Europe’s defense ambitions are rising in response to Russia’s full-scale invasion of Ukraine. But the European Union’s (EU’s) member states must build political will toward a common defense procurement system, lest those ambitions reinforce inefficiencies and fail to come to fruition.
Instead, Europeans have scrambled toward quick off-the-shelf procurements to address immediate capability gaps. Total EU defense spending increased 10 percent between 2021 and 2023. But 78 percent of EU military equipment acquisitions between June 2022 and June 2023 were sourced abroad, and 63 percent were from the United States alone, despite Washington’s own supply chain bottlenecks. This risks reinforcing a fragmented European defense and technological industrial base (EDTIB)—a decisive long-term enabler for supporting Ukraine, deterring Russia, and sustaining Europe’s defense momentum to balance the transatlantic alliance.
Structural challenges explain Europe’s dependence on off-the-shelf equipment. The EU possesses twenty-seven defense markets that lead to siloed supply chains and duplicated systems, splintering the demand signals that producers need to make long-term investments. Due to weak demand signals, European defense companies are responsive to buyers beyond the continent. For example, of 193 French fighter Rafales currently on order, 178 are slated to be sent outside of Europe, according to data from the Stockholm International Peace Research Institute.
The consequences are pronounced when compared to a single-buyer market like the United States. The EU’s top seventeen armament corporations earned an average of $4.5 billion in revenue in 2022 and comprised half of Europe’s defense industrial activity, which is dominated by small and medium-sized enterprises. Meanwhile, the top seventeen US firms earned an average of $15.3 billion and a collective $261 billion—double the size of the entire EDTIB. Those US firms were capable of more global mergers and acquisitions, which are crucial for scaling defense innovations, comprising $19 billion in global activity compared to Europe’s $6 billion, led by France ($2.9 billion).
Efforts to rectify this imbalance are gaining steam. The European Commission proposed a European Defence Industrial Program (EDIP) in March 2024, which includes proposals such as a European Military Sales mechanism aided by a centralized “catalogue” of European-made defense articles. Former European Central Bank President Mario Draghi’s September EU competitiveness report added another idea that deserves attention: a “Defence Industry Authority” that can procure equipment on behalf of member states.
Some EU member states have already voiced skepticism of some of Draghi’s plans and may possess limited appetite to move beyond intergovernmental defense cooperation, such as through Permanent Structured Cooperation (PESCO) and the European Defence Fund (EDF). However, these institutions fail to consolidate demand signals necessary to scale production.
Current institutions can’t fix Europe’s productive capacity
Given EU treaty restrictions on the Common Security and Defense Policy, EU defense cooperation has solidified around supporting dual-use research and development (R&D) projects and voluntary joint procurement, primarily via the European Defence Agency (EDA) and the EDF, an eight-billion-euro instrument to support collaborative R&D investment.
However, the EDA and EDF are insufficient to deal with the challenges at hand. EDA participants commit to jointly procure 35 percent of their military equipment acquisitions, allocate 20 percent of their defense expenditures on investments (acquisitions and R&D), and allocate 2 percent of defense expenditure to R&D. Despite these promises, several notable players, like Germany, failed to meet the 20 percent defense investment benchmark until 2024, and it remains unclear whether this spending will be sustained. Only about 18 percent of procurements in 2021 were collaborative—seven billion euros off target—and just two countries spent more than 2 percent of defense expenditures on R&D.
This free-riding problem stems from the EDA being a club with small carrots and no sticks. The EDF was created to subsidize collaborative R&D among EDA members, but this inducement is dwarfed by R&D investments from member states (9.5 billion euros in 2022, compared to EDF’s 1.2 billion euros) and the United States ($120 billion). The EDF also doesn’t steer production decisions from companies. Of the top twenty-five corporate recipients, EDF funds only corresponded to an average 2.57 percent of their 2022 sales revenue.
Even if the EDF received more funding, an integration impasse persists through member states’ political investments in national champions. Collaborative development projects in multinational consortia—such as those negotiated within PESCO—often stall over disputes on workshare, value chain specialization, intellectual property sharing, maintenance rights, and state subsidies. Multinational defense collaboration has progressed in cutting-edge capabilities where companies have less skin in the game. But conventional equipment—the sort most essential to closing Europe’s readiness gaps—remains too controversial to include.
Current EU institutions don’t meaningfully affect corporate investments in productive capacity or overcome parochial interests within national procurement decisions. Despite facing heavy political inertia, the Europeans must update the institutional logic behind defense cooperation.
Treat a ‘twenty-eighth buyer’ seriously
Draghi did not detail his vision for a centralized procurer in his September report, but this demand-side intervention could achieve what joint procurement programs intend. There are three models that make sense for a European procurer, characterized by a difference in scale.
The first model builds upon the Structured European Armament Program proposal in the EDIP, which allows multinational defense consortia to delegate to a procurement agent. However, instead of potentially several agents, the EU should adopt one interlocutor within the EDA between industry and member states. Although it cannot spend any euros itself, it could be given preferential agency to negotiate contracts in strategic sectors, open contracts to other member states through framework agreements, and directly procure on behalf of member states. This replicates the logic of the AggregateEU platform, which coordinates EU gas purchases to bargain for lower prices.
The second model would augment the procurer into a “twenty-eighth buyer” that could purchase additional defense articles of European interest, such as those identified through PESCO, gaps in the Coordinated Annual Review on Defense, or an R&D revamp through the European Defence Projects of Common Interest, another EDIP proposal. This would increase demand signals to incentivize overproduction and build an EDA-managed stockpile that could be tapped for resale to member states through a European Military Sales mechanism, arms exports to allies, or an agreed-upon crisis distribution framework.
For sufficient buying power, the European buyer should aim to spend at least the difference between predicted member state joint procurements and the 40 percent target in the EDIP. For example, a European buyer would have had to spend 11.5 billion euros in 2021 to achieve this. Efficiency gains from this level of joint procurement can decrease costs of equipment investment by 30 percent, or thirteen billion euros in 2021—indirectly balancing EU spending through increased productivity.
The third model is similar to the second, but the twenty-eighth buyer would scale threefold into a European “super-customer,” outspending the next largest defense investor (currently equal to Germany’s 137.6 billion euros from January 2020 to July 2024). Fit for treating defense as a public good, the European buyer’s demand signals could make targeted investments within the EDTIB, prioritizing projects that integrate supply chains or support recent mergers. The EDA, which has sought coherence with NATO planning processes, could anchor the EDTIB’s productive trajectory in a transatlantic division of labor.
Models two and three would require substantial resources, either from the next Multiannual Financial Framework or an extraordinary fund financed through Eurobonds—which could be partially repaid through equipment resales and value-added taxes on added EDTIB productivity gains. But model one could be implemented tomorrow without added resources, giving the EDA time to build institutional capacity for large-scale procurement. Although this would be unprecedented, member states have begun breaking the EU’s defense taboo, granting it unprecedented powers to jointly procure 155mm ammunition on behalf of member states and directly distribute grants to boost ammunition production.
The decisive question is political will. Germany and the Netherlands have hesitated to finance defense investments through Eurobonds or shift power to Brussels. But only a European procurer can provide the institutional reform to overcome intra- and intergovernmental paralysis and invest at scale.
Thomas Goldstein is a young global professional at the Atlantic Council’s Europe Center.
Further reading
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Image: Rafale jet fighters are seen on the assembly line in the factory of French aircraft manufacturer Dassault Aviation in Merignac near Bordeaux during a visit by the French President March 4, 2015. REUTERS/Regis Duvignau