Etla Warns EU’s USD173B Defense Push Could Imperil Smaller Firms

(MENAFN) The European Union’s efforts to centralize its defense industry and encourage joint procurement could put smaller defense companies at risk—particularly in Finland—according to a report published Monday by the Research Institute of the Finnish Economy (Etla).

The warning comes in response to the Security Action for Europe (SAFE) financial tool, which was approved by the European Council in May. The initiative allows EU countries to tap into EU-backed loans for collective defense purchases and is intended to streamline defense manufacturing across the bloc.

Etla’s study points out that large defense firms are better equipped to scale production quickly, giving them a strong advantage in joint procurement programs. In contrast, smaller enterprises—which make up most of Finland’s defense sector—could see declining output and lose market share.

"Centralizing defense production in the EU will undoubtedly bring efficiency and cost benefits," said Paivi Puonti, Etla's forecasting director. "However, it also threatens the viability of smaller companies, particularly those in Finland. Concentrating production in a few large member states and corporations is not a wise strategy."

Puonti stressed that Finnish firms’ ability to benefit from joint procurement depends on their speed and competitiveness in manufacturing defense goods. "The risk is that in a highly competitive environment, large European players will further consolidate their dominance while smaller firms lose ground," she said.

The issue extends beyond Finland, according to the report. Across Europe, the defense industry remains fragmented and slow to scale up, with many smaller companies still relying primarily on their national markets.

The SAFE mechanism is a key part of the EU’s larger strategy to enhance collective defense readiness. Valued at €150 billion (roughly $173.5 billion)—the initiative aims to ramp up cooperative production and acquisition of defense equipment throughout the Union.

However, Puonti cautioned that SAFE’s benefits may be unevenly distributed across member states. "The instrument currently offers a cost-effective solution mainly for Italy, France and Spain," she said. "For countries like Finland, it would often be more advantageous to implement similar initiatives through national funding." (1 euro = 1.16 U.S. dollar)

MENAFN05082025000045017169ID1109885932