Europe faces its biggest security threat since the Second World War. Meeting this challenge requires a strong European defence ecosystem, rather than a set of fragmented national defence systems.
Procurement is central to that effort. The economic case for an EU-wide defence procurement market has long been clear. Contestable markets drive down prices, prevent firms from relying on preferential relationships, and compel companies to invest in better equipment. Larger procurement markets also bring economies of scale and specialisation, allowing firms to spread fixed costs across a wider customer base.
Nonetheless, defence contracting in the EU still takes place mostly at the national level. Governments award the bulk of contracts to domestic suppliers and channel around 80% of spending through national systems.
This longstanding fragmentation produces the opposite of the benefits of scale. Siloed procurement markets push up costs, reduce specialisation, and keep European defence firms smaller. The consequences are stark: the EU operates more than 170 major weapons systems, against just 30 in the US, undermining scale, specialisation, and innovation.
Three-Quarters of Contracts Go to National Firms
Using data from the EU’s Tender Electronic Daily (TED) portal for 2023, my co-authors and I showed the extent of home bias in European defence procurement. Three-quarters of defence contracts across the EU were awarded to domestic firms. In countries like Germany, Poland, Belgium, Hungary, Greece, and Romania, nearly all contracts published on TED went to domestic suppliers.
The flip side of this coin is that, on average, only 19% of contracts were awarded to firms from another EU Member State.
True, EU countries with smaller domestic markets tend to award a larger share of their TED defence contracts to firms from other EU states (e.g., Malta (97%), Portugal (82%), and Ireland (50%)) but this is the exception rather than rule. Non-EU participation remains even more limited, at just 6%, with 14 EU countries recording no contracts awarded to non-EU companies through the TED system.
However, this figure masks that a substantial share of EU defence spending goes to non-EU suppliers, particularly from the United States.
Between 2022 and 2024, European countries sourced around half of their military equipment from the US and spent $76 billion on American weaponry in 2024, according to a paper by Bruegel. The small share of non-EU winners in TED suggests that much of this spending took place via other defence procurement instruments that were not published in TED.
SMEs dominate in specific product categories
The TED database provides valuable insights into the size of bidding firms. On average, 41% of bids came from small and medium-sized enterprises (SMEs), and 59% from large firms. However, these averages mask wide disparities. In nearly half of all TED defence tenders in 2023, no SMEs submitted bids.
Despite this, SMEs are the dominant bidders in certain product categories. For instance, SMEs accounted for 87% of bids for vehicle parts, 83% for medical consumables, and 75% for food. This indicates that while SMEs face barriers in broader defence procurement, they are highly competitive in specific, less sensitive niches.
Start Small With Non-sensitive products
A full EU defence procurement market will not be created overnight. Defence has been a national preserve for decades, and governments are accustomed to channelling contracts to domestic champions. However, home bias is not confined to high-end strategic systems; it extends even to routine goods and services where national security is not at stake.
If Europe wants to change this pattern, it should start where the political resistance is weakest. Opening competition in non-sensitive defence products would create quick wins. Governments would benefit from lower costs and better quality, while winning European defence firms would be able to grow and scale their operations.
Improve Data to Track Progress and Accountability
Good policy requires good evidence, and in defence procurement, the evidence is patchy. The fact that TED captures only one-tenth of procurement highlights the need for better data. Because this 10% is not a random sample, our findings must be interpreted with this limitation in mind. The database over-represents some types of defence goods and services while under-representing others.
Spending on strategic, high-end military equipment such as those sold by US firms, largely lies outside TED due to national security exemptions and government-to-government sales.
This gap is a clear demonstration of the lack of transparency and the work that is needed. While national security exemptions explain part of the gap, other research efforts such as the Kiel Report have assembled much larger datasets, showing there is room for improvement.
Transparency and competitive procurement are more than legal obligations. Better data would allow EU and national policymakers to spot bottlenecks, measure progress, and hold governments accountable for joint procurement pledges.
Few policies are as vital as defence, and few areas would benefit more from greater transparency. Europe cannot afford inefficiency in defence procurement if it is to build a credible deterrence by 2030.