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Defence Industries Revived

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Europe still does not have adequate hardware. And Europe still expects its soldiers and sailors and airmen to make do, deploy, co-operate at the drop of a hat – and still remain up to standard. And Europe expects them to do all of this whilst the US is manifestly treating its own services and fighting capability so much better – and at the same time telling Europe just exactly how inadequate it is.


Defence Industries Revived

“Europe still does not have adequate hardware. And Europe still expects its soldiers and sailors and airmen to make do, deploy, co-operate at the drop of a hat – and still remain up to standard. And Europe expects them to do all of this whilst the US is manifestly treating its own services and fighting capability so much better – and at the same time telling Europe just exactly how inadequate it is.”

Specialising in European defence and defence industries means you can always remain current. I delivered the words above at the (now defunct) WEU Parliamentary Assembly in … 2002. And even at that time the debate was not new, having become current during the Balkan wars of 1992-99, as the shortcomings of European militaries and their kit became evident. Yet here we are in 2024, with the debate over upgrading European defence capabilities and industries still raging on – but in this case within the context of wars in Ukraine and the Middle East, a menacing Russia allied with Iran and North Korea with the backing of China, and the potential return of Donald Trump to the White House at the end of the year.

In reality, the debate has moved on dramatically in the past decade. EU structures designed to bring together capabilities and industries with a small amount of funding have combined with a marked change in debate and commitments since the Russian invasion of Ukraine in 2022. But as evident, these are not sufficient and the industries remain fragmented – an issue largely attributed to an absence of political will and industrial capacity. And whilst manifestly correct, such an assessment masks some core facts.

The most basic issue obscured by this loud debate, is that collectively there is a large and thriving EU defence industry. ASD, the Aerospace and Defence Industries Association of Europe, noted in its 2022 report – the last one published – that it had upwards of 4,000 members with a collective turnover of some €260 billion and over €160 billion in exports. It may not be as large as US defence industries, but it is a booming European sector.

The second issue not always evident in the debate is that many EU states have a part in this large market. While France, Germany, Italy, Spain and Sweden are dominant, most states have either smaller industries and/or SMEs that provide for the larger producers. As such, its existence and development are a collective EU interest – but not as a collective capability, due to structural industry and political reasons.

Defence industries are a unique sector, due to their markets: as a matter of legitimacy, these are limited to governments. This means that governments are also active players in the market – as customers, but also as financiers, promoters, and rule setters. Defence is an area largely exempt from WTO rules of trade, effectively allowing each government to subsidize its industry on the grounds of national security, which many do in a variety of ways, from doling out grants for R&D through active production subsidies to “partnering” national militaries with industries or simply buying products.

Governments can often be the main sales force for defence industries, notably overseas. Conversely, each government may set limits on the sale of defence products to specific countries or in specific times. Ultimately, therefore, whilst EU defence industries operate largely as listed market-based companies, the governments are always also either a declared or shadow directing force, with an effective veto. And whilst this often leads to secure local markets for the industries, it also makes them national assets governments are reluctant to share.

In essence this is a structural political problem, but it is not the only one. A strong claim made about EU states is that after the cold war they took a peace dividend and disinvested from defence. And whilst this is technically correct, the history is somewhat more complex. At the end of the cold war came the very necessary decision on both EU and NATO enlargement, driven by political realities of post Soviet states with disintegrating economies sitting in a vacuum between the then EEC and Russia, and the need to eliminate the vacuum rapidly. Other than the Covid pandemic and the war against Ukraine, it is probably not possible to recreate the speed of unfolding realities and the need for constant and rapid decision-making that occurred at the time. But it happened, and largely successfully. However, while European enlargement cost the bloc and its member states many hundreds of billions, NATO enlargement cost relatively little and often made large profits for transatlantic defence industries upgrading the former Soviet military kit of new member states.

While it is, therefore, possible to claim the EU prefers to spend its money on health and education rather than defence, it also needed to do so in order to secure central and eastern European states from collapsing economically and politically. Moreover, it still needs to do so, for by enlargement the EU brought security to those regions and all of Europe through structural changes of government and administration to ensure freedom and fairness as well as economic prosperity. And while there is a tendency to use security and defence interchangeably, NATO is a defence alliance whilst the EU is a security union – and the core difference between them is that you can only defend what you have already secured. The situation in Ukraine is a reflection of this reality.

EU enlargement bought and brought such security that Russia felt frustrated, for ultimately freedom and prosperity are the two issues it cannot offer its citizens. It is well to recall that the Maidan protests in Kyiv in 2013/4 erupted after the then Ukrainian President Yanukovich refused to sign a free trade agreement with the EU at the behest of Russia. This lead to the annexation of Crimea by Russia and the ongoing war with Ukraine, which throughout the years remained constant in its attempts and desires to join the EU – until 2022 Ukrainian public interest in joining NATO rarely rose above 50% – to the constant chagrin of Russia. Ultimately, it was Russia that moved the terms of the confrontation to the military, and NATO, since that is the area in which it assumed supremacy or at least equality. However, the core issue was, and remains, the EU.

There were two other political factors that inhibited European defence spending after the cold war. The first was relatively simple: it was unclear who the enemy was, and therefore what forces were needed to defend and attack against it. Historically, states usually assumed their nearest neighbour was the enemy, but with EU and NATO membership across the continent, that assumption was no longer valid. In addition, Russia signed agreements with both organizations, so at least until 2008 and the Russian invasion of Georgia it did not seem a threat; and as of 2014 and the annexation of Crimea it was a potential threat largely ignored.

Such ignorance could be deemed inexcusable but for the second political inhibitor: Germany. On 27 February 2022, Chancellor Olaf Scholz made his famous Zeitenwende speech promising to immediately spend upwards of €100 billion on military capabilities, thereby breaking with decades of anti-military sentiment in Germany. Indeed, since the introduction of the EU CSDP, Germany had been both an active partner, but also one somewhat laggard: willing to proceed militarily with its allies rather than alone, but equally reluctant to actually deal in matters of defence, militarization of any kind, or rearming. History weighed heavily upon it, and to a certain extent upon some of its European neighbours – which was another impediment upon developing collective EU defence capabilities.

Taking the industrial and political structural issues together, the lack of collective EU defence capabilities is hardly surprising. It has been both easier and more lucrative to develop national champions that rely on export markets alongside local markets limited to supplying the small national military rather than breaking these moulds to create a collective capability. Moreover, the ease was enabled by that most dire of realities: the absence of strategic vision. For until defence and security are understood as two separate but complimentary necessities rather than interchangeable words, and until the EU understands it needs to provide both, there can be no shift. In other words, the EU must leave the post-cold war era behind. But that will only happen with strategic vision, or as I suggested in 2002:

“Europeans need their policy makers to develop such a vision. To decide on the force it will inevitably need, as a point of pragmatism; on the role of the force; and therefore, on its realistic requirements. Once the vision is there, the rest will follow.”

(Photo credit:  © European Union 2014 – European Parliament)