{"id":54104,"date":"2025-07-15T14:15:37","date_gmt":"2025-07-15T12:15:37","guid":{"rendered":"https:\/\/www.accuracy.com\/?p=54104"},"modified":"2025-07-28T13:52:12","modified_gmt":"2025-07-28T11:52:12","slug":"funding-smart-not-just-more-a-strategy-for-europes-defence-sovereignty","status":"publish","type":"post","link":"https:\/\/www.accuracy.com\/en_gb\/funding-smart-not-just-more-a-strategy-for-europes-defence-sovereignty\/","title":{"rendered":"Funding smart, not just more: a strategy for Europe\u2019s defence sovereignty"},"content":{"rendered":"<p>Since the onset of the war in Ukraine, EU member states have embarked on a mission for wide-scale rearmament. Defence spending rose by 19.2% in 2024, reaching \u20ac436.9 billion, and over \u20ac1 trillion in equipment investments is planned by 2030. These investments aim to build a genuine<strong> industrial defence ecosystem<\/strong> in Europe to restore the continent\u2019s strategic sovereignty.<\/p>\n<p>But the challenge is not just a budgetary one; it is about implementation too. <strong>How can European funding reach the players truly capable of translating strategic ambition into concrete capabilities?<\/strong> Regardless of the scale of the announcements so far, the ecosystem remains fragmented, and SMEs struggle to obtain public funds \u2013 despite making up more than 80% of defence suppliers by number in Europe.<\/p>\n<p><span style=\"color: #ce1719;\"><strong>An industrial ambition held back by uneven funding distribution<\/strong><\/span><\/p>\n<p>To support <strong>major cooperative programmes in military capabilities<\/strong> \u2013 whether in combat systems, air defence or next-generation vehicles \u2013 the European Union has put in place a range of ambitious financial instruments, including:<\/p>\n<p><em><strong>\u2022 SAFE<\/strong><\/em> (Security and Action for Europe): \u20ac800 billion to support joint procurement of critical defence equipment.<br \/>\n<em><strong>\u2022 EDF<\/strong><\/em> (European Defence Fund): \u20ac8 billion for collaborative research and industrial development in defence.<br \/>\n<em><strong>\u2022 EPF<\/strong><\/em> (European Peace Facility): \u20ac12 billion, off budget, to support the military capabilities of EU partner countries.<br \/>\n<em><strong>\u2022 EIF, EIC, ICO<\/strong><\/em>: instruments providing guaranteed loans, quasi-equity or patient capital to finance deep-tech innovation, particularly dual-use technologies.<\/p>\n<p>However, these instruments, inspired by foreign models (such as the US\u2019s DARPA and DIU or Israeli equivalents), have trouble reaching the broader industrial network. Nearly 75% of the allocated envelopes are not distributed transparently, and <strong>most funds are absorbed or channelled to the overall industry via national programmes or major industrial players<\/strong>, thereby delaying or even prohibiting SMEs from reaping the benefit.<\/p>\n<p>The case of the <strong>MGCS<\/strong> reaffirms this dynamic. The Franco-German partnership created a formal joint venture in Cologne between KNDS Deutschland, KNDS France, Rheinmetall and Thales to develop a next-generation battle tank as part of a broader \u2018system of systems\u2019.<\/p>\n<p>Although SME involvement was expected, <strong>the industrial leadership remains concentrated within the largest national champions.<\/strong><\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-54072 size-large\" src=\"https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-1024x680.jpg\" alt=\"\" width=\"1024\" height=\"680\" srcset=\"https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-1024x680.jpg 1024w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-300x199.jpg 300w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-768x510.jpg 768w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-1536x1021.jpg 1536w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-2048x1361.jpg 2048w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-8-18x12.jpg 18w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p><strong>As a result<\/strong>, mid-tier firms \u2013 particularly those working on niche components like electronics, sensors or subsystems \u2013 struggle to gain access to EU-level funding or clear pathways into production due to a lack of structured support and integration mechanisms.<\/p>\n<p>The issue is widespread, yet SMEs have much to offer: some 2,500 SMEs operate in the European defence sector, generating \u20ac158.8 billion in revenue (+16.9% since 2022). Active in fields such as sensors, embedded software, electronic warfare, drones or autonomous systems, these companies are highly specialised and responsive. Indeed, agile and innovative SMEs are able to quickly address operational needs, as demonstrated by Milrem Robotics, Helsing and the unicorn Tekever through their involvement in Ukraine.<\/p>\n<p><strong>In spite of this, many SMEs face significant hurdles that prevent them from scaling up:<br \/>\n<\/strong><\/p>\n<p style=\"padding-left: 40px;\">\u2022 Financial constraints: burdened by post-COVID debt and undercapitalised, <strong>these companies struggle to access credit<\/strong> due to a lack of collateral.<br \/>\n\u2022 <strong>Governance challenges<\/strong>: family ownership, limited financial transparency and a weak project management culture make them less appealing to both institutional investors and prime contractors.<br \/>\n<strong>Compliance costs<\/strong> linked to NATO standards, cybersecurity and export controls add further pressure, particularly for smaller firms.<br \/>\n\u2022 <strong>Business model vulnerability<\/strong>: many rely on just one or two major clients, leaving them exposed to strategic shifts. <strong>This dependence<\/strong> becomes even<br \/>\nmore problematic when large industrial players move to secure their supply chains through acquisitions or exclusive partnerships. Only SMEs with distinctive dual-use technologies tend to avoid being sidelined or absorbed.<\/p>\n<p>In short, SMEs are the backbone of Europe\u2019s defence industry, yet <strong>they remain largely overlooked by the current financing system<\/strong>. Their strategic role is underappreciated. They operate in a fragmented financial landscape. They are burdened by misaligned industrial policies, complex funding mechanisms and divergent budget cycles. Without tailored financial tools, stronger support structures and easier access to capital, these key players risk falling by the wayside rather than being pulled up by the EU\u2019s broader ambitions for industrial sovereignty.<\/p>\n<p><span style=\"color: #ce1719;\"><strong>Adapting funding to the industrial reality of SMEs<\/strong><\/span><\/p>\n<p>Although numerous financial tools are available to SMEs, they do not seem to be fit for purpose. Private financing typically requires <strong>equity dilution, external governance and exit timelines that are ill-suited<\/strong> to the long cycles of the defence sector. Alternative instruments, such as mezzanine financing or capped-return convertible debt, could help mobilise capital without undermining the founders\u2019 autonomy.<br \/>\nThese could be deployed through public-private partnerships with deferred or shared return expectations.<\/p>\n<p>Similarly, <strong>blended funds co-financed by public institutions<\/strong> (like the EIB, EIF or ICO) would allow early- stage risk to be shared while aligning return timelines with the sector\u2019s realities. These models have already proved effective in other strategic fields (e.g. such as climate tech, health or space) and could be adapted to defence.<\/p>\n<p>Creating <strong>joint ventures or thematic<\/strong> consortia that bring together SMEs, large companies and major industrial groups could also accelerate the industrialisation of critical technologies. <strong>These models enable risk- sharing, knowledge transfer and access to sovereign programmes<\/strong> through the inclusion of partners in approved supplier networks. However, such co-developments require targeted support, as few SMEs currently have the capacity to lead cross-border projects, develop multi-year financing plans or respond to complex tenders.<\/p>\n<p>It is worth noting that <strong>dual-use technologies<\/strong>, such as cybersecurity, AI and sensors, tend to receive funding more easily (via the European Innovation Council or deep-tech accelerators, for example). This strategy often requires a dual value proposition adapting to civilian standards as well.<\/p>\n<p>When it comes to public subsidies and other schemes, they are often too slow or too limited to support critical phases like industrialisation and scaling up. In Spain, for example, the ICO (Instituto de Cr\u00e9dito Oficial) plays a key role in SME financing, but there is no dedicated defence vehicle to quickly channel these resources towards European industrial priorities in all segments of the ecosystem. Rather than creating more tools, the priority should be to <strong>redirect existing financial capacity and commitments towards high-impact industrial projects<\/strong>, favour financial clarity over size-based eligibility, reinforce support services (e.g. for proposal writing or contractor matchmaking) and accelerate processing times.<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-54064 size-large\" src=\"https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-1024x683.jpg\" alt=\"\" width=\"1024\" height=\"683\" srcset=\"https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-1024x683.jpg 1024w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-300x200.jpg 300w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-768x512.jpg 768w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-1536x1024.jpg 1536w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-2048x1366.jpg 2048w, https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/shutterstock-1-18x12.jpg 18w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p><span style=\"color: #ce1719;\"><strong>The challenge is not only to invest more, but to invest smart<\/strong><\/span><\/p>\n<p>European defence sovereignty will only become a reality once the <strong>financing architecture in place fully includes each key player, from prime contractors to SMEs and deep-tech start-ups<\/strong>, and drives them on to a coordinated trajectory for industrial scale-up, even when they are not directly involved in major programmes.<\/p>\n<p><strong>This requires aligning national and European interests, public funding tools, tailored private capital and industrial structuring through:<\/strong><\/p>\n<p style=\"padding-left: 40px;\">\u2022 better alignment of national and European interests, by <strong>overcoming reluctance to share sensitive technologies across borders<\/strong> \u2013 which currently leads to duplicated efforts and fragmented industrial initiatives instead of joint progress;<br \/>\n\u2022 <strong>the creation of sector-specific defence funds<\/strong>, both at national and EU level, with financing mechanisms adapted to SMEs (quasi-equity, patient capital, capped-yield debt);<br \/>\n\u2022 <strong>the development of coherent financially backed industrial clusters<\/strong>, where SMEs, which are often integrated from the design phase, are also provided with the required financial backing to pursue their R&amp;D \u2013 not merely called in at later stages;<br \/>\n\u2022 <strong>the strategic steering of investments by capability area<\/strong>, aligning public funding channels, tier-one manufacturers and SME networks around shared objectives for scaling up.<\/p>\n<p><a href=\"https:\/\/www.accuracy.com\/wp-content\/uploads\/2025\/07\/Accuracy-Talks-Straight_13_UK.pdf\">Download PDF &gt;<\/a><\/p>\n<hr \/>\n<p><strong>Ignacio Lliso, Partner, Accuracy<br \/>\nAlberto Valle, Director, Accuracy<\/strong><br \/>\n<em>Accuracy Talks Straight #13 &#8211; Industry insight<\/em><\/p>","protected":false},"excerpt":{"rendered":"<p>Since the onset of the war in Ukraine, EU member states have embarked on a mission for wide-scale rearmament. Defence spending rose by 19.2% in 2024, reaching \u20ac436.9 billion, and over \u20ac1 trillion in equipment investments is planned by 2030. These investments aim to build a genuine industrial defence ecosystem in Europe to restore the [&hellip;]<\/p>\n","protected":false},"author":42,"featured_media":54072,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[235,212,233],"tags":[402],"class_list":["post-54104","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-aerospace-defence","category-analysis","category-article","tag-accuracy-talks-straight-13"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Funding smart, not just more: a strategy for Europe\u2019s defence sovereignty - Accuracy<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.accuracy.com\/en_gb\/funding-smart-not-just-more-a-strategy-for-europes-defence-sovereignty\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Funding smart, not just more: a strategy for Europe\u2019s defence sovereignty\" \/>\n<meta property=\"og:description\" content=\"Since the onset of the war in Ukraine, EU member states have embarked on a mission for wide-scale rearmament. Defence spending rose by 19.2% in 2024, reaching \u20ac436.9 billion, and over \u20ac1 trillion in equipment investments is planned by 2030. 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