Solving the European Defence Market puzzle Solving the European Defence Market puzzle Foreword The European Defence Market – Pieces of the Puzzle | by Sebastian Vagt 4 contributions 1 What drives cooperation on the defence market? Explaining collaboration 7 and non-collaboration | by Michael Kluth 2 Choices and dilemmas for European defence acquisition: alone, together or 23 ‘off-the-shelf’? | by Dr Ben Jones 3 Franco-German industrial cooperation – An example for Europe? To what 45 extent can Franco-German military-industrial cooperation play a role in the achievement of the strategic autonomy of Europe? | by Eve Roehrig 4 Central-Eastern Europe: Still Buying American, For Europe’s Good 61 by András Radnóti 5 Furthering European defence cooperation – Member States-driven 69 operational cooperation as cornerstone for a more effective Union in security and defence | by Mark Feenstra 6 New fighter jets for Belgium – a tale about the pitfalls of procurement 77 by Laurens Bynens AFTErWorD Conclusion | by Sebastian Vagt 88 Author Biographies 89 Imprint 90 © 2018 European Liberal Forum asbl. Published by the European Liberal Forum asbl with the support of the Friedrich Naumann Foundation for Freedom. Co-funded by the European Parliament. Neither the European Parliament nor the European Liberal Forum asbl is responsible for the content of this publication, or for any use that may be made of it. The views expressed herein are those of the authors alone. These views do not necessarily reflect those of the European Parliament, the European Liberal Forum asbl, the Friedrich Naumann Foundation for Freedom or other ELF Member Organisations involved. The European Defence Market pieces of the puzzle Europe seeks to provide for its own security. That is the essential message of its 2016 Global Strategy, which states ‘strategic autonomy’ as a security political ambition. This is a reaction to emerging threats in the East and growing instability in the South. However, it also responds to an apprehension that the transatlantic alliance, an indispensable feature of Europe’s present security architecture, is not guaranteed forevermore. The definition of ‘strategic autonomy’ is still to be debated. Nevertheless, it is clear that the European Union will require a significantly higher degree of military capability than today in order to fulfil this ambition. This goal cannot solely be achieved by EU member states increasing their much criticised defence expenditures. They also need to tackle a considerable lack of interoperability among weapon systems and the wasteful inefficiency of defence investments. Both problems are closely related to the fragmentation of the European Solving the European Defence Market puzzle foreword defence market. 4 EU member states still buy 80 percent of their defence equipment domestically. According to the European Commission, an amount of 25 to 100 billion euros could be saved, if more cooperation was implemented. The European armed forces’ fleet of 1 000 youngest generation fighter jets consists of 3 different types, whereas the US military operates 2 500 such jets of the same type. This is just one of many examples that illustrate the fragmentation of the European defence market. It is a military industrial jigsaw puzzle. As a liberal reader, you might wonder why the forces of demand and supply fail to solve this puzzle. One reason is that the market is too small to function according to these laws. Tanks and frigates are being produced by very few companies and bought by a very small number of customers. This creates a bilateral oligopoly. Another important reason is that decisions on defence projects have security, political and social ramifications that touch on some of societies’ most sensitive nerves. As a liberal reader, you might protest that, on any market, the State should as far as possible be limited to the role of a regulator. But on the defence market, states are not only the umpires but also the main players. They are almost always customers and, in some cases, also the most important shareholders in defence equipment manufacturing companies. This gives political parties and most notably their delegates in parliament significant power over how the pieces of the defence market puzzle are put together. This volume is designed to provide liberal readers and security political professionals, interested or working in defence politics, with an analysis of recent trends in European armament collaboration and seeks to encourage more cross-border cooperation in the future. The contributions to this book are pieces of the puzzle. They result from a conference held in Brussels in mid- 2018, organised by the European Liberal Forum (ELF) and supported by the Friedrich Naumann Foundation’s (FNF) network of defence experts. The authors – scholars and political practitioners representing seven member states of the European Union – assess the defence market from different geographical and analytical angles. Michael Kluth analyses patterns of collaboration and non-collaboration among states and companies and discusses potential explanations for fluctuations. He also draws upon the efficiency of the most recent EU defence initiatives and the potential impact of Euroscepticism. Building on these conclusions, Ben Jones takes a closer look at individual countries’ motives to commit or not commit to common defence equipment projects and how they choose their partners. Special focus is dedicated to his home country, the United Kingdom. The ‘Franco-German couple’ is often regarded as the engine of European defence cooperation. However, France and Germany have failed in the past to reach compromises on some major projects and have even deepened fragmentation on the market. Eve Roehrig asserts that they will find common ground more easily in the future and establishes nine conditions for success. A group of countries that has demonstrated a tendency to buy American products is Central and Eastern Europe (CEE). András Radnóti explains their rationales and argues that they nevertheless make an important contribution to European defence cooperation and will continue to do so in the future. European cross-border collaboration is often hampered by major differences in national arms’ export rules. Mark Feenstra elaborates on the consequences for the Netherlands, a country that is traditionally very restrictive in this respect. He also suggests that the Netherlands could be leading the quest to form a ‘naval airbus’. Laurens Bynens provides an insider’s account of the ongoing decision process on the replacement of Belgium’s F-16 fighter jets. His piece illustrates both the difficult position of a relatively small country and the prevalence of national interest. 5 During their discussions in Brussels, all authors agreed that European Union member states should dare to collaborate more intensively when developing, producing and operating their defence equipment. This volume encourages the will and the trust necessary for such a commitment. Enjoy the read! Sebastian Vagt Friedrich Naumann Foundation for Freedom Solving the European Defence Market puzzle 1 What drives cooperation on the defence market? Explaining Collaboration and Non-collaboration by Michael Kluth If any particular manufacture was necessary, indeed, for the defence of the society, it might not always be prudent to depend upon our neighbours for the supply; and if such manufacture could not otherwise be supported at home, it might not be unreasonable that all the other branches of industry should be taxed in order to support it. “ 1 adam smith Introduction Armament collaboration between major powers has been considered an anomaly since the so-called military revolution in the late 16th century. The decentralised model of capital-intensive European warfare reliant on self-sponsored knights in shining armour vanished with much of the French aristocracy in the muddy fields at Agincourt in 1415. It was replaced by ragtag peasant armies raised for the occasion, employing simple weaponry such as e.g. longbows. Professionalised mercenaries, including German Landsknechte and Swiss Reisläufers, increasingly augmented the latter. However, eventually the widespread adoption of firearms and artillery combined with associated advances in tactics required a boost of skills through continuous training, thus paving the way for modern standing armies as pioneered by the Swedes and the Dutch. The military revolution thus denotes the advent of the modern centralised state, capable of sustaining significant standing militaries and mobilising the required fiscal resources through tax collection. It furthermore entails state provision of standardised modern weaponry and ammunitions through royal armouries. 2 This informs the perception that attainment of credible major power status necessitates defence industrial autarky, as reflected in the Adam Smith quotation above. Defence industrial autarky and European integration Solving the European Defence Market puzzle and Non-collaboration on the defence market? Explaining Collaboration drives cooperation What While prominent global powers such as the US, China and Russia remain reluctant to induct foreign military hardware or partake in ‘symmetrical’ collaborative armament projects, European states such as France, 8 Germany and the UK counter this conventional wisdom. From the ‘60s and onwards, the aerospace domain has seen a host of collaborative ventures encompassing patrol, trainer and transport planes in addition to combat jets, helicopters