More effective Defence technology and industry policies needed in the European Union

British troops exercise in Estonia as part of the NATO's EFP
Source: II Defence Imagery, Flickr

Editorial by Jan Wind in Eurodefense newsletter       Download the complete newsletter here.

European cooperation for Defence is booming and will exponentially increase in the foreseeable future. Not so much in operations or foreign policy, where national sovereignty still is the dominant factor dragging down progress, but so much more in technology and industry.  

The establishment of the Directorate Defence and Space Industry (DEFIS) and the European Defence Fund (EDF) provided a firm basis, and the war in Ukraine is - unfortunately - a strong catalyser to speed up policy development and practical implementation.
A large team at DEFIS creates new concepts and rules. They lead the recently activated European Defence Industry Reinforcement through common Procurement Act (EDIRPA) to stimulate intergovernmental cooperation. The next programme to stimulate common investments is the European Defence Investment Programme (EDIP). Meanwhile an investment-blending facility is being developed to stimulate private investments in Defence technology. Funds are being allocated to increase production capacity of consumables like munitions.
In parallel the European Council tasked the European Defence Agency to fast-track purchase of large amounts of 155mm howitzer shells for Ukraine and restock quickly depleting national stocks. Seven nations signed up to this intergovernmental purchase.

A lot is being done, but the Member States are still using complex and bureaucratic procurement procedures, unique national technical requirements and prefer compulsory industrial cooperation over industrial efficiency. This is not the best possible policy to get the best capabilities in time and for a reasonable price.

Short-term change is needed shortly to address the current shortage of defence-systems and consumables, driven by the increased budgets and the urgent need to replenish supplies for Ukraine. In the longer term, our Union will expand to include up to nine additional Member States, which will have to participate in common defence. Meanwhile, global instability is growing.
In the Defence industry development and production capacity has declined significantly over the past three decades due to budget cuts. Private investors are reluctant to invest in defence-related companies due to increasing requirements for ESG (Environmental, Social and Governance) and other criteria. Member States require ‘industrial cooperation’ from OEMs in production and development, while small and medium sized companies focus on their ‘national customer’ only. All this means that the defence industry is scattered and not optimally effective.

To overcome short term issues, the funding made available by the European Commission to invest in companies to expand is not sufficient. Additionally, state aid rules and increasing budget limitations caused by inflation and slowed economic growth hamper Member states to do the same. A significantly more effective policy approach would involve stimulating the growth of the defence industry through the establishment of long-term contracts with companies for the production of both capabilities and consumables. If demand were to decline in the future, these contracts should require companies to maintain the necessary strategic infrastructure for continued production. This level of guarantee would allow companies to attract private investments to expand their companies or build new facilities. 

In the long term the Member State focus on their national Defence industry is not beneficial for Defence of the European Union. Clustering of technology and product development is needed to keep up with global scientific progress. Clusters around a major company and/or specialised university could focus on one or more technology areas, like ships, aircraft, automotive, but also missiles, small arms, ammunitions, telecommunications, space, cyber, CBRN, etc. A few clusters (or valleys) for each technology area would suffice to maintain competition. Policy of the European Commission would be more effective when designated technology valleys are stimulated rather than general cooperation between at least three companies.

From a military perspective, manufacturing and storage of consumables, like missiles, munitions, drones, should not be located in just a few places in the European Union. In the event of war, it would increase Europe's vulnerability if only a few places had to be conquered or destroyed. So, in the long term multiple manufacturing and storage sites should be strategically dispersed over the Union. Also in Eastern and future new Member States.

In summary, while European defence cooperation in technology and industry is gaining speed, more effective policies should be developed. These policies should promote more effective capability development as well as increased, dispersed and resilient production. Convincing Member States, industries, and policymakers of the importance of these measures remains a challenge. However, it is a necessary effort for a secure future of Europe and to contribute to the favourable resolution of the conflict at the borders of our continent.

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