Why Europe’s smaller defence players fear missing out on spending spree
Small arms
EU leaders are facing demands to ensure that small defence businesses benefit from the bloc’s splurge in military spending as countries and companies outside the big league worry about missing out, write Barney Jopson and Patricia Nilsson.
Context: European governments are preparing to cast off their fiscal shackles, as a consensus hardens around spending more to end the continent’s security dependence on the US. But with the money come tough questions about which companies get to enjoy the bonanza.
The defence sector is dominated by big players such as Germany’s Rheinmetall and France’s Thales, but Portugal’s defence minister has called for the EU to make room for others.
Nuno Melo, defence minister in a government facing elections in May, told the Financial Times that start-ups and small and medium-sized businesses were “key drivers of innovation” in defence, and needed three things from EU policymakers.
First, he said, Brussels must increase the involvement of small businesses in defence supply chains. Second, it should support initiatives to integrate them into the big projects, such as new fighter jets or navy destroyers. Third, it must “facilitate access to venture capital and reduce bureaucratic hurdles”.
EU defence ministers are meeting in Warsaw today and tomorrow to discuss rearmament, as well as sending more support to Ukraine.
In Germany, smaller contractors are complaining that since Russia’s full-scale invasion of Ukraine — and Germany’s decision to respond with a €100bn military fund — most money has been spent on aircraft, tanks and other big-ticket items made by larger companies.
“We’re told that we’re delivering critical capability to Germany, EU and Nato and that we should scale up”, said Martin Karkour, chief sales officer at Bavarian drone start-up Quantum Systems. However, to do so they need concrete orders, he said.
While the company has delivered more than 1,000 drones to Ukraine since the outbreak of the war, the German army has so far only ordered 14 units.
The trickle-down matters politically. In Portugal, the government wants to win popular support for more defence spending by arguing that it will boost industry more widely. Spain’s government is making a similar pitch. Both countries’ defence sectors are primarily composed of small businesses.
In Germany, Karkour senses a boost is finally coming for such companies through Berlin’s decision to scrap strict debt rules and unleash more defence spending. “We are starting to see a changed mentality”, he said.