The European Commission has just proposed five new joint defence projects. The rationale behind the EU’s growing focus on common defence procurement is easy to understand: Fragmented national markets allegedly make it difficult to generate scale, strengthen industrial capacity and coordinate investment across Europe. Less discussed, however, is how these initiatives might affect competition.
Joint procurement is often viewed primarily through the lens of security and industrial policy. Yet it also raises questions about market structure. If defence procurement increasingly moves from the national to the European level, how will this affect competition between suppliers, opportunities for smaller firms and European defence markets in the long term? With our usual foresight, this blog already anticipated some of the issues when growing defence spending returned to the top of the European policy agenda.
On 3 July 2026, the European Commission proposed five new European Defence Projects of Common Interest (EDPCIs). The idea is that EU Member States (and Norway) should cooperate on defence projects that are too complex, costly or strategically significant to pursue effectively on their own. The proposed projects cover drones and counter-drone systems, maritime and seabed defence, space, air and missile defence, and security along the EU’s Eastern flank. Ukraine would participate in four of the five projects. The EU Council must still formally adopt the proposed projects before they can receive EU funding.
From one initiative to a broader EU playbook
The projects form part of the European Defence Industry Programme (EDIP), which aims to strengthen defence industrial capacity, support cooperation with Ukraine and encourage joint procurement. Of EDIP’s EUR 1.5 billion budget for 2026, EUR 325 million is earmarked for the EDPCIs.
EDIP is not an isolated initiative. Earlier programmes such as EDIRPA promoted joint procurement, while SAFE (Security Action for Europe) provides up to EUR 150 billion in loans for common defence investments. Together, these initiatives point in the same direction: Away from fragmented national demand and towards more coordinated European procurement.
The real target: Europe’s fragmented defence markets
Defence markets differ from many other industries. Demand is often concentrated in the hands of a single buyer – the national government. In some segments, governments effectively face only a limited number of credible suppliers. Procurement decisions are frequently taken at national level and domestic suppliers often enjoy privileged access to their home market.
Guntram Wolff, Professor of Economics at Université Libre de Bruxelles and former Director of the Brussels-based economic think tank Bruegel, recently described fragmentation as one of the defining issues features of European defence markets. Where procurement crosses borders, it frequently reached beyond Europe rather than into it, with many NATO members purchasing significant volumes of defence equipment from the United States. According to Wolff, cross-border procurement within Europe remained remarkably limited for a sector operating within the EU’s single market.
From that perspective, the Commission’s initiatives directly address a perceived long-standing structural problem. Joint projects create opportunities for Member States to procure together rather than separately. At least in principle, this should widen the pool of potential suppliers.
More competition through cooperation?
Joint procurement generally reduces the number of tenders and procurement procedures, and consequently also the number of companies that are awarded defence contracts. Yet this is only one side of the picture. Another question is whether larger European projects create a broader competitive landscape compared to a collection of national programmes. If a defence contractor can realistically compete for contracts across Europe rather than only in its home market, competition in individual tenders may increase even though demand and procurement become more coordinated.
EDIP should therefore be viewed not only as an industrial-policy initiative, but also as an attempt to reduce fragmentation and create a larger European market.
Where do smaller suppliers fit in?
While, in practice, the defence sector has always relied on industrial cooperation, e.g., consortia for the development of military aircraft, one concern is that larger projects may favour larger suppliers
Larger procurement programmes can make market access more difficult for small and medium-sized enterprises (SMEs). Start-ups and specialised suppliers may struggle to gain visibility within large multinational procurement structures.
In this respect, the United States applies a dedicated approach: For decades, US defence procurement regulation has included mechanisms designed to ensure that SMEs can gain access to defence contracts, either directly or through subcontracting arrangements. While the share of large defence contractors is lower than it used to be, newer entrants have apparently been able to establish themselves within the defence ecosystem. Companies such as Anduril are perhaps the best-known example of a new generation of defence suppliers that emerged alongside the traditional defence primes.
The EU appears to think along the same lines. EDIP allocates €100 million in equity support for defence start-ups, small mid-caps, and SMEs.
Competition as a guardrail, not an obstacle
The debate around European defence procurement fits into a much wider discussion. Across a range of strategic sectors, the EU is increasingly willing to use industrial policy to strengthen resilience, reduce dependencies and support competitiveness. The success of those instruments will ultimately depend on whether they reinforce competition or gradually replace it.
Greater coordination may well lead to less fragmentation of Europe’s defence market(s). Yet scale alone is not a competition policy. The real test will be whether the EU’s projects lead to favorable outcomes – and what “favorable” means, will admittedly be viewed differently by different stakeholders.
Photo by Fer Troulik on Unsplash
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