Armor Fou – Can Europe build its defences without disarming antitrust?

Europe's defence industry has long been described as small-scale, inefficient, and divided by national borders. Decades of procurement choices reinforced the pattern: defence budgets were often channelled to third countries, first and foremost the United States.

Now, the Commission wants to reverse course. With initiatives such as the European Defence Industry Strategy (EDIS), Readiness 2030 (former known as ReArm Europe) and the new Security Action for Europe (SAFE) financial instrument, it is attempting to bundle demand and strengthen supply within the Union. The mantra is simple but ambitious: aggregate demand, buy European, concentrate supply. To throw in another acronym, the European Sky Shield Initiative (ESSI) exemplifies this new approach. Joint procurement under ESSI aims to combine the efficiency of collective buying with respect for national sovereignty – at least on paper. Yet practice remains messy. Divergent export rules and entrenched national interests continue to present obstacles.

Beyond broad strategies, the Commission has tabled its “Defence Readiness Omnibus” package in June this year. It promises faster procurement cycles, streamlined access to EU financing through InvestEU and STEP, and even accelerated approvals for production facilities. Approval deadlines of just 60 days are envisaged for key defence projects and production facilities, while environmental and chemicals regulation is slated for procedural shortcuts. The rhetoric of focus is thus being matched by regulatory fast-tracking. Crucially, the Omnibus couples its financing and procurement push with fast-track national permitting (60 days for defence-related approvals) and a “defence-readiness” lens in applying EU rules, signalling that speed and security are now embedded in the regulatory code rather than merely urged from the sidelines.

Within this mix, the SAFE instrument serves as the financial and procurement workhorse – opening common procurement to trusted partners (including Ukraine and EEA-EFTA states) on equal terms and underpinning the Union's multi-year ramp-up. What emerges is a sector caught between industrial logic and political reality: Europe wants more focus – but old patterns of fragmentation die hard.

It was also in that vein that one Commission official recently remarked, defence is “a different animal.” That has certainly always been true. The defence market is unique in its structure and dynamics. On the demand side, governments wield considerable influence over market activities, shaping the landscape through their policies and procurement decisions. The development and qualification phases for defence products are extensive, often spanning many years. Customers, primarily government entities, have the authority to set specific requirements for components and suppliers, ensuring that their needs are precisely met. Additionally, procurement and pricing regulations play a crucial role in governing the market, adding layers of complexity and oversight.

But the official's remark came with an additional message: „Competition policy should not stand in the way“ of Europe's security ambitions. Defendants of that sentiment have a valid point: While markets and competition are vital, they alone cannot sustain the foundations of a free society. This is where the role of the defence sector becomes crucial, as it safeguards the very conditions that enable freedom and democracy to thrive. Still, that sentiment marks a shift in competition policy. In industries such as telecoms, the Commission has long resisted calls to relax merger rules, despite years of consolidation debate. In defence, however, the narrative is changing. Security and resilience are now being weighed alongside market structure. The Draghi Report of 2024 gave this new direction intellectual weight. It urged policymakers to treat resilience and secure supply chains as decisive criteria, particularly in defence. For companies, this could mean having “jokers” in reserve: arguments that national security or autonomy outweigh traditional competition concerns.

Reflecting this pivot, the Commission's ongoing review of the Horizontal Guidelines (a draft of which is currently envisaged for spring 2026) highlights defence as a sector that special attention – beyond the particularities already existing, i.e., Article 346 lit. b) TFEU. That provision allows Member States to take measures affecting trade in arms and military equipment if essential security interests are at stake, thus effectively blocking the applicability of all aspects of competition law by the EU Commission. Until now, Article 346 has – albeit only in a limited number of cases – worked to shield national interests from EU intervention, notably in merger control. With a more consolidation-friendly regulator in Brussels, that may be about to change – provided, of course, that Member States overcome residual qualms about cross-border mergers that were repeatedly at issue in the past and embrace the path of intra-EU consolidation or, at the very least, refrain from invoking Article 346 TFEU for large national mergers in the defence sector.

If they do, the question of how the EU will apply its competition law to the sector is moving to the centre of EU policy. On paper, the boundaries are clear. Subject only to the security carve-out of Article 346, Article 101 TFEU applies to cooperation agreements in defence just as in any other sector. Additionally, the EU Merger Regulation governs concentrations among defence contractors.

So far, enforcement practice tells a quite permissive story. So far, it looks like no major merger or joint venture in Europe's defence industry has ever been stopped by the competition authorities. Airbus, MBDA and KNDS are often cited as examples of how cross-border consolidation can succeed while global competition remains intact. And new ventures, such as the planned satellite project between Airbus, Leonardo and Thales, point in the same direction: integration and innovation can advance together.

A similar observation can be made for Germany. From KNDS/Renk to Rheinmetall's ambitious joint ventures, the enforcement practice confirms that consolidation has sailed through unscathed, at least for EU companies. The same applies to the assessment of competitor cooperation. The German Federal Cartel Office, when reviewing the Main Ground Combat System project, asked whether each partner could realistically have carried it out alone. As the answer was “no”, the authority did not object to the project, invoking the Arbeitsgemeinschaftsgedanke (a Scrabble-worthy term that applies to competitor cooperation that creates rather than impedes competition by making possible a market offering that none of the parties could have created on its own).

And yet, the Commission's ongoing policy review explicitly contemplates weighing the “overall benefits from enhanced defence and security within the Union” where they yield efficiencies, suggesting confirming that defence transactions will not be assessed on market structure alone. Should this actually be implemented, it will lead the way to (even) more permissive competition law enforcement in the defence sector – which, at some point, will sharpen a number of inconvenient questions: how much concentration is necessary for resilience, and when does it begin to shut out rivals, erode innovation or lock markets? These are the dilemmas lurking beneath today's cooperative mood. For the time being, however, the tailwinds for companies are strong. There has probably never been a better time for cooperation and consolidation among EU defence companies.

But merger control and antitrust do not operate in a vacuum. Around them stretches a dense web of legal regimes that also shape the space for defence industry consolidation.

In that regard, foreign direct investment control (FDI) is one of the most decisive levers. Since the EU's FDI Screening Regulation entered into force in 2020, and with national regimes in Germany, France and Italy tightening repeatedly, acquisitions by non-EU buyers in sensitive sectors face ever more scrutiny. In defence, the tolerance threshold for foreign ownership is dropping – indirectly favouring intra-EU consolidation. A similar thing can be said about the Foreign Subsidies Regulation (FSR), the newest piece in the EU's regulatory puzzle. It subjects recipients of significant non-EU support to additional scrutiny in transactions and tenders. While, in theory, this also applies to EU-based companies, their influx of such foreign aid will, due to sector sensitivities and national interests, often be limited enough in practice to shield them from the brunt of FSR enforcement. Non-EU companies, in contrast, will often have a harder time.

Export control, dual-use regulations, procurement rules, state aid law under Article 107 TFEU, as well as sector-specific funding instruments add to the complexity. The European Defence Fund, Important Projects of Common European Interest (IPCEIs) and the new SAFE instrument illustrate how subsidies are being channelled strategically. SAFE, for instance, requires that beneficiaries of EU funds not be controlled by third-country entities.

Together, these instruments form a regulatory hydra: each head with its own bite, but all pointing in the same direction – privileging European resilience over laissez-faire competition. For companies, the challenge is clear. Compliance must now account for a patchwork of overlapping obligations, where the decisive risk may come not from the antitrust regulator, but from investment screening, state aid rules or subsidy control.