Europe Must Break With ‘Juste Retour’ to Scale up its Defence
Tweaking the EU’s SAFE loans to reward competitive, single-configuration procurement could accelerate airlift, missile defence and space ISR where technology already exists but production lags. A commentary by Daniel Gros
European leaders keep repeating the right slogan on defence industrial policy — “joint production and procurement” — but this is done using the wrong method. Much of what is branded as joint procurement consists of government-to-government deals built around the juste retour principle: each participating government demands a guaranteed industrial return for its national champions.
The underlying political logic of juste retour is easy to understand. Governments want visible returns for taxpayers and they want to preserve know-how in sectors deemed strategic. But the economic consequences are corrosive. Juste retour generates inefficiencies in design and, even more importantly today, it prevents fast industrial scaling when demand increases suddenly. It creates a system where every adjustment becomes a negotiation and every bottleneck becomes a political issue.
The contracts that follow are less like commercial procurement and more like political settlements. They spell out, in exacting detail, what will be produced where, by whom, and sometimes even which technology must be used. The outcome is familiar: higher costs in normal times and — when urgency hits — slow ramp-ups, because the supplier base is locked to the original participants and scaling requires political renegotiation. What looks, on paper, like European cooperation becomes, in practice, a set of national carve-outs stitched together.
Europe’s continuing capability gaps show how damaging this model has become. Two examples illustrate the strategic cost of this approach. In two critical areas —integrated air and missile defence, and space-based intelligence, surveillance and reconnaissance (ISR) — European technologies exist. What has not been delivered at the required pace is production at scale and pooled deployment.
In these two cases the question is not whether Europe can build these capabilities; it is whether Europe can procure them at speed, exploiting economies of scale and ensuring full interoperability. If Europe wants to negate the US threat to cut off Ukraine it needs to close these gaps in a hurry.
The EU’s Security Action for Europe (SAFE) financing instrument can help — but only if it changes incentives rather than subsidising existing practices. If SAFE merely provides cheaper money while leaving procurement logic untouched, it will finance the same fragmentation under a more European label. Two limited adjustments would be enough to push procurement in a more commercial, scalable direction.
First, competitive tendering should become a condition for access to cheap SAFE loans, at least for major subcomponents of complex systems.
Second, multinational procurement agencies — not only member states — should be eligible recipients of SAFE financing. This matters because pooled ownership models work best when procurement and operations are run through a dedicated multi-country entity with professional governance, not through ad hoc political bargains among capitals.
A working model exists already in the functioning pool for tankers: the Multinational Multi Role Tanker Transport (MRTT) fleet coordinated by the NATO Support and Procurement Agency (NSPA). Participating countries purchase usage rights proportional to their investment. The model captures obvious economies of scale: one aircraft type (Airbus A330 MRTT), common maintenance, interchangeable crews and high utilisation. It is a working demonstration that pooled ownership can be operationally credible and politically manageable.
But the key issue for Europe is now production ramp-up. Here the case of Sol-Air Moyenne Portée/Terrestre (SAMP/T) — Europe’s closest equivalent to the US Patriot air and missile defence system — should be a warning.
Despite the sharp rise in demand after Russia’s invasion of Ukraine, production increased too slowly. Only in early 2025 did the participating governments agree on an addendum to raise output, and even then only a limited number of additional systems are expected before 2030.
The bottleneck is not the complexity of the system; it is the intergovernmental structure that makes supplier expansion and capacity scaling politically cumbersome.
SAFE currently risks reinforcing this pattern. Article 19 of the SAFE Regulation exempts SAFE-financed contracts from the requirement to run competitive tender procedures, on the assumption that EU procurement rules would slow urgent purchases. That assumption is plausible for standard goods such as ammunition, where the key is throughput and specifications are simple. It is much less plausible for complex systems that take years to produce.
Under standard EU rules, the minimum supplier-response periods in restricted procedures are measured in weeks — roughly two rounds of 30 days. A delay of around 60 days is negligible relative to multi-year production lead times.
For complex systems, EU-wide competitive tendering for subcomponents can expand the supplier base and bring in additional capacity. In other words, competition can accelerate production rather than slow it, especially when bottlenecks sit in specific components, from seekers and electronics to propulsion and secure communications.
The existing procurement exemption designed for speed, paradoxically, entrenches slow industrial scaling by keeping supply chains closed.
SAFE should therefore be redesigned to reward procurement models that deliver speed at scale: batch orders; single configurations (to avoid “national variants” that destroy scale and interoperability); and contestable subcontracts to widen supply chains across Europe. The objective is resilience: more suppliers, more capacity, faster output, and fewer political veto points. In defence industrial policy, resilience and scale are inseparable.
A practical way to operationalise this is a flagship capability package by a coalition of the willing and incentivised by SAFE loans. A “package” matters because it is politically easier to assemble a coalition when gains are distributed across multiple domains and member states. The package should involve two key elements that provide national offsets.
The first element should be missile defence. A group of countries, including Germany, should place a large batch order of the SAMP/T systems. The argument that Patriots are available whereas the European system is not battle proven no longer holds and the risk of interruptions in the supply of US Patriot systems and interceptors is now too large to ignore.
The European batch order should prioritize delivery for Ukraine including hundreds of Aster 30 new-generation interceptors. The existing Franco-Italian consortium would remain the core system integrator, but production could accelerate and costs fall if the supply chain were opened to additional European suppliers for specific subcomponents. There is ample knowhow in radar, launchers and command-and-control elements in the rest of the EU.
The second pillar is space ISR. Europe also needs sovereign access to space-based ISR. Existing radar-satellite assets — most notably Germany’s TerraSAR-X heritage and French optical systems — provide valuable imagery and ground movement identification, but revisit rates are limited and operational control remains national.
A shared sovereign capability would require a batch order of 6–8 modernised TerraSAR-NG satellites, again building on existing radar heritage but opening competition for payload and bus improvements, encryption and onboard processing. The original designs are more than a decade old; modernisation should deliver lighter, more capable platforms.
Commercial synthetic aperture radar (SAR) constellations such as ICEYE and Capella Space are useful complements, with high revisit rates and AI-enabled analytics. But they do not fully substitute for sovereign capability, particularly for defence-tailored radar modes. True moving target indication relies on dedicated modes and coherent Doppler processing; commercial systems often approximate this through image differencing and AI.
Moreover, existing commercial systems remain subject to US jurisdiction and constraints. A small sovereign European constellation therefore complements commercial data while ensuring assured access in crises.
For space-based ISR one could also start with a coalition of the willing to pool existing capabilities. The increase in the production runs should allow for a drastic reduction in costs and bigger benefits for all even if existing champions have to give up their local monopolies.
In many cases the necessary technology already exists in Europe, but it is scattered. What is needed now is a procurement model that can match the tempo of the threat environment
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
