If there is to be comprehensive reform of the EU’s defence technological and industrial base it would be obvious to develop a European industrial policy aligned with PSCoop to organise and implement a
consensus about a sensible distribution of national core competences for the benefit of the Union as a whole. The precondition for this would be to define strategic priorities for the joint capability portfolio the EU wishes to maintain and promote. Special attention should be given to those technologies that ensure certain independence over other actors or where there are already comparative advantages within the EU.
Hopes are high that the European Commission’s “Defence Package” may bring about – through enhanced competition – a further consolidation of supply. Yet, whilst firms are already re-orienting with greater consequence towards global demand, industry representatives are quick to point out that a meaningful consolidation of demand also needs to take place. The latter may well entail a risk – seen from a national point of view – of a redistribution of production lines and the weakening of technology bases in European countries.
Despite calls for sustained targeted national orders, industry is keen on enhancing its exports. Since the reliance on export-led growth emerges as the main reaction of most European defence firms to the crisis, the issue of the sustainability of such strategy will sooner or later emerge. Two dynamics are likely to surface:
First, European firms risk being crowded out of sectors where there is too much European and international competition, driving down income and eventually leading to externally induced consolidation of supply. Especially Small and Medium Enterprises will be concerned by this trend and are likely to be less resilient in case firms rely to a greater extent on technology transfer to increase export shares.
Second, over-supply may increase the bargaining position of those states currently purchasing defence goods. Increased transfer of Intellectual Property Rights (IPR) might be the difference that makes or breaks a deal. If European firms are over-reliant on export strategies, especially towards rising powers, important IPR may be lost—with ensuing political, strategic and economic consequences. Joint European export support strategies could be one remedy to the problems likely to arise in the face of an uncoordinated rush to greater export reliance.
Towards an Industrial Headline Goal 2030
Back in 2006 the defence ministers of the EU member states subscribing to the ESDP (i.e. all but Denmark) declared that: “… a fully adequate DTIB is no longer sustainable on a strictly national basis – and that we must therefore press on with developing a truly European DTIB, as something more than a sum of its national parts. We cannot continue routinely to determine our equipment requirements on separate national bases, develop them through separate national R&D efforts, and realise them through separate national procurements. This approach is no longer economically sustainable – and in a world of multinational operations it is operationally unacceptable, too.”57
Member States also need to find common denominators in their approach to armaments policy in order to define a strategic European defence-industrial policy. Such policy would contribute to the consolidation of defence industry across the EU by strengthening those sectors, in which Europe’s defence industries hold a comparative advantage on the global market. Candidates to such strategic European industrial policy could be the aerospace (aircraft, UAV, satellites), missile, naval (including submarines) and protected-vehicle sectors.
Defining industrial headline goals for 2030 could be one step to materialize such strategic European industrial policy. It would be based inter alia on the mapping of the European industrial comparative advantages by global comparison as well as on the objectives of appropriate technological sovereignty (where dependencies of the EU are not considered reasonable).
Member States need to find common denominators in their approach to armaments policy in order to define a strategic European industrial policy. Such policy would contribute to the consolidation of defence industry across the EU by strengthening those sectors, in which Europe’s defence industries hold a comparative advantage on the global market. Candidates to such strategic European industrial policy could be the aerospace (aircraft, UAV, satellites), missile, naval (including submarines) and protected-vehicle sectors.
Defining industrial headline goals for 2030 could be one step to materialize such strategic European industrial policy. It would be based inter alia on the mapping of the European industrial comparative advantages by global comparison as well as on the objectives of appropriate technological sovereignty (where dependencies of the EU are not considered reasonable).
Under the pressure of industry, London and Paris also tacitly seem to have agreed on trying to form a monopoly in the field of nuclear submarine technology. A clear division of labour along lines of production could be a useful outcome of this trend. In the naval sector, a consolidation at European level of French and German competencies in the field of conventional submarines could represent one option.
Consolidation of Demand
Consolidation can happen either through joint R&T projects or through bundling demand for shared capability needs (harmonization of demand, synchronization of procurement, cooperative or common procurement).
It seems illusory that a stronger reliance on exports on behalf of industry can be – or even should be – avoided altogether. Yet, greater cooperation between government and industry could help diversify industry’s strategic approach in the face of the challenges ahead.
Industry cannot be required to consolidate without the adequate political strategic direction and impetus. Indeed, consolidation of demand is a matter of defence policy as well and needs to occur along politically defined strategic lines, possibly based on a joint European Strategic Defence Review. European demand – with harmonized and controlled requirements – needs to be bundled with greater consequence, in order to generate according revenues and economies of scale at the European level.
Encouraging the security-defence diversification in European Industry
In order to cushion the blow from increased competition due to stronger export strategies, firms that are not competitive or not part of competitive sectors should actively pursue portfolio diversification by increasing reliance on civil security or on dual use goods rather than solely on defence goods – this may represent the best preventive means to avoid uncoordinated dismantlement of industry and job-losses across the EU. Industry and government ought to consult to devise exit or diversification strategies to this end. Some degree of sector consolidation seems unavoidable, however.