CSDS POLICY BRIEF • 32/2023
By Daniel Fiott
20.12.2023
Key issues
- Although European leaders stated that “defence matters” a decade ago, they have not used the past ten years to genuinely build up European defence. Many of the deficiencies in European defence identified back in 2013 persist today.
- The real test of European defence today is how the EU and NATO respond to the challenge of Russia’s military aggression and revisionism. Any defence industrial strategy needs to connect industrial interests and defence prerogatives.
- An ultimate test for how serious European governments are on defence, beyond the rhetoric and speeches, is how much they invest in the EDTIB. And the amount needed should be calculated in multiple €100 billions per year.
Introduction
Ten years ago to the day, Heads of State and Government met at a specially designated session of the European Council: the focus, European defence. As the meeting conclusions make clear, the leaders saw defence as a critical area of EU policy and they proclaimed their readiness to increase defence budgets, de-fragment European defence markets, develop military capabilities and enhance the visibility and impact of the Common Security and Defence Policy (CSDP). While the 2013 meeting took place in a context of budgetary austerity and the fall-out from the “Arab Spring”, today Europe is faced with far more serious crises; not least due to Russia’s war on Ukraine and profound shifts in the transatlantic relationship. The hard reality is that the past ten years have not been used optimally to help Europe fend for its own defence. To be sure, the Union has probably done more for its own defence in its response to the war on Ukraine, but the next ten years will call for an unprecedented effort by Europeans.
One of the major developments to come out of the 2013 European Council was an affirmation that the European Defence Technological and Industrial Base (EDTIB) should be at the core of Europe’s defence efforts. Since 2013, the EU has worked hard to make this a reality, especially with the creation of financial incentives such as the European Defence Fund (EDF). What is needed in the coming years, however, is a much clearer articulation of how the EU’s defence industrial efforts can help alleviate the continent’s geostrategic predicaments. In short, more needs to be done to ensure that the EDTIB can respond to Europe’s real military capability needs: this includes re-industrialising the defence base for high attrition warfare marked by the use of mass capabilities. This Policy Brief looks back at the 2013 meeting and it draws parallels to today’s defence needs. In particular, the Brief looks at the industrial dimensions of the Union’s defence efforts and it makes specific reference to the forthcoming EU Defence Industrial Strategy.
“Defence Matters”: a broken promise?
When the European Council meeting was organised in 2013, the logic was that it would give way to a strategic reflection by the High Representative on the shape of global affairs. We now know that this resulted in the EU Global Strategy in 2016, but the initial logic was that Europe needed some form of response to its lacklustre performance during the “Arab Spring” and the 2008 financial crisis. When leaders sat down together at the end of 2013, they were guided by the logic of “crisis management” and the role of the EU as a stabiliser. They could, of course, not foresee the events that would befall Ukraine in 2014 or the shock that would result from Brexit or the Trump presidency. In this sense, while many of the objectives of the 2013 meeting remain valid (and unresolved), the EU finds itself in a completely different political context today. This context is marked by Russia’s full-scale invasion of Ukraine and the now perilous rivalry between the United States and China.
So, the obvious conclusion to reach after a decade is that the Union is now in a different world to the one it inhabited in 2013. For one thing, recent events in the Sahel, Middle East and Afghanistan show that there is limited appetite for crisis management, even though the main thrust of the 2013 meeting was to expand and deepen CSDP missions and operations – not least by strengthening the as yet unused EU Battlegroups. Sure, the EU will continue to keep its existing missions and operations in theatre (where it can), but no large-scale stability operations seem realistic today. The bulk of chancelleries across Europe are interested in defending Europe and deterring Russia, and even new CSDP missions are better-suited to this task (i.e. think of the military training mission to Ukraine) than stability missions: after twenty years of crisis management, the Union – as well as the US, NATO and UN – have not developed a workable approach to peace and stability. While this is not to say that no large-scale crisis operations will be required over the next decade, crisis management has today become a secondary consideration behind deterrence and defence.
Although serious questions need to be asked about the continued relevance of the crisis management paradigm, we should not overlook the important evolution in EU defence industrial policy that has occurred since December 2013. Indeed, while European armed forces continue to experience serious military capability gaps, the Union has created the EDF and it is working on a joint procurement initiative under the European Defence Investment Programme (EDIP). Without taking away from the efforts to create an EU command and control apparatus, an annual review on defence and a military training mission for Ukraine, among other initiatives, it is arguably in the defence industrial domain that the Union has emerged as a serious strategic actor – not least because of the creation of the EDF and initiatives designed to ramp up Europe’s defence industry such as Act in Support of Ammunition Production (ASAP). The financing of cooperative defence research and capability development has surpassed all previous efforts to legislate for and regulate the EU defence market.
Yet, for all of these efforts, the EU is still a laggard when it comes to the pooling of demand, consolidation, economies of scale, interoperability and standardisation. Back in 2013, the European Council entrusted the European Defence Agency (EDA) – an Agency that will celebrate its 20-year anniversary in July 2024 – with a whole range of capability development tasks. In particular, the EDA was asked to work towards Remotely Piloted Aircraft Systems (RPAS), air-to-air refuelling capacities, satellite communications and cybersecurity. However, of these four capability areas only air-to-air refuelling can be said to have reached a stage of completion. Space and cyberdefence continue to dominate the security and defence agenda, but the Union does not look set to meet its objective of developing an RPAS by 2025 (i.e. the “Eurodrone” project is likely to be ready by 2030 now). If the next ten years are to be any different, European leaders must embrace the call made 10 years ago for greater efforts in the area of defence industrial cooperation.
European defence: the industrial foundation
The European defence industry is the main foundation on which to develop further EU efforts in security and defence over the coming decade. True, the Union is developing its space-defence capacities, military mobility, protection against foreign manipulation, economic security and more, but it is in the defence industrial domain where the Union can help buffer Europe. In this regard, there is an opportunity for the Union to help: 1) enhance the military capability mass needed to deter Russia from future aggression; 2) re-industrialise Europe’s defence market to meet the challenge of high attrition warfare; 3) invest in strategic enablers that capitalise on Artificial Intelligence, sensors, computing and miniaturisation; and 4) set-up the Union as a key military capability exporter that works side-by-side with partners and allies. Redoubling efforts to develop the strength of the European Defence Technological and Industrial Base (EDTIB) may indeed incur the wrath of American industrial producers, but, ultimately, it is a necessary contribution to buttressing the transatlantic alliance and strengthening EU-NATO relations.
In this regard, ten years on from the European Council summit on defence the Union has an opportunity to guide the direction of defence industrial cooperation for the coming years in a more serious manner. The forthcoming EU Defence Industrial Strategy in early 2024 is but one method of doing so, although the timing of such a strategy can be questioned – it occurs before European elections and a reshuffle within the EU executive. There is, therefore, a risk that the Strategy could get lost in the fog that will surround the new Commission and its priorities: a fog of new initiatives and, perhaps, a different political direction. The upsides of publishing it in early 2024 are clear too, though, as it can “lock in” a coherent level of ambition and set objectives for the new Commission – such a Strategy may even be used during political campaigning during the European elections. If a strong message on defence industrial ambitions makes its way into the new European Council “Strategic Agenda” in June 2024, then the Defence Industrial Strategy would have played an important role.
The bigger issue, however, is about how to give political direction to the EU Defence Industrial Strategy. Beyond the symbolism of marking multiple anniversaries – the Versailles Summit, the publication of the Strategic Compass, etc. –, any serious Strategy will have to grapple with some basic but difficult questions: what is the EDTIB? What should the EDTIB become and how? In 10 years, how should Europe shape the EDTIB? What role will regulation, financial incentives and major capability projects play in this process? How can Europe successfully marry demand and supply in the coming years? What can the Union help produce in Europe today and what else should the EU be able to develop in the future? What skills, investments and manufacturing capacities will be required to meet these goals?
A defence industrial strategy for the EU: the easy option
Even though the EU Defence Industrial Strategy will likely echo the Strategic Compass’ language on capabilities, the Strategy must set out a coherent and bold set of objectives. During her speech at the EDA’s annual conference, European Commission President Von der Leyen already shared a vision of how the Strategy could be structured: she mentioned four main pillars including: 1) a strategic focus; 2) rules and regulations; 3) dual-use investments; and 4) funding. These four pillars, it was explained, should lead to bolder strategic capability projects and set the ground for Ukraine’s accession to the EU. Even within these parameters, however, one risk is that the Strategy simply groups together and codifies all of the Commission’s recent communications and strategies on the defence industry. This would be a risk because it will not create the adequate demand signals needed by European industry over the coming decade. Any Strategy of codification could cover the following issues and make these political claims:
- Investments: celebrating the early success of the EDF and justifying an enlarged amount for the Fund under the next Multi-annual Financial Framework (MFF). This part of the strategy would probably make a case for a European Defence Investment Programme (EDIP), and call for additional investments for joint procurement projects. Additionally, the Commission will likely recall its commitment to supporting SMEs and the need to unlock investment for these firms. This could be an opportunity to outline the political steps needed to unlock capital from the European Investment Bank (EIB) and venture capital funds.
- Technologies: the strategy may also devote attention to the Commission’s work on dual-use technologies and the linkages between existing EU investments in civil, space and defence sectors. Here, the Commission may also be tempted to flesh out some of the industrial implications of the recent EU Space Strategy for Security and Defence.
- Regulation: the strategy could potentially stress the importance of the defence sector as part of the Single Market. It may again underline the importance of the two directives on transfers and defence procurement, which are still seen as a way to regulate questions of procurement and security of supply in the EU.
- Skills: the strategy may also raise the challenge of sourcing and retaining skilled labour for the defence sector. Many current and future defence programmes will require the right people and management processes, yet it is still a challenge to recruit individuals with the right skill sets.
- Greening: the Commission will most likely devote some of strategy to “green defence” capabilities and initiatives. Any language on “green defence” is likely to be bound up with the language on innovation and future technologies. When combined with the ill-defined term “sustainability”, this could also be an opportunity for the Commission to provide a clearer message on Environmental, Social and Corporate Governance (ESG).
A defence industrial strategy for the EU: the hard option
Beyond these obvious areas of policy, any serious defence industrial strategy needs to give more ambitious impulses. Celebrating the role of the EU in defence industrial policy is not a strategy. Instead, the strategy needs to give a credible and clear direction for how to develop the EDTIB over the next decade, and it needs to articulate – as never before – how EU defence industrial efforts will strengthen EU-NATO cooperation in capability development. In particular, the Strategy can develop a roadmap for how the EU’s defence industrial investments and efforts can help develop the European pillar of NATO. More boldly, and perhaps outside of the scope of the forthcoming strategy, is a far deeper interlinkage between the NATO Defence Planning Process (NDPP) and EU defence capability plans. Heading in this direction is a way to ensure that capabilities developed by European nations can meet the principal challenge of maintaining credible deterrence in Europe.
The first obvious way of creating a credible Defence Industrial Strategy is to significantly ramp up the available capital needed to invest in defence. Yet, today, the EU member states still fail to meet their “2% of GDP” aspirations: as the EDA defence data for 2022 shows, the EU collectively underspent by €76 billion. However, even if the member states did meet their 2% target – which would have resulted in a total spend last year of €316 billion – this would still only relate to national spending obligations. Any additional capital for EU joint procurement – either by boosting the EDF or endowing the EDIP with a substantial amount – should come on top of what member states are already expected to spend. Where these additional financial resources for defence are to come from is a major issue.
One could say that adapting the EIB would allow for additional investment in defence. To be sure, doing so would indeed help the EDTIB – not just in unlocking additional finances but also in sending an important signal to banks and investment houses that defence is a sector worth investing in. However, we would be naïve to think that any change in the EIB’s lending behaviour for defence will – by itself – help revitalise the EDTIB. Here, one could also argue for a larger slice of the MFF for defence but this seems unlikely beyond the marginal increase set for the EDF in early 2024 (an additional €1.5 billion has been called for, possibly taking the fund to €9.5 billion until 2027). An off-budget vehicle like the European Peace Facility (EPF) could also be appealing to member states to boost joint procurement, but the track record does not point to any substantial increase of investment here. Even so, a larger question must be to identify whether member states genuinely favour joint procurement: they do not appear entirely ready. In fact, the EDA concedes that no ‘meaningful analysis’ of joint defence equipment procurement can happen given that 18 member states refused to share data on this point in 2022.
Perhaps this is too bleak a reading of joint procurement, however. The EDF and Permanent Structured Cooperation (PESCO) have joint development and procurement at their core, even if more time is required to see the real result of these tools. We also have evidence that some European states are willing to jointly develop major capabilities, as shown by efforts to develop the Future Combat Aircraft System or the Main Ground Combat System. The major issue, however, is that a willingness to undertake joint procurement is directly tied to the level of additional money found for these endeavours. It is the issue at the heart of the EDIP, for example, where a reluctance to engage in joint procurement directly undermines the level of ambition in financial terms. Additionally, even assuming that all member states were in favour of joint procurement, there would be the question of scale: in other words, how much more investment would be required? In the German case, the additional €100 billion pumped into defence spending has so far had a questionable effect, especially when combined with the country’s bureaucratic hurdles in defence procurement and its overall lack of defence investment. So, will EU joint procurement require an additional €100 billion, €200 billion or €500 billion per year? So far, no one has found a suitable formula for calculating the price tag.
A decade of defence?
Many will counter this analysis by stating that more money can be dedicated to joint procurement from within existing budgetary envelopes: this is the “invest better, invest together” ethos. Yet, boosting defence investment across the board is the only method of seriously enhancing the EDTIB. Without substantial additional investments per year, industry will not be convinced that there is a powerful enough incentive to invest in additional industrial capacity. The truth is that the EDTIB cannot become the powerful political foundation on which to build European defence if military capabilities, manufacturing capacities, skills and technological innovation are not developed in a sustained fashion. The EU is already struggling to meet basic needs such as ammunition production, let alone develop the military capabilities needed to deter Russia over the coming years. Without additional financial resources, Europe cannot hope to “think big” on capabilities such as air and missile defence.
There is another political dimension that needs to be kept in mind, and that is that political actors in the United States are watching Europe keenly on the steps it takes next. In particular, it cannot be lost on chancelleries across Europe that any “second coming” of Donald Trump will require bold actions. As we saw during President Trump’s first term, Europeans tend to respond when the American security guarantee is directly called into question. It does not take a giant leap of imagination to see a situation where a future president directly ties the American guarantee (or parts of it) to calls for more defence investment – this would be the “invest more, or do without us” ethos. In an ideal world, Europeans would be convinced to invest in defence independent of the political climate in the United States, but this is far from the reality. Independent of any Defence Industrial Strategy, more “shock therapy” might be required – especially as Europe cannot wait until 2033.
ISSN (online): 2983-466X
