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  • The European Commission and the European Defence Agency: A Case of Rivalry?

    The European Commission and the European Defence Agency: A Case of Rivalry?

    This article analyzes relations between the European Commission and the European Defence Agency (EDA) as they relate to European defence-industrial co-operation. To undertake the analysis, the article departs from a strictly intergovernmental-supranational study of institutional relations by building upon the concept of ‘mandate overlap’. Additionally, the focus is on the constitutive policy approach of each institution. The EDA’s approach is characterized as ad hoc and project-based in nature, and the European Commission’s approach is structural and market-based. Once the two approaches are delineated, the article then investigates whether either of the bodies has deviated from their respective mandates over a period beginning in 1996 and ending in 2013. On this basis, the conclusion is that there is evidence of rivalry between the two bodies, especially when European Union Member States decide to use either entity to secure their interests.

    Journal of Common Market Studies, 2015, Vol. 53, No. 5

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  • Autonomy without Autarky: An EU ‘Roadmap’ for Security of Supply

    Autonomy without Autarky: An EU ‘Roadmap’ for Security of Supply

    The disruption of the defence supply chain and the inability to replace or reproduce equipment: a nightmarish prospect for any military planner. To allay such fears, states have, whenever possible, sought to lower dependence on third-country suppliers by favouring national industry. Yet complete autarky is impossible to achieve in today’s globalised defence market. Consider, for example, the fact that British defence firm BAE Systems sources its components and services from over 20,000 suppliers across the world on an annual basis.

    The globalisation of defence markets, technological change and rising costs of equipment mean that self-sufficiency comes at a high price. Maintaining a predominately national supplier base may also be risky from a strategic perspective, as this could significantly reduce the pool of technologies and capabilities available to military planners. In many cases, the most effective equipment can be found in third countries. Therefore, autarky does not automatically equal greater autonomy.

    EUISS Policy Brief, 2014, No. 43

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  • Kissinger on World Order

    Kissinger on World Order

    Kissinger’s first book was essentially a study of the corrupting effect of revolution on world – or, more specifically, European – order. Kissinger’s (thinly masked) parallel between Napoleon and Hitler made the point that revolutionary powers – defined as those states that seek to overturn the established global order – were intrinsically threatening to world peace. It was up to the reader to make the link between Napoleon, Hitler and the growing power (at the time of writing) of the Soviet Union. Revolutions, wherever they arose, needed to be eradicated or, at best, contained.

    A World Restored sought to offer diplomats and statesmen of Kissinger’s era a policy with which to deal with ‘revolution’. Kissinger wrote largely through the voice of Prince Klemens von Metternich, even though he refuses to see the Austrian as an antecedent version of himself. Metternich’s conduct of diplomacy – largely supported by the British Viscount Castlereagh – rested on a simple equation: world order is maintained by ensuring that overwhelming power is ready to combat any revolutionary movement that threatens the system as a whole. This naturally implied that alliances would be formed on an ad hoc basis to crush threats to the system. The sanctity of the system itself was more important than sectional or national interests, even though the national interest was supposedly guaranteed through the maintenance of the system as a whole.

    Revolution held a particularly important place in Kissinger’s thinking. Critics have suggested that Metternich was more interested in maintaining the monarchical system in Europe (and his personal place at the heart of this system) at the expense of the popular aspirations of certain European peoples. Many people tend to forget that Kissinger experienced revolution as a young man; he fled Nazi Germany as a young refugee after seeing his hometown razed to the ground. Metternich provided a mechanism to contain these types of revolutionary movements and lauded the ‘hundred year peace’ that had been established by the 19th century balance of power. It was a mechanistic system but it had brought many people in Europe peace and economic growth, at least until the balance ended in 1914 with world war.

    Diplomacy

    Kissinger’s second major book on world order was Diplomacy, a work published in the aftermath of the Cold War. Here, Kissinger was obviously keen to understand what an abundance of American power would mean for world order. Given the United States’ triumph over communism, the temptation to forge a world order based on American values and interests was strong. Again, Kissinger was keen to draw parallels between the contemporaneous world order and the 18th and 19th centuries. As he explained, ‘[t]he absence of both an overriding ideological or strategic threat frees nations to pursue foreign policies based increasingly on their immediate national interest […] order will have to emerge much as it did in past centuries from a reconciliation and balancing of competing national interests’ (p. 805).

    In Kissinger’s mind, this was an important feature of the post-Cold War world. He was now less afraid of revolutionary powers having the ambition or capacity to overthrow the system, mainly because of the superpower status of the United States. More worrying was the tendency of other states to take American power for granted or to be aggrieved by it to the point of accruing their own power, in pursuit of their own national interests, without due regard for the system’s stability. From one perspective, this could be seen as Kissinger’s way of saying that, as the global superpower, America’s will would be done. Alternatively, one can take seriously Kissinger’s point that it is systemic breakdown – regardless of who runs the system – that must be avoided at all costs.

    Diplomacy ’s main aim, however, was to counsel against the abuse of US power in the post-Cold War era. This is why Kissinger was keen to press the point that world order is not a static phenomenon or an end goal in international relations. His advice to American leaders was not to revel in America’s preponderance of power or to seek to forge a world order based on American values and interests. Instead, he wanted American leaders to use the power they had to deal with future changes to world order. When one considers the gradual ascent of China, Russia’s recent behavior and the folly of war in Iraq, Kissinger’s advice seems sensible. In other words, Kissinger feared that the irresponsible exercise of American power could jeopardise the very system it controlled. He believed that while American values were to be celebrated, changing the international system to reflect those values would have to be incremental.

    World Order

    In light of the two others discussed above, Kissinger’s latest book is intriguing. Its themes, especially salient towards the end, are the role of technology and the challenge of globalisation. While these themes are not new to Kissinger, their complexity challenges his earlier tendency to use historical generalisations to craft contemporary policy. In a sense this should not surprise the reader. The pace of technological change and the extent of globalisation have increased significantly since the publication of A World Restored in the mid-1950s. This is not to say that Kissinger has given up on history lessons, as his book still refers to the Peace of Westphalia, the Congress of Vienna and the Ottoman Empire.

    Rather, Kissinger now appears to have less faith in historical precedents than he once did – even if he remains a master of international history. In the final paragraph of World Order, Kissinger writes: ‘Long ago, in youth, I was brash enough to think myself able to pronounce on ‘The Meaning of History.’ I now know that history’s meaning is a matter to be discovered, not declared’ (p. 374). He even summons the spirit of Heraclitus to announce that history is like a river into which ‘you cannot step twice’. What is one to make of this conclusion?

    In one sense it strengthens his argument that world order cannot be sustained by power alone, for order also requires legitimacy. In this sense, he is perhaps ready to accept that Metternich’s system of order had to eventually fall away because it was not popularly seen as legitimate in a majority of nation-states. For Kissinger, the central point statesmen must recognize is that world order requires legitimacy, but that legitimacy is increasingly difficult to define. World Order is a book that still celebrates the unique American experience and Kissinger still extols the virtues of US internationalism, yet it also grapples with the difficulties of multipolarity. Kissinger recognises that the present system is not aimed at containing revolution, nor is it necessarily just about national interests. Instead, Kissinger describes the coming world order as one of regional powers interacting with one another in order to find a mutually agreed-upon definition of legitimacy.

    Kissinger still sees the ‘West’ as the most important region in the world, although he lambasts Europeans for being overly committed to values without necessarily having any power. Europe obviously features rather prominently in Kissinger’s works. In Diplomacy, for example, he makes the familiar comment that the European Union represents a response to the relative decline of individual European states. Back in 1994, Kissinger observed that the twin problem for Europe was that the project of unification was absorbing too much energy, and that the European Union (EU) did not have an automatic blueprint for how to act on the international scene (p. 24).

    The EU features even more prominently in World Order. Kissinger begins on page twelve by asking an uncomfortable question: the EU was supposed to transcend power politics, but do the present ‘internal struggles of the European Union [not] affirm’ the continued existence of a balance of power in Europe? For Kissinger the EU is less a post-modern project and more a potential competitor to the United States in a Westphalian global balance of power. On this view Europe potentially returns to its global prominence but ‘this time as a regional, not a national, power, as a new unit in a now global version of the Westphalian system’ (p. 92). What prevents the EU from fulfilling the global role outlined by Kissinger?

    Mainly, and this is perhaps where Kissinger falls in line with federalists, the EU’s occupation of a ‘no mans land’ somewhere between, on the one hand, national sovereignty, and on the other, regional autonomy. Kissinger assumes there can be no return to national sovereignty, but he is equally aware that any regional unification will have the mammoth task of ensuring legitimacy. As Kissinger himself asks, ‘[how] much unity does Europe need, and how much diversity can it endure? […] how much diversity must Europe preserve to achieve a meaningful unity?’ (p. 93). Even more important for Kissinger is the EU’s overall direction, however. Is the EU Western, is it neutral or is it more inclined to cultivate its regional relationships?

    Indeed, for Kissinger the real question for statesmen in Europe and the broader West, once they have acknowledged that we do not still live in a Western dominated world order, is how to ensure equilibrium between regions and ultimately the overall stability of the system. Equilibrium does not just refer to power, as the real issue for Kissinger is that the legitimacy of world order will necessarily be an accommodation of different value systems. This is not to say that Kissinger has abandoned the promise of the Western system, as he himself states that he hopes world order will come to be characterised by ‘states affirming individual dignity and participatory governance, and cooperating internationally in accordance with agreed-upon rules’ (p. 372).

    From another perspective Kissinger’s conclusion may be a final personal statement. The keen reader of references will notice that in the final footnote (see p. 403) Kissinger cites his own undergraduate thesis, entitled ‘The Meaning of History: Reflections on Spengler, Toynbee and Kant’, which he wrote at Harvard in 1950. He has thus come full circle on his life of academic writing. In this respect one can perhaps discern two points about World Order. The first is that even after a life of writing and diplomacy, Kissinger is still not sure if he has the ultimate answer about international politics. The second point is that perhaps, after a life in the global spotlight, Kissinger wants us to assess the decisions he took while in office in light of their overall, historically contextualised, impact, rather than by the historical prejudices of the present period. This second point will not please Kissinger’s critics but it will no doubt ensure that Kissinger – perhaps like Metternich – remains the focus of study for political science and international relations students for decades, if not centuries, to come.

    European Statecraft, 2014 – By Daniel Fiott

  • The Three Effects of Dual-Use: Firms, Capabilities and Governance

    The Three Effects of Dual-Use: Firms, Capabilities and Governance

    It is easy to overlook the fact that many of the products and technologies we use on a daily basis – and now take for granted – have their origins in the defence sector. GPS navigation units, the internet, touch screens, digital cameras, and even microwaves, were all, in one way or another, invented and developed in the defence field and paid for out of defence budgets. The reverse is also true, however, with a number of commercially designed products and technologies now being employed in the realm of security and defence. The term ‘dual-use’ has since emerged as a label which reflects these increasingly blurred lines. At a policymaking level, dual-use is seen as a means to address general decreases in defence expenditure across the European continent, market fragmentation, rising technology costs and fierce international competition. The hard truth is that Europeans are finding it increasingly difficult to sustain investment in the defence sector. Eurostat, for example, calculates that the EU28 allocated only 5.11% of their total research and development (R&D) budgets to defence in 2012. Additionally, ASD Europe estimates that out of the total €128 billion worth of sales in the aeronautics sector, only €46 billion was generated by military-related projects. For those firms with both defence and commercial arms, commercial R&D and sales are therefore increasingly essential to their competitiveness.

    EUISS Policy Brief, 2014, No. 21

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  • The European Investment Bank could help meet some of the challenges facing Europe’s struggling defence industry

    The European Investment Bank could help meet some of the challenges facing Europe’s struggling defence industry

    European countries face significant challenges in funding defence research and development programmes. Among the most important are declining defence budgets, fierce international competition, and the increasingly expensive nature of high-end technologies. Daniel Fiott argues that the European Investment Bank could play a much greater role in Europe’s defence sector and serve as a life-line to defence research and development, dual-use projects and small and medium sized enterprises.

    However highly one might rank the importance of security and defence, the reality is that governments have to make difficult decisions as to how national budgets should be spent. Nevertheless, at the December 2013 European Council meeting on defence, heads of government agreed that “defence matters”. In mid-2013 I suggested that the European Investment Bank (EIB) could potentially finance certain defence-industrial initiatives at the EU-level. The suggestion has since been echoed by a number of groups and individuals. Furthermore, the December 2013 draft conclusions specifically invited the European Commission and the European Defence Agency to draw ‘on the financial expertise of the European Investment Bank’, even though this line did not appear in the final conclusions.

    The European Investment Bank

    The EIB is owned by, and works in the interests of, the EU member states. With over €242 billion of available capital, the bank made project loans totaling €71.7 billion in 2013 – this amount is more than the combined total of French and German defence expenditures in 2012. The Bank principally finances up to 50 per cent of total costs for public and private projects that exceed €25 million in value: all projects must be economically, financially and technically feasible and environmentally sound. The Bank, along with the European Commission and participating public/private banks and institutions, is also a shareholder in the European Investment Fund – the Fund has a range of financial products to offer small and medium sized enterprises (SMEs).

    The Bank can directly issue loans to SMEs or it can make loans through public bodies (called ‘intermediated loans’). The Bank also offers guarantees and securitisation to businesses so that projects can be made more attractive to other investors. Alternatively, the ‘Risk Sharing Finance Facility’, which is jointly run by the EIB and the Commission, provides a maximum of €10 billion in loans, guarantees and investment for complex, long-term and public/private research, development and innovation projects such as applied or industrial research, feasibility studies, experimental development and pilot projects.

    Furthermore, the European Investment Fund (EIF) specialises in venture capital investment for SMEs and the Bank holds a 62.1 per cent stake in the Fund, along with the Commission (which represents the EU with a 30 per cent stake) and a number of private banks (a total stake of 7.9 per cent). The European Investment Fund comprises two financing vehicles. Firstly, the Joint European Resources for Micro to Medium Enterprises (JEREMIE)allows national and regional authorities to redeploy part of their structural funds into market-driven financial instruments. Secondly, the fund provides risk capital to fund managers for SMEs developing projects that use advanced technologies.

    How the European Investment Bank could help support the defence industry

    Many of the aforementioned products and facilities potentially offer financing options for the European defence industry, albeit in very specific ways. For example, while the EU’s structural funds and budget comprise an important element in the development of dual-use projects and support to SMEs, these instruments cannot be used for ‘purely’ military projects. However, under Article 309 of the consolidated version of the treaties, EIB and EIF instruments can theoretically be used in all sectors of the economy to modernise, convert or develop fresh activities that benefit the internal market.

    This certainly applies to those elements of Europe’s defence sector that are increasingly seen as falling under the internal market. The Bank could sure up the attractiveness of defence-relevant SMEs to other investors; lend credibility and resources to SMEs seeking investment to develop innovative dual-use projects; and encourage civilian SMEs to engage in defence-relevant research and development (R&D) and demonstrator projects. Such an initiative could tick the boxes of promoting economic knowledge, skills and innovation and it could eventually also enhance the international competitiveness of those SMEs involved in such R&D programmes. The spin-off technologies that derive from such initiatives may eventually benefit the commercial sector and lead to the type of profits that can be used to repay loans.

    Additionally, regional clusters specialising in industrial niches (also known as “clusters of excellence”) could benefit from EIB/EIF involvement. Such clusters are premised on the idea that large firms, SMEs and research centres are combined in close geographic proximity in order to increase R&D collaboration and specialise in a specific technology area (e.g. aircraft engines). Financial and political investment in these clusters – specifically for pilot projects – is critical if defence firms are to commercialise their technologies, internationalise their business and benefit from the structural funds; smart specialisation is a pre-condition for access to structural funds. Such investment could have positive knock-on effects for regional skills development, the high-tech knowledge base and scientific/industrial interdisciplinarity.

    However, while the Bank potentially offers a range of useful instruments, it would not be a panacea for Europe’s defence industry. Bank finances cannot fill the gaping holes in the defence budgets of member states, nor could they be used to maintain and acquire new military equipment and capabilities. The intrinsic nature of loans and investments is that they need repaying (with interest); defence, as a public good, does not always result in the kind of returns necessary to service loans.

    There are some further, more specific, restrictions involving the EIB. Firstly, should member states want to draw on Bank loans they would still have to put up the other 50 per cent of the funds needed for EIB participation in projects over €25 million. These loans would also come with interest payments and expenses (legal costs, project-appraisal, etc.) which may drive up the costs of a loan. Secondly, the Bank takes seriously the EU’s principles on public procurement: equal treatment, non-discrimination and transparency. Despite the provisions of the EU Directive on defence procurement (2009/81/EC), this could be a big hurdle in the EU defence-sector where open procurement is not the norm. From August 2011 to March 2013, for example, the European Commission estimates that only 3 per cent of total contracts awarded under the procurement Directive were cross-border in nature.

    Finally, loans made under the EIB are not free from political considerations. While the EIB is an independent institution, its shareholders are the member states. France, Germany, Italy, Spain, Sweden and the United Kingdom (Europe’s major defence-industrial players) contribute approximately 76 per cent towards the EIB’s capital base of €242 billion. These states are likely to be reticent about what EIB support will entail. Therefore, it is little wonder that heads of government dropped any reference to the Bank in the final conclusions of the December 2013 European Council on defence.

    Nevertheless, despite the sensitivities and obstacles involved in drawing on the EIB for defence-industrial initiatives, there is still scope for the Bank to play a positive role. It is principally the European Commission, given its connections to the EIB and its 30 per cent stake in the EIF, that can make the case for greater involvement of the Bank in European defence. Building on its policies aimed at SMEs and regional smart specialisation, the Commission could investigate the ways in which the Bank might play a role in promoting economic knowledge, skills and innovation in the European defence sector.

    LSE EUROPP Blog, 2014

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  • Relations with the Rest of the World: From Chaos to Consolidation?

    Relations with the Rest of the World: From Chaos to Consolidation?

    Our 2012 review painted a picture of an EU pulled between a seemingly inexorable series of internal crises, on the one hand, and myriad external demands, on the other (Hadfield and Fiott, 2013). The year 2013 largely continued the theme of balancing slow-paced internal consolidation with increasingly demanding diplomatic requirements arising from within the Eastern Partnership, and specifically Ukraine. Despite the tentative recovery of the Eurozone, the challenges of confirming its own budget (the Multiannual Financial Framework, or MFF) and the continuing difficulties in its neighbourhood, the EU arguably gained greater confidence in diplomatic terms in 2013.

    Journal of Common Market Studies, 2014, Vol. 52, No. S1

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  • Europe after the U.S. Pivot

    Europe after the U.S. Pivot

    Insofar as Europe’s security and cohesion have for decades been premised upon a strong American political and strategic engagement, Washington’s intention to “rebalance” to Asia casts a shadow over the sustainability of a stable and coherent geopolitical order on the continent. This article argues that as the United States seeks to rebalance strategically towards the Asia-Pacific region a number of “indigenous” geopolitical trends are becoming increasingly important in Europe: an Anglo-French entente for a “maritime” Europe, a German-French “continental” project of economic and political integration, and Russia’s resurgence across Europe’s East. The growing prominence of competing geopolitical visions for Europe might even call into question the cohesion and direction of the institutional expressions of the U.S.- engineered Western order in Europe, namely the Atlantic Alliance and the European Union. Increasing geopolitical and institutional contestation, we contend, pose a number of challenges for both U.S. interests and European security.

    Orbis, 2014, Vol. 58, No. 3 (written with Luis Simón)

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  • The Juncker Commission and Europe’s Defence

    The Juncker Commission and Europe’s Defence

    The decision by the incoming President of the European Commission, Jean-Claude Juncker, to merge the internal market and industry portfolios under one commissioner is an intelligent move. Of course, it is not the first time this has been attempted. Some may recall that Étienne Davignon was the Commissioner for Internal Market, Customs Union and Industrial Affairs under the Jenkins Commission (1977-1981). Yet, from the perspective of Europe’s defence industrial policy – an area that was not well-developed when Davignon was in office – the decision could be incredibly important.

    Firstly, Juncker has appointed a Pole, Elzbieta Bienkowska, as head of the super portfolio: ‘Internal Market, Industry, Entrepreneurship and SMEs’. Ms. Bienkowska has substantial government experience. Indeed, she previously served as Minister of Regional Development in Prime Minister Donald Tusk’s cabinet (2007-2013) and after this went on to become Deputy Prime Minister of Poland and continued in the same ministerial role, albeit of a renamed portfolio: ‘Infrastructure and Development’. More specifically, she also has previous knowledge of European Union (EU) structural funds and cohesion policy.

    The decision to assign this important portfolio to a Polish national (and one from a liberal-conservative party) is indicative of the growing importance of Poland in the EU, and it also serves as a statement of intent that the completion of the internal market along liberal lines is a key priority for Juncker. The appointment of Ms. Bienkowska – should the European Parliament sign-off on the Juncker Commission – is bound to have been greeted with relish by the British, Dutch and German governments, at least on the overall objective of completing the Single Market. The fact that Ms. Bienkowska will work primarily with Vice-President Jyrki Katainen (another liberal-conservative) further underscores Juncker’s intent.

    Indeed, in President Juncker’s mission letter to Bienkowska he states that her overarching aim is to ‘ensure that Europe maintains its global leadership in strategic sectors with high value jobs such as the automotive, aeronautics, engineering, chemicals and pharmaceutical industries.’ She is also tasked with ‘stimulating investment in new technologies, improving the business environment, easing access to markets and to finance, particularly for SMEs’. More specifically on defence-industrial policy, Ms. Bienkowska’s aim is to encourage ‘Member States to create more synergies and stronger cooperation in defence procurement in order to avoid duplication of national programmes and match resources to our foreign policy ambitions.’

    This will be a change of perspective for Ms. Bienkowska, especially given that she was a government minister during the modernisation of the Polish Armed Forces and the re-structuring of Poland’s defence industry: which emphasised increased investments on research and development and exports. During this period of modernisation – which saw the Polish government commit approximately €33.5 billion (£26.4 billion; US$43 billion) to defence procurement – Poland had been a vocal critic of EU legislation on procurement. This is legislation which seeks to prevent member states from making use of offsets to favour national industry. While the country put into motion a new ‘EU friendly’ offset law on 7th July 2014, its immediate aim during the modernisation period was to ensure that defence contracts mainly went to local arms producers. As was reported in the Financial Times at the time, ‘the military’s goal is for Polish companies to eventually take an 80 percent share of incoming contracts, up from just over 50 percent at present.’ It is little wonder that the Polish government was quick to stress the importance of the intergovernmental European Defence Agency (EDA) rather than the European Commission in its 2013 Strategy of Development of the National Security System of the Republic of Poland 2022 (see specifically p. 24). As head of the internal market portfolio Ms. Bienkowska will be responsible for ensuring that all member states, including her own, abide by offset regulations – offsets are forbidden under EU law.

    Some might say that the decision to fuse the internal market and industry portfolios was on the cards, especially when one considers Michel Barnier and Antonio Tajani’s efforts to work closely on defence industrial policy. It was at the request of Mr. Barnier and (now) MEP Tajani that a Commission ‘Defence Taskforce’ be established in order to better coordinate Commission initiatives aimed at bolstering the European Defence Equipment Market (EDEM) and the European Defence Technological and Industrial Base (EDTIB). Ms. Bienkowska’s ‘super portfolio’ will be an important step to further consolidate this trend, and it will be incumbent on the new commissioner to stress the strategic importance of the defence sector and to emphasise the essentiality of using internal market tools to support the sector.

    Time will tell how effective Ms. Bienkowska’s team is in challenging the member states’ recourse to Article 346 (which allows a derogation from the treaties on national security grounds under strict conditions). It will also be interesting to see how, if at all, the Commission’s ‘roadmap’ on defence industrial policy will change in the run-up to the July 2015 European Council meeting on defence. A healthy relationship with High Representative/Vice-President (HR/VP) Federica Mogherini and the Chief Executive of the EDA, Claude-France Arnould, is also vital. 

    Other reshuffles and appointments under the Juncker Commission are interesting from a defence industry perspective too. The decision to merge transport and space may raise a few eyebrows. Under the Maroš Šefčovič – the former Commissioner for Inter-Institutional Relations and Administration – the task will be to ensure that space policy does not decouple itself from the wider strategic importance to areas such as internal market, industry, research and defence.

    The decision to assign the ‘Research, Science and Innovation’ portfolio to the Portuguese Carlos Moedas is wise given his industry and economic expertise and experience. Nevertheless, it will be up to Mr. Moedas to deal with the sensitive relationship between research and defence. Research and development is crucial to the defence industry and the EU sits on sizeable amounts of funding for research, but the use of these funds for purely military projects has caused problems in the past.

    Finally, the media coverage of Ms. Mogherini’s appointment as HR/VP has largely overlooked the fact that she will also become the new head of the EDA. The outgoing HR/VP did not really take to defence policy. Time will tell if Ms. Mogherini really does believe that ‘defence matters’. For the incoming HR/VP the main challenge will be balancing the interests of the EDA and the European Commission. These two institutions have historically been suspicious of each other, so perhaps the greatest gift the new European Commission could give to Europe’s defence industry would be to better manage relations between these two institutions.

    The more cynically minded might, from a defence industry perspective, view the changes brought in under the Juncker European Commission as an exercise in merely ‘re-arranging the deck chairs on the Titanic’. Indeed, it can be reasonably argued that more than new appointments and super portfolios are needed to deal with the strained state of Europe’s defence industry. It is certainly true that the member states still ultimately hold the key to a more effective EDEM and EDTIB. Nevertheless, Juncker’s mantra is that he wants ‘the European Commission to be bigger and more ambitious on big things, and smaller and more modest on small things’. Over the next five years one will learn if Europe’s defence industry is a ‘big thing’ or a ‘small thing’.

    European Statecraft, 2014 – By Daniel Fiott

  • Defence R&D in Europe

    Defence R&D in Europe

    Introduction

    Research and Technology (R&T) and Research and Development (R&D) are critical ele- ments in the production of defence capabilities: without scientific and engineering inge- nuity, technological advances in the defence sphere cannot be made. R&T is the critical beginning phase in the development of defence capabilities. It is in the R&T phase that initial scientific modelling and applied science occurs, after which point the production phase moves into R&D, a phase where technologies are brought up to the testing and demonstrator levels and eventually transformed into finished products. R&T and R&D are not only critical for adapting traditional naval, air and land platforms for continu- ously evolving defence requirements, they also play an important role in developing new defence industrial capabilities related to Chemical, Biological, Radiological and Nuclear defence (CBRN), cyber, unmanned systems and nanotechnologies. Furthermore, spend- ing on defence R&T and R&D is important in order to retain highly skilled employees such as engineers and scientists, and not to lose them to the civilian sector or to competitors in third countries.

    The role of governments in defence R&T and R&D is crucial. Indeed, defence firms tend not to have the capital resources or the appetite for the level of risk involved in defence R&T and R&D projects. The costs and risks associated with R&T and R&D derive from the fact that, unlike civilian markets, there are limited numbers of customers that can buy finished defence products. A lower number of end-users drives up R&T, R&D and per unit costs associated with each defence product. This is the reason why governments become critical in the investment phase, as not only are they typically the only end- users of defence products but they have a key role in defining the overall direction of R&T and R&D programmes based on defence requirements. Ministries of Defence are intimately associated with the R&T and R&D phases both as customers and investors. Defence budgets are used to help initiate R&T programmes and to deal with unforeseen costs that arise over the whole capability development cycle. Therefore, governments rather than firms take on much of the risk of defence R&T and R&D. The cost to the firm is usually that procurement contracts will involve profit caps and specific end-user requirements, although R&T may lead to the accrual of intellectual property rights and the ability to sell spin-off technologies in civilian markets.

    This is not to diminish the importance of defence firms in R&T and R&D processes. While governments put up much of the investment and take on risk, defence firms have the scientific and industrial infrastructure to develop defence capabilities. R&T and R&D therefore involve a two-way process with, on the one hand, governments transmitting particular defence requirements to firms, but, on the other hand, firms setting the techno- logical and scientific parameters in which a specific defence capability can be developed. Such is the close relationship between governments and firms that in some cases defence firms may be able to anticipate the types of defence capabilities needed by governments. Major firms play a critical role in R&T and R&D processes, and SMEs – which tend to specialise in specific niche areas of production – are sources of innovation. Dedicated research institutes and universities play a vital role in the R&T phase too.

    R&T and R&D cost significant amounts of capital investment, but there is increasing pressure on defence budgets in Europe at present. Governments are making the difficult choice of whether to invest in defence or to allocate more resources to civilian R&T and R&D. As Figure 1 shows, the tendency across the EU-28 since 2000 has been to allo- cate available R&D budgets to the civilian sector rather than defence. Indeed, the almost perfect correlation between civil-defence allocations can be noted; what is allocated to civilian R&D is deducted from defence R&D. The emphasis on civilian R&D might be reflective of the notion that the civilian sector is more internationally competitive than the defence sector. However, it is unclear how much civilian R&D spins into the defence sector and vice-versa. In the United States defence R&D has traditionally provided spin-off technologies for the civilian sector (e.g. GPS or the Internet), whereas in the EU there is a greater reliance on spin-in technologies that emerge from civilian R&D programmes with defence applications (e.g. aeronautics). While it is true that European defence markets are increasingly characterised by dual-use products, the lack of empirical data on the level of R&D cross-fertilisation (or lack thereof) between the defence and civilian sectors poses certain challenges for defence capability planning purposes.

    As one can see from Figure 2 below, there has been a steady decline in the levels of government allocations to defence R&D as a percentage of overall outlays on R&D (GBAORD) by the EU-28 over the 2000-2013 period.2 This began with a notable downward trend in 2003. It should be noted that the EU-28 increased allocations between the 2011-2012 period (from 4.52% to 4.97%), but this would not see allocation levels return to their high peak in 2000 (at 12.95%). Therefore, over a twelve-year period the EU-28 has experienced a 7.98% decrease in total defence R&D budget allocations as a total of overall government R&D budget allocations. In contrast, the United States has the highest levels of total budget allocations, although it experienced a dip in 2009 and a downward trend since 2010. Canada has maintained stable levels of defence R&D budget allocations, albeit at a lower level than the EU-28, the United States, the Republic of Korea and Japan in certain years.

    The EU-28’s downtrend is reflected in some of the individual figures of European coun- tries. As Figure 3 highlights, Spain has witnessed the most severe downward trend in defence R&D budget allocations – from 26.2% in 2000 to 3.7% in 2012 (a decrease of 22.5% over a twelve-year period). France and the United Kingdom have also witnessed sizeable decreases in allocations. France witnessed a 15.1% decrease from 2000 to 2013, and the UK experienced a sharper decrease of 19.8% over the 2000 to 2012 period. After a progressive increase in allocations from 2000 to 2002 (a 7.51% increase in the space of two years), Sweden’s allocations have reduced to levels close to that experienced in 2000 (7.1% in 2000, 8.1% in 2012). Although at a traditionally lower level of allocations than France, Sweden and the UK, Germany has also experienced a downward trend in its al- locations over the 2000-2013 period.

    While it is true that EU member states are cooperating through mechanisms such as the EU Framework Programmes and the European Defence Agency (EDA), collabora- tive R&T and R&D programmes at the European level – which could potentially plug spending gaps and reduce costs – have also experienced spending decreases. Figure 4 illustrates the overall level of European collaborative defence R&T, and the overall level of investment in R&D (including R&T) as a percentage of total defence expenditure among the 27 participating member states of the EDA. Investment levels in R&D have remained stable over the 2006 to 2011 period, but there was a drastic decrease in invest- ments with levels falling from 4.1% in 2011 to 2.5% in 2012. The total level of European collaborative defence R&T has been in decline since 2008, and from a high in 2008 of 16.6% the level fell to 7.2% in 2012 (a decrease of 9.4%).

    EUISS Yearbook of European Security 2014

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  • One Size to Fit All? Setting Standards for European Defence

    One Size to Fit All? Setting Standards for European Defence

    Abstract

    While the crisis in Ukraine may contribute to a revision of defence expenditures in a number of European countries, the task of finding the right balance between cost-effective and strategically-relevant defence spending in Europe is still critical. As defence expenditure generally remains in decline across Europe, a range of innovative measures to ensure that defence budgets are spent more efficiently and effectively are being devised. One such measure – being pursued by the European Defence Agency (EDA) and the European Commission – is the greater standardisation of defence equipment in the European Union. Yet the European defence market is fragmented, paradoxically resulting in higher costs for national treasuries. At present, it is characterised by a plethora of national standards: national defence establishments and industries have become used to catering for their own military needs.

    EUISS Policy Brief, 2014, No. 13

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