The first European Defense Industrial Strategy (EDIS) was recently published. It aims high, setting targets such as acquiring at least 40% of defense equipment collaboratively by 2030 or spending 50% of its defense acquisition budget within the EU by 2030 and 60% by 2035. This is an important symbolic step forward, but isn't it a little late?
In many ways, the first European Defense Industrial Strategy is long overdue, but, at least, it raises greater political awareness of the importance of the European defense industry. Conceptually, it does a good job of highlighting the essential reasons for having a defense industry. I would also say that in many ways EDIS even challenges some of the European Union's assumptions about the defense industry. Some EU policymakers did not always understand that the defense market was inherently political and strategic, and they quickly treated it like any other type of sector. With EDIS, this assumption has now been eliminated, but your question about whether the strategy is appropriate is an important one. Indeed, many of the structural problems facing the European defense market today (underinvestment, lack of manufacturing capacity, supply chain insecurity, lack of “domestic demand” in Europe) are inherited of the last two or three decades. This also means that each correction of past inactions will not happen overnight, but will require a comprehensive and long-term change in mindset about how to see the defense industry at the heart of European defense.
The last two years have shown that Israeli and American industries are the big winners of the European strategic awakening. Is the new strategy a little too optimistic about European public procurement practices?
That's right, and the Strategy itself highlights that Europe has become even more dependent on external supplies of military equipment since Russia's invasion of Ukraine. American and Israeli industries have benefited from Europe's strategic awakening, as have countries like South Korea which, as we know, won major contracts with Poland. In many cases, it has been argued that such reactions involving rapid purchases were inevitable because Europe simply did not have the equipment or military capabilities in stock to supply its forces. I am not sure that this argument is systematically valid, because it must be considered that many European countries still source outside of Europe to signal their commitment to other partners. We also note that deliveries of non-European equipment concern sophisticated (aircraft) and less sophisticated (munitions) technologies. It is also necessary to question what we mean by “short term” and “long term”, because I do not think that Europeans will necessarily “buy European”, even in the longer term. In this sense, we must ask ourselves whether the European market will one day end up supplying most of the materials without there being any fundamental changes. The strategy at least recognizes this problem, but solving it will take much longer and will depend on the political signals, based on the geopolitical context, that European governments give to European industry.
It is not easy to work with so many States and so many companies – which are sometimes in intranational competition – which are more or less under the control of the Member States… And all this in a context where the States have positions different on the nature of the supply. Will EDIS have a role in market regulation? Will the actors “play the game fairly”?
I think this is a fundamental question. In fact, EDIS has demonstrated some flexibility in market regulation. As we know, old European defense regulations were largely framed in terms of market liberalization, but directives related to defense procurement and intra-EU transfers have not really had a substantial effect on market behavior. We still do not have a single European defense market. However, pressures brought about by the war in Ukraine and the need to rapidly increase defense production mean that the EU will need to be more flexible in how it applies existing EU defense regulations. EDIS is already emphasizing that it will extend the derogation from the European Defense Procurement Directive as part of the future European Defense Industry Program (EDIP). Regarding the directive on intra-EU transfers of defense equipment, EDIS proposes another evaluation which should be completed by 2025. Therefore, I think that EDIS recognizes that there are limits to the current regulatory framework for the European defense market.
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