UK, Finland and the Netherlands announce proposals for a joint defence financing mechanism: will it accelerate procurement cycles and fix market fragmentation?

Last week Finland, the Netherlands and the UK jointly announced their aim to set up a financing mechanism “by 2027” to “strengthen collective deterrence, expand defence industrial capacity and increase defence capability through joint procurement”.

The announcement comes amidst escalating conflicts in Ukraine and the Middle East and at a time where the allied ‘middle powers’ are under pressure to increase defence budgets, coordinate better, spend smarter and procure faster.      

In this piece we explore what has been announced; the underlying procurement challenges; and the opportunities and questions raised by this joint defence funding and procurement model.

What has been announced?

The mechanism is self-evidently in its nascent stages: official detail (beyond the joint statement) is thin, but reports indicate that it would:

• operate like a bank (akin to the EIB). The Dutch finance ministry is reported to have confirmed: “based on paid in capital and committed capital, it can issue bonds that can be purchased by investors, thereby acting as a lever. Funds can be used to finance joint projects, tenders and procurement.”
• allow for pooling of orders for critical defence assets. From defence technologies to components, enabling better pricing outcomes and reducing competition for limited industrial capacity.
• be open to “like minded partners”. Starting with the three founding states but designed to admit other NATO members and like‑minded partners by unanimous decision.
• be underpinned by a treaty-based structure. Reportedly the participants are “still at the exploratory phase”, but next steps would include further work on a treaty to underpin the new structure. 

Fragmentation: the procurement problem the mechanism is trying to solve 

The EU has harmonised rules across the continent to create a single market for most sectors. However (as we have written about elsewhere)[i] the defence markets remain largely national. This is due in large part to member states evocation of the Article 346 TFEU national security exemption - a narrow but powerful exception that lets Member States depart from normal EU rules where essential security interests are at stake. The result is a defence market that (i) is fragmented, nationally focused and hampered by unpredictable demand; (ii) has insufficient standardisation and interoperability, leading to duplication of R&D and production; and (iii) has complex and divergent procurement rules and constrained access to finance and critical inputs.

Against that backdrop the EC is spearheading a number of initiatives to try to address this fragmented defence market, including: (i) fostering more joint procurement through coordination by the European Defence Agency (EDA) and instruments such as the European Defence Industry Reinforcement through Common Procurement Act (EDIRPA) and the European Defence Industry Programme (EDIP) Regulation; (ii) efforts to forge a true Defence Single Market, including through a proposed EC communication; and (iii) an ongoing review of the Defence Procurement Directive which, as we have suggested to the Commission,[ii] is an opportunity to simplify processes and encourage joint procurement in Europe. The full impact of these initiatives remains to be seen. 

In the UK, despite the introduction of the Procurement Act 2023 (and the defence specific ‘flexibilities’ on which we have written separately)[iii] UK MoD openly concedes that “for too long, defence procurement has been burdened by waste, delay and complexity” and calls for “root‑and‑branch reform” of a “broken system”, while the CMA has warned that procurement rules are “so complex that it is easier to sell anywhere other than the UK”. 

In its Defence Industrial Strategy (or DIS), published in September 2025, the UK MoD promised to work with the CMA to launch a “comprehensive review of defence contracting immediately” with review of the Single Source Contracts Regulations (SSCRs) (under which, the UK deploys around of half of its annual defence spend) and the publication of the Defence Reform and Efficiency Plan “in Autumn 2025”. 

However, while the CMA in an open letter to the Chancellor in November 2025 said it was “actively supporting the Ministry of Defence”, no review of the SSCRs or any Defence Reform and Efficiency Plan has been published.           

Opportunities and challenges presented by this joint defence procurement model

With only three participants, the mechanism announced by the UK, Finland and Netherlands is no panacea to the fragmentation of the European defence market.[iv] But obvious advantages exist. 

• Synergies. All three are NATO members. Finland – which acceded to NATO in 2023 - has a 1340km land border with Russia. Since May 2022, the UK and Finland have expressed their intention to intensify security and defence cooperation, and in recent weeks the UK has reiterated its commitment to the High North. Meanwhile, the UK and the Netherlands have a long established Joint Amphibious Force.   
• The aggregation of demand. Scaled up, joint procurement is cited as a core benefit of the mechanism, one which the think tank Bruegel has commented could lead to the “halving of unit costs”, which would create substantial economies of scale and cost savings.   
• Engaging Private Capital. The character of the funding mechanism may herald further benefits: as a financing institution using guarantees, paid‑in capital and bond issuance, the vehicle could complement EU and NATO tools and help support access to private capital at a time when investor appetite for European defence technology is rising sharply.
• Fit-for-purpose procurement. While procurements under this initiative will likely need to comply with existing national and intergovernmental procurement rules; it remains to be seen (subject to the legal structure it takes) whether there will be scope for the establishment of processes that enable the rapid procurement cycles which (the UK at least) desires but has yet been able to deliver.

The implementation of any mechanism won’t be without challenges:

• Friction with national agendas. After years of underinvestment, increasingly NATO allies are under pressure to prioritise the growth of domestic industrial bases (the UK DIS, for example, explicitly aims to “prioritise UK‑based businesses”). Where defence material is jointly procured, questions remain around which state’s industrial base and supply chain is to be utilised.
• Added complexity to existing frameworks. If Europe is to move toward a deeper defence union, inter‑state clubs (such as the one announced last week) must benefit all of Europe and not add additional layers of complexity for suppliers. A separate treaty‑based fund, depending on its specific terms, has the potential to sit uneasily with existing EU mechanisms for defence cooperation.
• Interoperability constraints. Sophisticated defence forces have become accustomed to deploying expensive, bespoke platforms and systems. The joint procurement of these may present interoperability issues with current systems, meaning that the material which is best suited to joint procurement may be limited (in the short term at least).
• Lack of buy-in from other key players. It is notable that the mechanism has not (yet) been joined by other NATO allies (including the other larger defence players in Europe). Germany, for example, which has announced a €650bn defence spending package between 2025 and 2030 to build Europe’s strongest conventional army and which has made significant reforms to its defence procurement regime (as we have written on separately),[v] has yet to decide whether to join. 

Conclusion 

The UK–Netherlands–Finland initiative is directionally aligned with the wider push to spend better, work together and prioritise our collective defence. Whether it becomes a genuine step‑change rather than another layer on top of existing schemes will depend on the treaty text, governance, membership terms and how it interfaces with EU and NATO frameworks. 

Those are the details to watch for as discussions move from press release to design.