Sector News
Defence Co-operation and Collaborative Procurement for the EU – Maybe?

Defence co-operation in Europe and across the EU has been talked about for many years, but talk has exceeded real action. But yesterday we saw what might prove to be a significant step, as EU foreign policy lead Federica Mogherini and European Commission Vice President Jyrki Katainen announced a new “Defence Fund” that will support relevant investment and procurement activities. This is part of a broader effort by Commission President Jean-Claude Juncker to move ahead with a European Defence Action Plan.

According to the Politico website, “it represents a historic push by the EU into a new phase of cooperation on military and security policy, including on procurement of weapons and new technologies”.

This has been on the cards for years, but it does coincide with U.S. President Donald Trump giving NATO and EU leaders some tough words about the money that is being spent – or rather, the money that is not being spent – by NATO members. Very few achieve the 2% of GDP target spend on defence which NATO requests of its members.  Trump has suggested that that the EU can no longer rely quite so strongly on its major ally, and Angela Merkel re-inforced that saying “we Europeans must really take our fate into our own hands”.

According to Politico, the new fund has two parts. There will be a “research window” (a slightly odd title) to finance collaborative development of technologies such as electronics, encrypted software or robotics. The Commission has already proposed €25 million for this in the 2017 EU budget, and a “capability window” which would allow EU countries to share procurement activities and the cost of new hardware, such as drones or helicopters. In terms of the numbers:

“Officials said the annual allocation for the first component could grow to €90 million through 2020. After that, the Commission plans to propose a dedicated defence research program of €500 million per year. When it comes to the capability window, the goal is to leverage about €5 billion per year in coordinated spending”.

So at the moment, the €90 million really is a drop in the ocean. EU countries in total spend over €190 billion a year on defence, a twentieth of 1% of the total!  Even 500 million is not a lot, but this is research speeding rather than equipment, so at that level one would think that quite a lot could be achieved with that amount.

The 5 billion in “co-ordinated spending”  is clearly a much bigger number, but the proof will be in the execution. We have written previously about the inherent difficulties in collaborative defence spending. Will countries be able to agree common specifications, when each has different current requirements? How will procurement programme be run – will “national preference” issues get in the way where countries want to support and maintain their own local industrial sectors? As we said previously:

“That may not matter so much if the purchase is in a market with really very few suppliers – either because it is so esoteric a purchase or simply that the market dynamics has led to a monopoly or almost monopoly situation. But where a market still has a number of suppliers, from different countries, then it is hard to get the agreement to choose a single supplier. Everyone wants to co-operate, but everyone (the politicians in particular) wants to buy the tanks, or guns, or even computers from their “own” national supplier”.

But there has already been some co-operation; in 2015 the European Parliament identified 400 ongoing military co-operation projects. That included for instance a joint procurement programme for ammunition for an anti-tank system used by Estonia, Latvia, Lithuania, the Czech Republic and Poland. Perhaps ironically, Brexit has made co-operation more likely, as the UK has always opposed anything that looked as if it might undermine NATO. Without those pesky Brits, France, Germany, Italy and Spain might achieve more!

However, we still seem to be a long way from “EU soldiers” putting boots on the ground in anger, as it were.  Apparently, there are existing EU “battlegroups” numbering some 1500 soldiers but they have never been deployed.  Still, this new funding agreement is an interesting development and we will watch progress with interest.