Brussels seeks to create single market for European defence

Europe's defence industry is highly fragmented, with the market dominated by major players from France, Germany, Italy, Spain and Sweden, and more than 2,500 SMEs – often leading to overlap and duplication.

“We are producing very many expensive products, but in small numbers," MEP Riho Terras (Estonia/EPP) told Euronews in an interview. "What we need is for the market to provide the necessary quantities of ammunition, missiles, and various defence equipment."

“Countries must consolidate and buy together, giving small- and medium-sized enterprises the opportunity to operate equally on the market,” said Terras, who is vice-chair of the European Parliament's committee on security and defence.

The EU has quadrupled production since the start of Russia's military aggression in Ukraine, but no single member state has the capacity to scale up the European defence industry and compete with global players such as the US and China. 

Commission President Ursula von der Leyen envisions establishing a true single market for defence products and services by the end of her mandate, enhancing Europe's production capacity, fostering joint production, and reducing dependencies on third countries.

However, some argue this vision will not be easy to achieve by 2029.

"Defence is essentially a single monopoly customer, which is the state, and if not monopoly, then rarely more than a couple of companies, so there isn't really the scope for a competitive market where you have many customers using their consumer choices and many providers competing for those customers,” Paul Taylor, senior visiting fellow at the European Policy Centre, told Euronews.  

Taylor also argued that national security concerns can also be invoked by member states to avoid competitive tendering in joint public procurement. 

In recent months, the EU has repeatedly called on its members to increase defence spending and address critical capability gaps in areas such as ammunition production, drones, air missile defence systems, and AI. 

According to Mario Draghi’s landmark report on competitiveness, the most cost-effective way to rebuild European defence is through demand aggregation and joint procurement. 

To date, the EU is heavily dependent on US arms imports, which accounted for 64% of the total in 2020-2024, up from 52% in 2015-2019 - so fostering more collaborative procurement would help cut Europe's dependencies towards global competitors, also including China.

“We need to encourage countries to buy equipment together in larger quantities, which would help consolidate the market, Terras said, adding that tenders should also be opened to companies from other like-minded countries such as the UK, Norway or Turkey.  

Collaborative procurement will also be key to unlocking pan-European flagship projects like a planned air defence shield and strengthening NATO's eastern border with Russia and Belarus - which will be particularly relevant to ensure Europe’s ability to defend itself from potential future aggression.

In a white paper on the future of European defence, the European Commission warned on Wednesday (19 March) "Europe cannot take the US security guarantee for granted and must substantially step up its contribution to preserve NATO's strength" with Washington increasingly focusing on the Indo-Pacific region.

“Will member states, who are clearly spooked by the international geopolitical situation, really put the money there in a sustained effort? I think that's the fundamental question,” Taylor asked.  

“We need European defence, and it takes a decade of effort, a decade of spending to get there,” he argued.