From Fragmentation to Scale: How EU Public Capital Is Reshaping Europe’s Defence Market

Despite its economic size, Europe’s defence market has long suffered from structural fragmentation, driven by nationally isolated procurement, divergent standards, and weak demand aggregation. This fragmentation has undermined interoperability, raised costs, limited economies of scale, and constrained the competitiveness of the European Defence Technological and Industrial Base. In response, the European Union has progressively shifted from a passive regulatory role to an active use of public capital as a coordination mechanism.

By conditioning funding, loans, and industrial support on multinational cooperation, common standards, and joint procurement, EU institutions are deliberately reshaping how defence demand is generated and how industry organizes production. This approach treats defence fragmentation not as a technical inefficiency but as a systemic market failure, and uses financial leverage to align national incentives with collective capability development, industrial scale, and long-term strategic coherence. Europe’s defence market, despite its aggregate size, is deeply fragmented along national lines.

Member States have historically procured weapons systems independently, leading to wasteful duplication and inefficiencies. As one Commission analysis notes, “the EU defence equipment market (EDEM) remains largely fragmented along national borders with limited coordination and cooperation and the associated substantial wasteful duplications”. In 2007 the European Defence Agency (EDA) set a benchmark of 35% cooperative procurement, but actual results have fallen far short – even at its peak in 2011 joint procurement only reached roughly 25%, and by 2020 it had fallen to 11%.

In practice, only a handful of Member States report data, underscoring that demand for defence equipment “remains fundamentally fragmented”. This fragmentation weakens the European Defence Technological and Industrial Base (EDTIB). By procuring on a national rather than a continental scale, European firms miss economies of scale and have weaker incentives to invest in capacity and innovation.