The Interdependence of European Sovereignty and the Defense-Industrial Base

Dr. Wolfgang Piller
Member of the Board of Management, Daimler-Benz Aerospace

As we all know, the face of NATO is changing. In 1999, Poland, the Czech Republic, and Hungary will be joining the Alliance, and the door is open for other countries to follow suit. NATO has also concluded a Basic Act with Russia that takes into account our special relationship and that enables Russia to become an integral component of the overall European safety architecture. As we can see, major political steps are being taken towards creating a new NATO and toward building a unified Europe.

In Europe, NATO’s enlargement is being paralleled by the opening of the European Union to new members. NATO and the EU are pursuing a common goal—to create a permanent and stable security system in a free and prosperous economic and social order whose roots are in a market economy. The antagonism that formerly pervaded political, military, and economic affairs has been replaced by cooperation, turning former adversaries into partners in a multipolar world order—one characterized by growing diversity and complexity in international political, social, and economic developments and relationships.

THE CHALLENGES OF GLOBALIZATION

From our industrial perspective, this interweaving of interests mirrors the increasing trend towards globalization—a trend that has received additional impetus from the opening of Eastern European markets once hidden away behind the Iron Curtain. The world is now developing into a single large marketplace that offers not only new sales opportunities, but also new competition and chances to cooperate as well. Companies that do not take up the challenge that globalization provides will lose their competitive edge and become insignificant.

The European defense industry, which seems to have been paralyzed at the start of the 1990s following the decline of East-West conflict and the dramatic collapse of defense budgets, now understands this challenge. My colleague John Weston, from British Aerospace, spoke at last year’s Workshop in Prague of the conclusions this understanding has led to—namely, the need to consolidate the European armaments industry and the awareness that Europe can compete in the global arena only by establishing a European aerospace and defense company—and I would like to add, a European aerospace and defense market.

DEVELOPING A EUROPEAN AEROSPACE AND DEFENSE COMPANY

The process to create such a company is now accelerating. Asked by the British, French, and German governments to work with them, Aerospatiale, British Aerospace, Daimler-Benz Aerospace, and CASA submitted their concept in March 1998 that described the future company’s goals, tasks, and basic structures. In addition, the governments were also asked questions concerning the framework that would be necessary and the statutory measures that would need to be introduced by the political establishment. Satisfactory answers to these questions are required—without them it will be impossible to set up a European aerospace and defense company. We have to know what role the governments want to play in the company. We have to know if the industries in France, Spain, and Italy will be privatized. How will government R&D funding be organized across borders? What will the joint export regulations and taxation of such a company be? Will there be joint classification rules and laws about intellectual property? We anticipate an initial joint statement by the governments on these and other matters soon.

THE NECESSARY LINK BETWEEN EUROPEAN SOVEREIGNTY AND A EUROPEAN ARMAMENTS MARKET

It is mandatory that the European armaments industry enjoy European market conditions that enable it to be competitive in world markets—particularly against our large American competitors. I should therefore like to set out the reasons why European sovereignty, the establishment of a real European armaments base, and the development of a European armaments market are all indivisibly linked. I should also like to explain the roles that national and European politics, as well as NATO and WEU, will play in this effort.

American Market Volume and Consolidation

The American aerospace and armaments market is the largest domestic market for goods and services of this kind in the world. Added to this, the U.S.’s share of armaments exports grew to almost 50% during the last few years. This has resulted in enormous market volume for American industry that has effectively compensated for the dramatic fall in defense expenditures. American industry also has virtually no competition on the U.S. domestic market. This is in stark contrast to the fragmented national markets in Europe that are open to American competitors, a fact illustrated most clearly by the export of F-16s over recent decades as well as by the export of missiles, helicopters, defense electronics, and large transport aircraft. These economies of scale enable American industry to develop and produce cost-effectively and thereby create the market basis to recoup enormous—and increasing—development costs. And, as most of the exports are government-to-government sales, the U.S. government always sells along with the defense products the reasonable hope that there will be political support if and when these products must be used. This is a particularly competitive edge for American industry.

Additionally, over the last few years, the U.S. has seen what is probably a unique industrial consolidation process. Within the aerospace defense industry, three massive concerns have been created in only five years—Boeing, Lockheed, and Raytheon. These companies bring together all areas of military and civil aerospace and defense technology under a single roof, representing an optimal technological and economic mix. Boeing, for example, does as much business with the U.S. government alone as Germany spends on its total defense. But the result of such consolidation is the marginalization of the fragmented European industries, whose structures are essentially still based on the old national principles.

The Need for a Substantial European Armaments Base

European industry—and Europe’s politicians—must respond to the possibility of market domination. Europe’s states must put in place the political and legal conditions necessary to create an industrial and technological base for the European aerospace and armaments industries. If Europe’s own industrial base collapses, establishing a political union with a common European foreign and security policy will become impossible. The vision of achieving European sovereignty in foreign and security policy will remain forever an illusion.

Without a substantial European armaments base, the European community will be rendered impotent on the international stage. The European Union will develop into a political union with its own foreign and security policy only if it is able to execute this policy in a European context. This in turn requires that, at an absolute minimum, the European community of states be able to decide in a wholly independent manner how it can equip its own armed forces. I am not talking about self-sufficiency or complete autonomy, but merely a minimum degree of sovereignty in our armaments policy. However, this will be achieved only if Europe develops a sufficiently large, competitive, and powerful industrial and technological base grounded in the aerospace and armaments industry. And the U.S. will expect this of Europe when asking for its contribution to joint peace missions. Additionally, European sovereignty will enable Europe to conduct such missions should the U.S. be unable or unwilling to do so.

A STRONG EUROPEAN UNION

A European Union that is truly an economic, financial, and monetary union will not come about if it is unable to define a common foreign and security policy. Common postage stamps are not enough. Nor will a common currency be sufficient in the long run. We will only succeed in achieving true European integration if our economic and monetary union is augmented by a European Security and Defense Identity. If we fail to fit this cornerstone into the foundation upon which the new Europe is to be built, we will be unable to achieve political union and leave the European Union a fragile structure, always at the risk of falling apart.

If we succeed in defining a common foreign and security policy, however, our community of European states will have developed a common vision of Europe’s role in the world. We will also understand the kind of armed forces that will be needed to enable us to play this role. This in turn will give us a clear picture of how the armed forces will need to be equipped, and on that basis we will be able to formulate joint requirements. Only then will we be ready for making joint procurements. And only when most of the states of Europe undertake joint procurements, bundling their requirements and acting as one, will we have something that we can term the European armaments market.

Such a situation will eliminate the cost-intensive, duplicated development work that is currently the order of the day for aircraft, tanks, and ships, and will release the all-too-scarce funds that are so essential for equipping the armed forces of the future. At the same time, economies of scale will be gained, making production more competitive and helping to relieve the strain on state budgets.

Bundling demand in this way could be the task of a future European armaments agency. Such an agency could act as a single buyer on the armaments market and be responsible for administering and executing a common armament and procurement policy. However, the decision about what to procure and the formation of a procurement policy would depend on how we define Europe’s role in the world.

CONCLUDING REMARKS

To sum up:

1. A common armaments market in Europe is essential for ensuring a powerful European aerospace and defense industry that can be a competitive and reliable transatlantic partner.

2. A European industrial base and a sovereign European Union must be inseparable.

3. A strong European industrial base will provide the foundation for an independent armaments policy, offering the political freedom of action needed for a common European foreign and security policy.

4. A political union will provide the industrial base needed for a competitive presence in the European and worldwide defense markets by defining common military requirements needed for joint procurement.

5. The European governments can be sure that if they merge their politically defined national aerospace and defense markets we will be able to merge our European companies as fast and as tightly as our American competitors consolidated theirs into a single political market. Products such as the Airbus, Eurofighter, and Ariane prove that a European aerospace and defense industry would be a capable and competitive one because it would comprise the genius and tradition of Europe.