Following the recent decision on joint borrowing of €150 billion, the rearmament of the European Union could abolish yet another European ‘forbidden’ topic – the creation of dominant companies in the market. Data from the European Commission (EC) shows that last year the total defense spending of EU member states rose to €326 billion, an increase of more than 30 percent since 2021. Of this, €102 billion was invested in the procurement of new weapons and equipment. This influx of money has caught the European defense industry off guard. The EC stated in the Common White Paper on European Defense Preparedness published in mid-March that the European base of the defense industry has structural weaknesses. This is despite the fact that several globally competitive arms manufacturers come from the Old Continent.
– At this moment, the European defense industry cannot produce defense systems and equipment in the quantities and at the speed that member states need. It remains too fragmented with dominant national producers primarily focused on their home markets – the document states. European military-industrial capacities currently do not match the geopolitical reality of the continent, assesses Domagoj Juričić, a political risk management consultant at MK Business Consulting.
– Years of military budget cuts, dependence on the American security umbrella, and fragmented industrial policy have resulted in a lack of key capacities, especially regarding ammunition, air defense systems, and interoperable combat platforms. The war in Ukraine has exposed these weaknesses: despite political promises, the EU has yet to deliver the planned one million shells per year to Ukraine. European capacities for producing artillery ammunition remain a bottleneck, and the expansion of existing factories is progressing slowly – Juričić notes.
However, in his opinion, the situation could change significantly in five to seven years if political will translates into strategically directed investments and the regulatory framework is adjusted to the needs of the defense industry.
Who to copy?
In such circumstances, the European defense industry needs not only consolidation but also a fundamental transformation. However, this consolidation could easily lead to the creation of a duopoly or even a monopoly in the production of certain types of weapons. This would mean abandoning the principle of market competition, one of the foundations of the EU. This issue transcends the defense industry. Deutsche Telekom CEO Tim Höttges emphasized in early March that regulators in several European markets have prevented or significantly altered plans for the merger of telecommunications operators.
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