EUR: Watching Iran, Swiss miltech demands reforms

BLUF: Swiss forces are poorly funded and dependent on imports. Swiss defense tech leaders told The Arsenal that they can provide homegrown technologies, like interceptor drones. But they want access to a larger export market, which is made difficult by regulations designed to safeguard Swiss neutrality.

EXCLUSIVE: Beretta CEO Carlo Ferlito told The Arsenal that he supports ‘buy European’ defense procurement for equipment that can be produced here.

Meanwhile, fellow neutral Ireland now exports more military technology than beef. Founder of military AI firm VRAI told The Arsenal that’s thanks to the country’s digital talent, developed through years of foreign investment by the Big Tech giants.

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Just one week in, the Iran war is already putting US missile supplies under strain, which will have knock-on effects for buyers of American munitions — especially low-priority neutral and non-NATO countries like Switzerland. 

As in Ukraine, this latest war has seen both sides make effective use of relatively cheap drones, which can be produced by small companies all over the world.

That’s why Swiss defense tech leaders are calling for the longtime neutral country to ease export controls and stimulate investment.

The Swiss tradition of armed neutrality has faded into myth: While the country remains firmly neutral, it’s poorly armed. Swiss defense spending as a share of GDP fell rapidly during the 1980s and 1990s—and has sat at around 0.7% for the last 20 years. 

Nevertheless, the government is slowly re-arming, targeting 1% within the next six years.

It also relies heavily on imports, particularly from the United States. But the U.S. was delaying Swiss orders for Patriot air defense missiles even before launching its war against Iran, which will rapidly deplete missile stocks and force American manufacturers to prioritize the domestic market.

Even when US manufacturers are ready to export again, filling Swiss orders will be a low priority, multiple Swiss sources told The Arsenal.

“Why should anybody supply us?” said David Shapira, who just left the Swiss Innovation Forces to join interceptor drone startup Counter Drone Defense System (CDDS). “What do we bring to the table in the defense of Europe?”

“There's this real and present risk that we will not get the latest technology anymore,” said Alexander Brunner, a former Swiss army officer and former liberal politician. 

Brunner is setting up a trade body for Zurich-based defense tech SMEs called the Defense Innovation Association, which he hopes will help promote procurement by Swiss forces of Swiss-made technology.

“Neutrality works if you’re armed,” Brunner told The Arsenal. “If you don't get the latest arms anymore, the missiles, the airplanes—all this falls apart.”

At the same time, Swiss-made products can be difficult to export.

Swiss law prohibits the export of Swiss-made weapons and ammunition to countries at war. It also requires buyers to sign an agreement not to re-export the armaments without Swiss permission. 

As a result, Switzerland, anxious to maintain its neutrality between Russia and Ukraine, repeatedly denied requests by Germany to supply Gepard tank ammunition to Ukraine, even decades after they’d bought it. Bern also blocked exports to Ukraine from the Netherlands, Denmark and Spain for other defense products, such as the MOWAG Piranha III infantry fighting vehicles.

European countries responded by refusing to buy from the Swiss, thus limiting exports that Swiss law allows. For example, the Netherlands stopped buying Swiss armaments and Germany excluded Swiss suppliers from bidding for large equipment contracts.

Shapira told The Arsenal there’s now even talk of defense products that are “China and Swiss-free.” 

“We’re in the middle of Europe!” he said. “We’re isolated, and in a world that has become more hostile,” said Brunner.

Swiss lawmakers are currently debating amendments to the War Material Act (SR 514.51), which governs export controls. The draft revisions would in principle allow exports to 25 countries already whitelisted in another, subordinate law—the War Material Ordinance (514.511). But the Swiss Federal Council would still be allowed to veto exports.

Markus Potzel, Germany’s ambassador to Switzerland, told Swiss newspaper Neue Zürcher Zeitung that the veto powers mean there’s “no guarantee that [Germany] will really be able to freely dispose of the weapons purchased from Switzerland.”

“This assessment is correct,” said Raphael Brunner, a trade lawyer at MME Legal in Zurich.

“It will make it more difficult for the authorities to deny an export to one of the whitelisted countries, because then they have to have strong reasons,” he told The Arsenal. “Today, they could just simply deny it without giving reasons,” or by citing unspecified intelligence. 

But keeping Swiss products out of a hot war would still be a valid reason for the Federal Council to deny an export if it wants to, he said.

However, even under the current rules, he doubts the Federal Council will impose new export controls in response to the US-Israeli war against Iran. “We are at the moment in a situation where we do not want to cause more troubles with the US than we already have,” he said.

Once parliament has finished debating the new law, it will most likely go to a referendum, Dominik Tschudi of the Basel-based law firm Kellerhals Carrard told The Arsenal in an e-mail.

As well as deterring European buyers, Swiss export controls scare away investors by limiting companies’ sales potential, said Shapira. 

“Switzerland is just simply not a big enough market,” he said. “Why should an investor invest in a company which he believes already has to run a marathon with crutches?”

The limitations raise the question of whether to move production—and jobs—out of the country, said Shapira.

“At some point you need to decide whether you are more of a patriot or you're more of an entrepreneur,” Shapira told The Arsenal. 

“I, as a Swiss citizen, would love to see that we contribute to the safety of Switzerland and protect its skies,” he said, referring to CDDS’s counter-drone offering. “We also need to scale—we have investors on board, there are expectations on us.” 

“The question at some point becomes,” he added, “Is Switzerland the best-suited place for us to do so?”

Working with Alexander Brunner on the new trade association is Armando Geller, managing partner of Scensei, a Zurich-based producer of military planning software. Scensei simulates the autonomous behavior of battlefield actors to support long-term military planning, including procurement.

“Switzerland is a country where there is a lot of money sitting around. There are a lot of Swiss investors,” he told The Arsenal. “But even they tend to invest outside the country.”

“I think it’s a cultural issue,” he said. “There is little risk appetite.”

There are foreign defense tech investors in Switzerland, but often “those investors come from countries where you actually want to stay far away from them,” such as Russia and China, Geller said.

While the Defense Innovation Association’s approach is geared toward the interests of SMEs, larger firms won’t be excluded, said Geller. 

“We don’t want to gate it. We don’t think that there is a competition between corporates, entrepreneurs—which would be the SMEs—and startups,” he told The Arsenal.

However, “their interests do not necessarily align when it comes to procurement,” he added, noting that larger defense firms have much more “horsepower” than SMEs to deal with complex bureaucracy and regulations.

The group plans to publish a map of Zurich’s defense ecosystem in May, Alexander Brunner told The Arsenal.

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European governments should prioritize buying European-made weapons when they’re available, the head of the world’s oldest arms manufacturer told The Arsenal in an interview.

“Where there is the technology, the competence, the ability to provide armies with the capability they need, local delivery should be not only favored, it should be almost mandatory,” said Beretta Defense Technologies CEO Carlo Ferlito.

The European Commission is expected to propose an overhaul of EU defense-procurement rules later this year. Besides cutting red tape, the EU executive is considering a new ‘European preference’ rule to encourage more domestic procurement. 

That has angered the Trump administration. In February, the US government said it would “review” European exemptions to ‘Buy American’ laws if a European preference is introduced.

“I will be very surprised if there’s any retaliation,” he told The Arsenal. “For the United States, some redundancy in certain technology being manufactured in Europe is an advantage, it’s not a limitation.” 

US firms would benefit from establishing a base in Europe to access the market, just as Beretta has in the US, he argued.

The US applies the same logic to its own procurement. For decades, Beretta’s M9 handgun was the standard sidearm of the US military (it lost the contract to SIG-Sauer in 2017). As part of the contract, Beretta had to localize the intellectual property in the United States, Ferlito noted.

“That is exactly what we’re asking,” he said. “If that technology is not available in Europe, or if there’s a particularly competitive product that makes sense to purchase, at least get the IP and get the capability to manufacture in Europe.”

For small arms, “to buy outside Europe is probably a little bit stupid,” he said. “Between us, Germany’s H&K, FN in Belgium—the best manufacturing and the best technologies available in the world are European.”

Ferlito said the supply chain for Beretta’s European operations is all-European, even the raw materials. 

Ireland spends even less on defense than Switzerland—around 0.2% of GDP in 2024—but the country produces more military technology than you might think.

“In 2020, which is the last year I’ve got data, Ireland exported more dual-use and military technology than we did beef,” said Pat O’Connor, founder and CEO of Dublin-based AI firm VRAI, which analyzes the performance of military personnel in training simulators. 

“That happened with zero government support,” O’Connor said. “There is no explicit policy to support defense technology export sales, unlike say in France or the US or the UK.”

O’Connor served 22 years in the Irish Defence Forces, taking part in UN missions in Syria, Sierra Leone and Liberia. In addition to leading VRAI, O’Connor is also chairman of the Irish Defence & Security Association, a trade body.

For example, VRAI works with major defense primes such as BAE Systems, Kongsberg, Rheinmetall and Patria, as a subcontractor in their services to armed forces. It also has civilian uses.  

“I can train an offshore wind technician with our technology. We can train a nurse, a doctor, a civilian pilot or a military pilot,” he said. 

O’Connor said that if Ireland is serious about its neutrality, it needs sovereign capabilities. 

“We have to have a sovereign capability based on a local supply chain—which just so happens to be quite technologically sophisticated and in demand internationally," he told The Arsenal. 

“If Ireland is going to contribute to European defense and security, it's unlikely to be light infantry, mechanized brigades,” he said. “Likely linked into our technological supply chain.”

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CORRECTION: This article was updated to make it clear that the quote, “We’re isolated, and in a world that has become more hostile,” came from Alexander Brunner.