Military Affairs

A phoenix or a lame crow. What is the future of the European defence industry?

Matej Kandrík

Russia’s aggression against Ukraine has served as a stark reminder to Europe that security cannot be taken for granted. More than three decades of peace, stability, and development have led many to mistakenly believe that this status quo is inherent, a given and that there’s no imperative to invest in maintaining a robust military deterrent. However, just as European armies have weakened, so too has the production capacity of the defence industry, as suppliers, following market logic, understandably mirrored demand. Even the export successes of certain countries couldn’t reverse the negative trend across Europe.

Despite primarily identifying itself as a peace project, the European Union demonstrated a healthy instinct for self-preservation after February 24, 2022. Through initiatives like the Strategic Compass, the European Peace Facility, the Ammunition Support Instrument (ASAP), the European Defence Industry Reinforcement through Joint Procurement (EDIRPA), the European Military Assistance Mission to Ukraine (EUMAM Ukraine), as well as the new European Defence Industrial Strategy (EDIS) and the European Defence Industrial Programme (EDIP), the EU exhibited surprising flexibility, political determination, and the ability to mobilise resources. But will this prove sufficient to address the dual challenge of aiding Ukraine in countering Russia and rearming European states?

What does the European Defence Industrial Strategy deliver?

The core concept of the inaugural European Defence Industrial Strategy can be distilled into directing defence investment towards joint procurement and the development of European production capabilities. Currently, and with long-term implications, the majority of defence purchases within the EU are directed outside its Member States. Between June 2022 and June 2023, this constituted up to 78% of all spending on new equipment or munitions. Consequently, the strategy identifies and proposes several mechanisms to financially incentivise Member States to enhance cooperation, plan, and, most importantly, execute joint procurements.

In conjunction with the defence industry program, the strategy also addresses other interconnected challenges, such as securing supply chains, ensuring access to investment capital for SMEs, fostering innovation potential, enhancing coordination with NATO, and creating opportunities for the gradual integration of the Ukrainian defence industry.

The European Commission has articulated a relatively clear vision based on a comprehensive set of measures and proposals that undoubtedly possess the potential to propel Europe’s defence industrial and technological capabilities forward. The full realisation of this potential lies within the hands of the Member States and their decisions. Hence, let us examine the pivotal aspects that the implementation of the defence industrial strategy and program will need to address.

National barriers

The approach of states to military equipment purchases can be broadly divided into two main parts. The first is military-technical, stemming from defence planning processes that determine the necessary capabilities and capacities for national defence. Simply put, armed forces define the technology and equipment specifications needed to fulfil their duties. For obvious reasons, countries typically have limited involvement of close allies in these tasks.

The second part is political. Particularly with purchases of equipment intended for service over the next ten, fifteen, or more years, it involves a long-term partnership with the producing country. From servicing to future upgrades, as well as the training and preparation of operating personnel, a comprehensive package of relationships and cooperation underpins such acquisitions. Hence, it is natural for countries to utilise large strategic purchases as diplomatic tools to strengthen political ties. This is one of the factors, though not the sole one, driving Europe’s significant procurement from American sources. However, this rationale may be influenced by concerns regarding the credibility and coherence of Euro-Atlantic relations should Donald Trump return to the White House.

Another prevalent issue at the Member State level is the inadequately structured legislation and procedures governing the acquisition process in light of present-day needs. During peacetime, an overly bureaucratic system has been established, emphasising transparency, control, and the principle of value for money. The outcome is a complex, inflexible, and slow series of processes that often extend for years, from the announcement of an acquisition plan to the delivery of the first pieces of equipment. Within this framework, it is not very appealing for states to engage in international projects where they must align their needs with those of other participating states.

Divergent national specifications and the pressure to involve domestic industries further complicate matters, resulting in only a modest 18% of total defence spending in the EU being directed towards joint European purchases. The Commission’s industrial strategy has set an ambitious target of reaching 50% of total defence spending in the EU by 2030 and 60% by 2035. Achieving these targets is, of course, questionable, and the underlying issues are not solely confined to the Member State level.

Brussels Crossroads

The outcomes of the upcoming European Parliament elections will reverberate in the formation of the new Commission and negotiations on the new budget. Without substantial funding and political influence in the discussions between the Commission and Member States, the current proposals are more likely to remain on paper than to be put into practice. The redirection of €1.5 billion from the European Defence Fund to the EDIP programme for the period 2025-2027 is not the most convincing signal. However, back in January of this year, Internal Market Commissioner Thierry Breton hinted at the possibility of allocating up to €100 billion to jump-start the European defence industry. This poses a challenge for the new budget cycle starting from 2028.

In this context, it is crucial to ensure that the swift introduction of numerous mechanisms by the EU is carefully guarded against duplication of agendas, unnecessary opacity, or administrative burdens. For many small and medium-sized companies, navigating the ‘Brussels labyrinth’ of agencies is not an easy task. This, in turn, diminishes the effectiveness of the available tools at the expense of significant resources. Once again, the necessity for close cooperation and coordination with NATO cannot be overstated. Twenty-three out of the EU’s twenty-seven states are also members of the North Atlantic Alliance. NATO has its own agency for promoting joint procurement, the Defence Industrial Production Council, along with its innovation tools, such as the DIANA programme.

The involvement of non-EU producers remains a contentious issue. Under the current framework, the only exception is Ukraine. It seems logical to include British industry, given its close ties to the continental market. While there is interest from countries like the US, Turkey, and South Korea, their participation is not yet envisioned. Broadening European subsidy programmes too extensively would, according to influential players like France, contradict the protectionist logic of capacity development in the EU. The robust French defence industry stands to benefit significantly from the proposed changes.

The transformation of the Union in response to the Russia-Ukraine war is a process that is likely irreversible. Following the energy sector, the defence industry, manufacturing, and technological capabilities are next in line. The success of this endeavour will bolster our collective defence capability and lay the groundwork for the EU to become a genuine geopolitical player.

The key variable in this equation is time. Russia has already undergone a transition to a war economy. Relying on US military assistance is not assured, and many European states have significantly depleted their arsenals. Consequently, many countries are opting to purchase from non-European manufacturers to minimise waiting times for deliveries. For instance, Poland’s substantial purchases from Korea exemplify this trend. The ability of Member States to strike the right balance between the short-term imperative to rearm swiftly and the long-term necessity to develop their own industrial capabilities will determine the success or failure of the proposed European strategy.

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