Event by EPP SME Defence and SME Europe with Riho Terras on the topic of “The future of European defence and SMEs”

When and where did the expert meeting on the future of European defense take place, and who were the organizers?

On Tuesday, February 10, a significant expert meeting took place at the European Parliament in Strasbourg. This event was organized by EPP SME Defence and SME Europe. The meeting was chaired and moderated by MEP Riho Terras, who not only serves as Chairman of the EPP SME Defence Initiative but also as Vice-Chairman of the Subcommittee on Security and Defence (SEDE) in the European Parliament. The central theme of the meeting was "Future of European Defence and SMEs," with a focus on the strategic integration of small and medium-sized enterprises (SMEs) into the European security architecture.

What political and financial context did Riho Terras outline at the beginning of the discussion?

Riho Terras opened the discussion by placing the urgency of the topic in the immediate context of the ongoing negotiations on the Multiannual Financial Framework (MFF) for the period 2028 to 2034. He emphatically stressed that the European Union's future financing instruments must be designed to strengthen a resilient and competitive European defense industry base. For Terras, the upcoming financial framework is a crucial instrument for setting the course for Europe's long-term security. He underscored that financial resources must be deployed strategically, not merely to maintain the status quo, but to build genuine resilience.

What specific priorities did Terras mention regarding SMEs and innovation?

The MEP emphasized the crucial importance of supporting small and medium-sized enterprises (SMEs), fostering innovation, and scaling up production capacity. He placed particular emphasis on the need to drastically reduce administrative hurdles in the defense sector. He noted that the current European Commission had already made progress in defense and competitiveness during its first 15 months, citing the SAFE initiative and initial efforts to cut red tape as examples. Terras also stressed the historic significance of the establishment of a dedicated Commissioner for Defence and Space for the first time. This, he said, was an essential step towards promoting closer cooperation between Member States and better unlocking Europe's industrial potential. Finally, he called for a clear definition of the role of SMEs alongside the large prime contractors (the so-called PRIMEs) and for the fair and effective application of flexibility in defense financing.

Industry perspective and practical experience: How did Markus Becker describe the current role of SMEs in European defense?

Markus Becker, chairman of the SME Connect defense working group, contributed the industry perspective to the discussion, highlighting the concrete role that SMEs already play in European defense. He drew on his own company's experience in providing advanced logistics and infrastructure solutions. Becker emphasized that SMEs are not a theoretical reserve, but active players operating at a high operational level. He substantiated this claim by citing recent work for European armed forces, including responses to NATO requests and projects with partners such as the Swiss Army. These examples served as proof that SMEs possess critical defense capabilities.

What main obstacles did industry identify for greater involvement of SMEs?

Despite their proven capabilities, SMEs face significant challenges, according to Becker. He emphasized that while these companies possess the necessary technical expertise and innovative capacity, they are hampered by complex administrative and regulatory hurdles. These bureaucratic burdens often make it difficult for smaller players to realize their full potential or respond quickly to new demands. The discrepancy between the operational excellence of SMEs and the administrative burden they must manage was identified as one of the core problems urgently requiring political solutions.

Challenges for startups and technology companies: Who represented the interests of defense startups and what is the structure of this sector?

Fritz von Stülpnagel, CEO of DefenceTech Europe, represented the interests of young technology companies. He presented his organization as a pan-European association founded to give defense startups a dedicated voice at the EU level. In his analysis, he noted that while many defense tech startups focus on software and dual-use technologies, there is also a growing number of companies developing hardware solutions. This diversification demonstrates that innovation in the defense sector is no longer driven solely by large arms manufacturers, but increasingly by agile startups.

What specific problems did von Stülpnagel address regarding supply chains and financing?

A key point in von Stülpnagel's presentation was the observation that supply chains in the defense tech sector are not yet fully European. He emphasized, however, that these supply chains are being gradually strengthened by startups, which can contribute to Europe's strategic autonomy. A critical obstacle to the growth of these innovations is access to private capital. Von Stülpnagel explained that private investment is essential for scaling innovations. In this context, he pointed to the ongoing challenges related to ESG (Environmental, Social, Governance) criteria. Defense companies are often avoided by investors and banks due to strict ESG interpretations, which significantly hinders their ability to raise capital.

What was said about military mobility and customs procedures?

In addition to the financial aspects, von Stülpnagel also highlighted logistical problems. He expressed concern about the lack of military mobility for industrial goods. In particular, complex customs procedures continue to pose a significant obstacle. These bureaucratic hurdles impair the ability of startups to deliver their products quickly, which also negatively impacts support for Ukraine. The inability to move equipment and technology quickly across borders was identified as a weakness that reduces the responsiveness of the European defense industry in a crisis.

Hub for Security and Defense - Image: Xpert.Digital

The Security and Defence Hub offers expert advice and up-to-date information to effectively support companies and organizations in strengthening their role in European security and defence policy. Working closely with the SME Connect Defence Working Group, it particularly promotes small and medium-sized enterprises (SMEs) that wish to further develop their innovative capacity and competitiveness in the defence sector. As a central point of contact, the Hub thus creates a crucial bridge between SMEs and European defence strategy.

Related to this:

• The SME Connect Defence Working Group – Strengthening SMEs in European Defence

The European Commission's strategy: What priorities did Simonas Šatūnas outline for the European Commission?

Simonas Šatūnas, Chief of Staff to the EU Commissioner for Defence and Space, outlined the Commission's defence priorities. These focus on competitiveness, coordination, and industrial scaling. Šatūnas offered a sober analysis of the current situation: despite increased defence spending in the member states, Europe continues to face a significant capability gap. This gap is the result of years of underinvestment and a fragmented procurement policy in which national interests often took precedence over collective efficiency.

What does the goal of spending not just more, but "better" money mean?

According to Šatūnas, the Commission's stated goal is not merely to increase budgets, but to use resources more efficiently – in other words, to "spend better." This is to be achieved through the promotion of joint procurement projects, long-term planning, and the coordinated use of instruments such as the SAFE initiative and the proposed European Competitiveness Fund. The idea is to create synergies and avoid duplication of structures in order to obtain more military capabilities for every euro invested.

What role does the Commission see for SMEs and what new instruments are planned?

Šatūnas emphasized that SMEs are a critical component of the defense ecosystem. However, he acknowledged that these companies often struggle to make the transition from innovation to industrial scaling and market launch. To address this issue, he presented several new and upcoming instruments designed to support innovative SMEs more quickly and flexibly. These include targeted financing mechanisms and programs that facilitate cooperation and technology testing directly in Ukraine. He concluded by suggesting that EU-level financing should act as a lever to align national efforts and intensify cooperation, rather than simply replacing national defense spending.

Analysis of the discrepancy between ambition and reality: What concerns were raised regarding political ambitions compared to industrial implementation?

The discussion during the expert meeting revealed widespread concern about the gap between the EU's political ambitions and their actual industrial implementation. Participants emphasized that the lack of long-term contracts and predictable demand discourages private investment in capacity building. Without planning certainty, companies are hesitant to invest in expensive production facilities and personnel, which in turn hinders the scaling of the European defense industry.

Which administrative burdens were particularly highlighted by SMEs?

SMEs have complained about heavy administrative burdens. These include, in particular, export controls, customs regulations, ESG requirements, and access to financing. These factors tie up resources that should actually be invested in research, development, and production. The complexity of these regulations often proves prohibitive for smaller companies that do not have large legal and compliance departments like the major defense corporations.

How was the issue of dependency and strategic autonomy discussed?

Another important topic was Europe's dependence on non-European suppliers for critical components. This was widely recognized as a vulnerability. At the same time, participants agreed that complete autonomy was unrealistic. The focus should instead be on reducing critical dependencies and diversifying supply chains, without claiming to be able to produce everything domestically. Military mobility for defense-related industrial goods was once again identified as a major, unresolved issue hindering industrial integration within Europe.

What lessons were learned from the war in Ukraine?

The debate focused heavily on Ukraine as a real-world example illustrating the need for speed, flexibility, and continuous innovation. The experiences of the Ukraine conflict demonstrate that rigid procurement processes and lengthy development cycles are detrimental in modern warfare. The ability to adapt quickly and scale up production rapidly was deemed essential for the future design of European defense policy.

What conclusion did Riho Terras draw in his closing remarks?

In his closing remarks, Riho Terras called for pragmatic solutions. He urged an approach that balances the urgency of the security situation, actual security needs, and industrial realities. Terras reaffirmed EPP SME Defence's commitment to ensuring that the perspectives of SMEs are considered in EU defense policy. He emphasized that lip service is insufficient and must be followed by concrete action.

What are the key demands for strengthening the European defense industrial base?

The roundtable concluded that strengthening the European defense industry base requires more than just increased budgets. Above all, it demands predictability, coordination, and realistic regulatory frameworks. SMEs were consistently identified as essential for resilience and innovation, but were deemed insufficiently supported under current systems. There was agreement that EU instruments must be simpler, faster, and better aligned with operational needs.

Why is continued dialogue between Parliament, Commission and industry necessary?

The participants agreed that the lessons learned from Ukraine must be central to future policy design, particularly with regard to rapid scalability and adaptability. Continued, intensive dialogue between the European Parliament, the Commission, and industry was deemed essential to achieving these goals. Only through close coordination among all stakeholders can bureaucratic hurdles be reduced and a genuine defense union, built on a strong industrial base, be created.

Konrad Wolfenstein

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