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Sweden, the European Defence Fund and Permanent Structured Cooperation: Challenges Ahead for Third Party Participation — Anna Lundborg Regnér & Calle Håkansson

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Sweden, the European Defence Fund and Permanent Structured Cooperation: Challenges Ahead for Third Party Participation — Anna Lundborg Regnér & Calle Håkansson 4/2021 Sweden, the European Defence Fund and Permanent Structured Cooperation: Challenges Ahead for Third Party Participation — Anna Lundborg Regnér & Calle Håkansson PUBLISHED BY THE SWEDISH INSTITUTE OF INTERNATIONAL AFFAIRS | UI.SE Anna Lundborg Regnér Calle Håkansson Analyst, UI Associate Fellow, UI PhD Candidate, Malmö University © 2021 The Swedish Institute of International Affairs Language editing: Andrew Mash Cover photo: Lars Pehrson/SvD/TT Introduction the United States and the United Kingdom A deteriorating European security situation are strong partners, and this has guided the and calls to reduce foreign dependency have Swedish position. characterized the European defence realm in recent years. The EU has therefore sought to This UI Paper explores the negotiations on ensure its own security and strengthen its third-party access to EU defence funding defence capabilities, part of what has been and initiatives, the Swedish position and its conceptualized as “strategic autonomy”. industry’s perception of the way forward Two of the biggest projects in pursuance of under the new conditions. Section 1 traces these ends are the European Defence Fund the development of the EDF and PESCO, (EDF) and Permanent Structured with an emphasis on the negotiations on Cooperation (PESCO). Following cuts partly third state participation. Section 2 outlines linked to the COVID-19 pandemic, the and discusses the Swedish defence industrial former has used €7.95 billion from the EU base with regard to these initiatives. Section budget to finance collective defence 3 presents and analyses the impact on the technology research and capability Swedish defence industry and discusses the development,1 while the latter seeks to impact on Sweden’s biggest partners: the promote joint capability projects and UK, Norway and the US. Section 4 asks what collaboration.2 is ahead for third parties in the EDF and PESCO frameworks. The paper concludes Sweden has engaged extensively with the with some policy recommendations for EU Common Foreign and Security Policy Sweden and discusses a number of (CFSP) and the Common Security and remaining uncertainties. Defence Policy (CSDP). However, it has historically been sceptical about or reluctant to pursue EU defence integration. This reluctance has begun to waver in recognition PESCO and EDF third state of the need to make adjustments post-Brexit participation and the various new policy initiatives coming out of Brussels.3 Nonetheless, Sweden’s Early Brexit negotiations acknowledged a industry is an outlier in being fully privatized mutual need for continuing defence and having high levels of foreign ownership collaboration with the EU and the 2018 in which non-EU countries such as Norway, political declaration pledged to make the 1 European Commission (2020a). Commission 3 Håkansson, C. (2021a). Finding its way in EU security welcomes the political agreement on the European and defence cooperation: A view from Sweden. Defence Fund. European View.; Fägersten, B., Danielson, A. & 2 Béraud-Sudreau, L (2020). Integrated markets? Håkansson, C. (2018). Sweden and European defence Europe’s defence industry after 20 years. In: Fiott, D cooperation: interests in search of a strategy. The (ed.) The CSDP in 2020 - The EU’s legacy and Swedish Institute of International Affairs. ambition in security and defence. EUISS. © 2021 The Swedish Institute of International Affairs 3 necessary arrangements. Much of this However, it was important that such an declaration was discarded during 2020, in a initiative would not just benefit the largest sign of the vacillation on future security and “defence states” in the EU.11 Member states defence relations that took place throughout without major defence-related companies the Brexit negotiations. A lack of agreement worried that this would push them and their on these issues would lead to the UK missing small and medium-sized enterprises (SMEs) out on participation entirely, but the British out, thereby consolidating an exclusive club lack of interest kept Brussels guessing.4 of firms for the future. Nonetheless, the Europe’s reliance on the British defence deteriorating international security industry, however, was a driver of more environment and the high level of political general discussions on third party support from the then European participation in both PESCO and the EDF.5 Commission President, Jean-Claude Juncker, and the HR/VP, Federica Mogherini, In the PESCO negotiations, member states helped to increase support for the EDF. generally persisted with being protective of Moreover, the Commission’s relatively high their national industries. This conservative funding scheme, as well as the 10% extra line was driven not least by EU member bonus for SME participation and for PESCO states in competition with both British and projects within the EDF provided important American entities seeing participation incentives for the EU member states.12 conditions as a way to shut the door to the European market on their competitors.6 In While Sweden has been extensively engaged contrast, countries such as Poland had long in both the CFSP and the CSDP, its EU opposed any limitations, especially on US membership was a “rational economic risk participation.7 Cyprus was outspoken about management strategy” rather than a ensuring that no participation would be strategic choice that sought to advance its possible by Turkey.8 Nonetheless, a balance security policy, particularly in the light of its had to be struck and countries or entities history of neutrality and non-alignment.13 outside the EU could be allowed to This contradiction initially made Sweden a contribute if this was essential to making a sceptical voice alongside the UK in the potential project financially viable.9 debates, hesitant about common institutional security and defence The original idea for an EDF came from the commitments. PESCO and the EDF were European Commission’s DG GROW, consequently viewed with caution.14 supported by Michel Barnier who argued However, this reluctance towards the EU’s that it would have French support.10 4 Banks, M (2019). Britain’s defense ties to the EU are 10 Haroche, P (2018). The European defence fund: still up in the air post-Brexit. Defense News. How the European commission is becoming a defence 5 Taylor, T (2020). Brexit’s Implications for UK Defence actor. IRSEM. Industrial Cooperation with Europe. RUSI. 11 Ibid. 6 Biscop, S (2020). European Defence and PESCO: 12 Håkansson, C. (2021b). The European Commission’s Don’t Waste the Chance. EU IDEA policy papers (1). new role in EU Security and Defence Cooperation: the 7 Engberg, K (2021). A European Defence Union by case of the European Defence Fund. European 2025? Work in progress. SIEPS. Security. 8 Ibid. 13 Fägersten, B., Danielson, A. & Håkansson, C. (2018). 9 Biscop, S (2020). 14 Ibid. © 2021 The Swedish Institute of International Affairs 4 new “defence push” is slowly starting to industrial bases, Sweden’s defence industry change as Stockholm tries to adjust to the is fully privatized and to a large extent owned new political landscape since Brexit and the by foreign entities as a result of a series of various new policy initiatives driven by acquisitions that began in the early 2000s.20 Brussels.15 The Swedish government remains a customer and, in line with article 346 of the Central to non-European participants in the Treaty on the Functioning of the European EDF, not least the US, was the issue of Union (TFEU),21 has excluded its industry’s 16 Intellectual Property Rights (IPR). Béraud- areas of excellence from public procurement Sudreau argues these are the “driver of rules on national security grounds. The shareholder value and a sovereignty purpose of singling out these areas of concern”. Lack of IPR from participation in excellence is to sustain security policy projects limits the allure of the EDF for third freedom of action and avoid dependency in 17 parties. Drawing on their safeguarding of strategically important areas. Furthermore, national industries and the need for the national development and production of autonomy, most EU member states however defence materiel sought by other states agreed that third parties should not be allows Sweden access to foreign technology eligible for funding from the EDF, even if this that ultimately strengthens the operational put non-EU entities in a less advantageous capacity of its Armed Forces. Thus, Swedish 18 position. Sweden disagreed and attempted excellence makes Sweden an attractive to stretch these rules. Ultimately, it was trade partner, benefitting its national decided that third party entities could defence.22 The end of the Cold War meant a participate, but that IPR would be restricted down-scaling of capabilities and a move to the European subsidiary and could thus away from the policy of self-supply, and thus not be transferred to a parent company a decrease in orders for the defence industry. 19 outside the EU. As national policy shifted towards international missions instead of national engagement, industry also shifted outwards The Swedish defence- to engage with new customers and industrial base partnerships.23 Unlike most other EU member states, which Signing first a bilateral Defence Trade and have partially or fully state-owned defence Security Initiative (DTSI) and then a 15 Håkansson, C. (2021a). internationaliserat ägande. Totalförsvarets 16 Friis, K (2020a). The European Defence Fund and forskningsinstitut (FOI). Norway. NUPI. 21 Béraud-Sudreau, L (2020). 17 Béraud-Sudreau, L (2019). UK access to future 22 SOFF (2015). Varför finns det behov av en stark European defence-research funds: another Brexit säkerhets- och försvarsindustri i Sverige?. Säkerhets- uncertainty?. International Institute for Strategic och försvarsföretagen (SOFF). Studies. 23 Belin, J., Hartley, K., Lefeez, S., Linnenkamp, H., 18 Besch, S. (2017). What future for the European Lundmark, M., Masson, H., Maulny, J. & Ungaro, A. defence fund? Center for European Reform. (2017). Defence industrial links between the EU and 19 Engberg, K (2021). the US.
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