According to an analysis by the Brussels-based economic think tank Bruegel, integrating start-ups and innovative companies into defence production will be essential if Europe is to enhance its military capabilities. A large share of emerging technologies—ranging from drones to artificial intelligence systems—is now being developed by smaller technology firms rather than exclusively by traditional defence contractors.
Against this broader European backdrop, Greece is attempting to create new investment incentives for the defence sector through a forthcoming development law. The draft legislation, currently open for public consultation until March 13, introduces for the first time a dedicated support framework for defence-related investment projects. The initiative focuses primarily on so-called “dual-use” technologies—products and systems that can be used for both military and civilian purposes.
The new provisions expand the scope of the country’s development law and create a distinct investment regime for strategic sectors linked to defence, vehicle manufacturing and the aerospace industry. The objective is to attract investment into high-technology manufacturing and encourage companies to establish new production facilities or upgrade existing industrial infrastructure in these sectors.
The analysis by Bruegel notes that defence procurement across many European countries remains highly concentrated among a small number of large suppliers, limiting the participation of smaller and more innovative firms. In Germany, Poland and the United Kingdom, the ten largest contractors account for between 67% and 90% of military procurement contracts—significantly higher than in the United States, where the equivalent share is below 40%.
This imbalance reflects structural weaknesses in Europe’s defence procurement system, which is often characterized by slow administrative procedures, significant bureaucratic barriers and a tendency to favour established suppliers. As a result, newer companies frequently struggle to gain access to defence contracts even when they possess technologies that could significantly enhance military capabilities.
By contrast, the United States has introduced mechanisms designed to encourage the participation of smaller and more innovative companies in defence production. Programs such as Small Business Innovation Research provide funding for research carried out by small firms, while organizations such as the Defense Innovation Unit act as a bridge between the military and the technology sector. These initiatives have helped broaden the participation of start-ups in military procurement.
At the same time, countries including France, Germany, Israel and Ukraine have adopted policies aimed at accelerating defence innovation. In France, for example, the establishment of the Defence Innovation Agency has helped smaller companies gain easier access to military contracts, increasing the share of defence spending directed toward small and medium-sized enterprises.
The authors of the study argue that Europe needs to integrate start-ups from the earliest stages of developing new weapons systems, increase competition among suppliers and adopt more flexible procurement procedures. At the same time, they stress that deeper integration of European defence markets will be crucial for building a stronger defence technology ecosystem across the continent.
According to Bruegel, strengthening innovation in the defence industry is not only essential for Europe’s security but could also generate broader economic benefits by supporting the development of new technologies and improving the global competitiveness of European industry.
