Efficiency or National Interest: The Economic Dilemma of EU Defense

The EU’s defence industry is fragmented and inefficient, which hampers the rapid strengthening of military capabilities. For member states, defence is a core issue of national sovereignty, and the EU has only limited means to influence national rearmament. The new SAFE instrument offers jointly guaranteed loans for defence procurement, with the aim of centralising production and strengthening the European defence industrial base. Only a few countries, such as France and Italy, benefit from the instrument’s loan terms. The Finnish government supports SAFE but seeks to use it for domestic procurement, which may conflict with the instrument’s original objectives. Centralisation may disadvantage smaller actors, such as Finnish SMEs. The EU’s efficiency goals are in tension with member states’ efforts to ensure supply security. Decentralised production supports resilience but is expensive and inefficient. The EU should develop a single market for defence materials and focus on areas where member states share a common view and which complement national defence efforts.