Openness and Fragmentation in EU Defence Procurement

Hello! Today is 27 April, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on LinkedIn.

This week’s expert is Oscar Guinea. Oscar is Director at the European Centre for International Political Economy (ECIPE), specialising in international trade, digital policy, industrial policy and health. He also writes a regular column for the Spanish daily El País.

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.

UKRAINE • On 23-24 April, EU heads of state and governments met for an informal European Council in Cyprus. They unlocked a long‑blocked 90 billion euro support loan for Ukraine and tightened sanctions on Russia’s war economy.

The loan, agreed after months of vetoes from Hungary and Slovakia, will provide 90 billion euros over two years to help Kyiv cover budget needs and sustain its defence effort.

As sanctions and major financial decisions are adopted by unanimous vote, Budapest and Bratislava were able to block the package until they lifted their objections once Russian oil flows through the Druzhba pipeline to Central Europe resumed, ending the standoff.

In parallel, Member States adopted a 20th sanctions package banning another 20 Russian banks from euro transactions and SWIFT, extending the list to 70 lenders and targeting circumvention via third countries such as Kyrgyzstan, Laos, Azerbaijan and several Chinese firms.

EU DEFENCE • EU heads of state and government opened a new chapter on the EU’s mutual assistance clause, Article 42.7 of the EU Treaty.

They asked EU foreign policy chief Kaja Kallas to clarify how this clause should work in practice if a Member State is attacked, including non‑military support and the role of neutral countries such as Austria or Ireland.

Cyprus, recently targeted by drones and not covered by NATO’s Article 5, pushed to put the topic on the agenda. Eastern and Nordic capitals insist that Article 42.7 must remain complementary to NATO’s collective defence guarantee, not a substitute.

The clause has only been activated once, by France after the 2015 terrorist attacks in Paris. Ambassadors will now run a closed‑door tabletop exercise on possible hybrid attack scenarios, ahead of a second exercise with defence ministers and an EEAS paper spelling

SCAF • France, Germany and Spain are still struggling to salvage their next‑generation fighter jet programme, SCAF/FCAS, seen as a flagship of European defence industrial cooperation after Russia’s invasion of Ukraine.

The system is meant to field a sixth‑generation fighter operating with drones and a shared “combat cloud” by around 2040, but talks are stuck over work‑share, governance and intellectual property on the core aircraft, with Dassault insisting on design leadership and Airbus rejecting a downgraded role.

A mediation process has been extended by roughly 10 days as Emmanuel Macron and Friedrich Merz seek a political fix.

GERMANY • Berlin has adopted its first stand‑alone military strategy since 1945, “Responsibility for Europe”, which aims to turn the Bundeswehr into Europe’s strongest conventional army, raising troop numbers towards about 260,000 soldiers and 200,000 reservists while closing gaps in long‑range strike and intelligence capabilities and naming Russia as the most immediate threat.

LGBTQIA+ RIGHTS • The Court of Justice has struck down Hungary’s 2021 “child protection” law as incompatible with EU law.

The judges hold that blanket bans on content depicting “deviation” from sex at birth, gender reassignment or homosexuality in media, advertising and education unjustifiably restrict the freedom to provide and receive services and directly discriminate on grounds of sex and sexual orientation.

The Court finds a particularly serious interference with equality, private and family life, freedom of expression and information, and a violation of human dignity, by presenting LGBTI+ people as a societal threat associated with paedophilia.

For the first time in an infringement action against a Member State, it also finds a separate breach of Article 2 TEU on the Union’s founding values, alongside violations of the GDPR over overly broad access to criminal‑records data.

EU-ISRAEL • EU foreign ministers have rejected a push by Spain, Ireland and Slovenia to suspend the EU‑Israel Association Agreement over settler violence, Israel’s new death penalty law and the humanitarian situation in Gaza.

Meeting in Luxembourg, they did not reach the unanimity required, with Germany and Italy opposed and Austria favouring continued but more critical political engagement rather than suspending the treaty framework; by contrast, on the Association Agreement, several capitals beyond Budapest remain reluctant to contemplate suspension.

In parallel, pressure is mounting for tougher steps. Spain, Ireland and Slovenia had invoked the agreement’s human‑rights clause, while France and Sweden are calling for an EU ban on imports from West Bank settlements and possible tariffs on settlement products.

On targeted sanctions against violent settlers (asset freezes and travel bans), Hungary has so far been the decisive veto; diplomats now note that a change of government in Budapest could open the way for such measures if all 27 eventually agree.

• For the FT, Peter Foster, George Parker and Andy Bounds take stock of Keir Starmer’s efforts to rebuild ties with the EU.