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Developing a home-grown European defence equipment market

Sophia Besch / Dec 2019

Photo: Shutterstock

President Emmanuel Macron’s man in the European Commission will struggle to make headway on developing a home-grown European defence equipment market. But he can make progress if he hires the right advisors, looks to complement national efforts, improves the EU’s defence planning, champions the right projects, and advances co-operation with NATO.

Thierry Breton, a former French economy, finance and industry minister, will be the new European Commission’s new single market and industry commissioner. Within his large portfolio he will also head up the commission’s first Directorate General for the defence industry and space. This new department is a signal that EU member-states are serious about developing a home-grown defence equipment market. And it’s not hard to see why: Europe’s neighbourhood has come under threat; the UK– a traditional opponent of EU defence efforts—is leaving the EU; and, most importantly, Donald Trump has raised doubts about the US commitment to guaranteeing Europe’s security. The European Commission now proposes to allocate a total of €13 billion to defence research and development in the EU’s 2021-2027 budget cycle – a 22-fold increase over the previous budget.

The defence part of Breton’s portfolio has been set out clearly: strengthen the European Defence Fund; enforce EU defense procurement rules in order to foster a more open and competitive European defense market with greater economies of scale and, hopefully, lower prices; strengthen the links between defence and space, and work with NATO to increase military mobility across Europe.

With this mandate, Commission President Ursula von der Leyen and the member-states have made two important decisions about the role of this Commission in EU defence. One relates to scope: the new DG’s activities are focused on the defence market rather than on defence policy per se. This makes sense, as market regulation is both the Commission’s area of expertise and its legal mandate. The other decision relates to scale: the new DG has been tasked with focusing on implementation – new EU defence formats, initiatives and plans need to be brought to fruition over the next few years. But implementation is easier said than done.

Ten years after the Commission first tried to regulate defence procurement with the 2009 ‘defence procurement directive’, there is still no single European defence market. EU member-states continue to side-step the rules. The new commission could challenge the offending countries, but it might make more progress if it used financial incentives to sweeten defence industrial co-operation instead.

This is where the EDF comes in. The Commission plans to spend €8.9 billion to co-finance collaborative capability development projects and €4.1 billion to fund collaborative defence research between 2021 and 2027.

Obvious caveats remain: it is not clear that the money for the fund will get approved and even if it is, the sums are not transformative. Plus, to prove its worth, the Commission will have to get member-states to use the fund for high-level capability projects that fill obvious gaps in the EU’s defence planning. But the EU’s defence planning process is immature, with parallel procedures running in the European Defence Agency, the EU Military Staff and PESCO (Permanent Structured Co-operation), and often no clear link between the capability projects in the works and the level of ambition that was outlined in 2016.

Then there’s the question about who gets the spoils of any joint armament projects supported by the EU budget – every country will want a piece, but only a handful have high performing firms. The research side of the defence fund could be less controversial – member-states will likely appreciate investment in early-stage research into new technologies. Here, however, the European Parliament could demand more oversight, with lawmakers objecting to using EU funds to support new technologies that could pose ethical dilemmas.

How the commission gets member-states to agree rules for how companies from third countries can access projects financed with the help of the defense fund is another challenge. The US is concerned about EU protectionism in defense, and the UK is worried about its relationship with the European defense industry after Brexit. The EU wants reciprocity and argues – rightly – that the US market is anything but open to European suppliers. But European capability development also still depends heavily on components developed in third countries, particularly the US. European countries have different views on how dependent Europe should be on the US – with some, like France, stressing the importance of ‘buying European’ and others, like Sweden, Poland or the Netherlands, keen to maintain close industrial and security links with the US.

After months of political posturing by the EU and the US, the talks on third country access had recently turned to less contentious, more technical details -- in part because neither side was interested in a public falling out in the run-up to the next NATO meeting in December. Macron’s recent The Economist interview however, has once again stoked the flames. Military mobility has so far been a useful flagship project for cooperation between NATO and a Commission with defence ambitions, but the support of NATO’s Secretary General might well waiver, if Washington ups the pressure.

Finally, the Commission will have to find ways to tighten the links between defence and space without abandoning the EU’s position that the latter should not be militarized. The Commission will have to bring together member-states that take very different views on issues such as arms control in space or deterrence in space.

Even with a job focusing mainly on implementation, Breton has his work cut out to make even modest gains as the first commissioner for the defense industry.

 

Sophia Besch

Sophia Besch

December 2019

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