Europe?”, originally published in Lëtzebuerger Gemengen.
What we think
Luxembourg’s unique blend of financial strength, technological innovation, and forward-looking infrastructure positions it perfectly to lead the way in European defence modernisation.
As a small, agile state, Luxembourg’s ability to quickly adapt and foster strong public-private partnerships makes it a natural contender for driving change in Europe’s defence landscape.
