EU defense push could marginalize smaller firms, Finnish study warns

The Star

5 hours ago

HELSINKI, Aug. 4 (Xinhua) -- The European Union's (EU) drive to centralize its defense industry and promote joint procurement may threaten smaller players in the sector, including many Finnish firms, according to a study released Monday by the Research Institute of the Finnish Economy (Etla).
The warning is in response to the Security Action for Europe (SAFE) financial instrument, approved by the European Council in May. The programme enables EU member states to access EU-backed loans for joint defense purchases and aims to streamline defense production across the bloc.
Etla's report notes that large defense companies are well-positioned to scale up production rapidly, giving them a significant advantage in joint procurement schemes. In contrast, smaller firms, which constitute the bulk of Finland's defense industry, face the risk of declining output and a shrinking 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 hinges on their capacity to manufacture required goods competitively and swiftly. "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 is not unique to Finland, according to Etla's report. Across Europe, the defense industry remains fragmented and slow to respond to growing demand, with many smaller companies still reliant on national markets.
The SAFE instrument is part of the EU's broader effort to enhance its collective defense capabilities. Valued at 150 billion euros (about 173.5 billion U.S. dollars), the program aims to boost joint production and procurement of defense equipment.
However, Puonti cautioned that the benefits of SAFE may be unevenly distributed. "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)