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ABSTRACT
The European arms industry is challenged by several adverse “headwinds.” Fragmentation leads to costly duplications and, in conjunction with stagnating budgets and sharply increasing costs, prevents firms from exploiting economies of scale and learning. This is exacerbated by size differentials vis-a-vis the leading US arms manufacturers and competition from emerging producers. As some “headwinds” are self-enforcing, far-reaching industrial and policy responses are required to improve the industry's outlook. As exports may not indefinitely compensate for low domestic demand, there is an economic imperative for further cross-border collaboration and consolidation. Despite various EU policy initiatives, progresses regarding the European Defence Equipment Market and strengthening the European Defence Technological Industrial Base have been relatively slow. It remains to be seen whether the European Defence Fund will be the proclaimed “game-changer,” raising competitiveness of the European arms industry. At the same time, the UK's withdrawal from the EU adds uncertainties.
Acknowledgements
The authors are most grateful to an anonymous reviewer for his constructive feedback on an earlier draft of this contribution. Full responsibility for any remaining errors of analysis or fact rests with the authors alone.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes on contributor
Mitja Kleczka is a post-doctoral researcher associated with the Department of the Applied Economics of the Vrije Universiteit Brussel. His research interests include defence economics, competition economics and econometrics. Caroline Buts is associate professor at the Department of Applied Economics of the Vrije Universiteit Brussel. Her research interests include defence and peace economics and competition policy. Marc Jegers is professor at the Department of Applied Economics of the Vrije Universiteit Brussel. He specialises in the economics of non-profit organisations, competition policy and industrial organisation.
Notes
1 See Keith Hartley, The Economics of Arms (Newcastle upon Tyne: Agenda Publishing Limited, 2017), 52; Keith Hartley, ‘Europe’s Defence Industry: An Economic Perspective’, in Defining the «European Defence Technological and Industrial Base»: Debates & Dilemmas (I), Note n°23/13, ed. Hélène Masson (Paris: Fondation pour la Recherche Stratégique, 2013), 4; Keith Hartley, Renaud Bellais, and Jean-Paul Hébert, ‘The Evolution and Future of European Defence Firms’, in War, Peace and Security, eds. Jacques Fontanel and Manas Chatterji (Bingley: Emerald Group Publishing, 2008), 83–104; Keith Hartley, ‘Defence Industrial Policy in a Military Alliance’, Journal of Peace Research 43, no. 4 (2006): 478, 481–3; John Paul Dunne et al., ‘The Evolution of the International Arms Industry’, in Arms, War, and Terrorism in the Global Economy Today. Economic Analyses and Civilian Alternatives, ed. Wolfram Elsner (Zürich: LIT Verlag, 2007), 99, chapter is available at: http://carecon.org.uk/Armsproduction/Evolution2forWolfram.pdf (accessed June 30, 2019).
2 The term “headwinds” is borrowed from Robert J. Gordon, ‘Is US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds’, CEPR Policy Insight, no. 63 (2012): 1–13, wherein it was applied to describe various long-term challenges to US economic growth.
3 Unless stated otherwise, “Europe” refers to the EU28 (i.e., including the United Kingdom) plus Iceland, Norway and Switzerland for the remainder of this study.
4 See Edward G. Keating and Mark V. Arena, ‘Defense Inflation: What Has Happened, Why Has It Happened, and What Can Be Done about It?’, Defence and Peace Economics 27, no. 2 (2015): 176–7; Kjetil Hove and Tobias Lillekvelland, ‘Investment Cost Escalation – an Overview of the Literature and Revised Estimates’, Defence and Peace Economics 27, no. 2 (2016): 209, 226–7.
5 Keith Hartley and Binyam Solomon, ‘Special Issue: Defence Inflation’, Defence and Peace Economics 27, no. 2 (2016): 173; Hove and Lillekvelland, ‘Investment Cost Escalation’, 208, 210–11.
6 Norman R. Augustine, Augustine's Laws, 6th ed. (Reston, VA: American Institute of Aeronautics and Astronautics, 1997), 104–7.
7 On cost escalation in the procurement of Norway, see Sverre Ruud Kvalvik and Per Kristian Johansen, Enhetskostnadsvekst på Forsvarsinvesteringer (Kjeller: Forsvarets Forskningsinstitutt, 2008). On Sweden, see Peter Nordlund et al., ‘Defence-Specific Inflation – the Swedish Perspective’, Defence and Peace Economics 27, no. 2 (2015): 258–79. On the United Kingdom, see David L.I. Kirkpatrick and Philip G. Pugh, ‘Towards the Starship Enterprise – Are the Current Trends in Defence Unit Costs Inexorable?’, The Journal of Cost Analysis 2, no. 1 (1985): 59–80; Philip G. Pugh, The Cost of Seapower: The Influence of Money on Naval Affairs from 1815 to the Present Day (London: Conway Maritime Press, 1986); Philip G. Pugh, ‘The Procurement Nexus’, Defence Economics 4, no. 2 (1993): 179–94; Neil Davies et al., ‘Intergenerational Equipment Cost Escalation’, DASA-DESA Economic Working Paper Series, no. 1 (2011). For an overview of the findings of these studies, see Hove and Lillekvelland, ‘Investment Cost Escalation’, 209–13, 218–21, 224–7 as well as David Bangert, Neil Davies, and Ryan Watson, ‘Managing Defence Acquisition Cost Growth’, The RUSI Journal 162, no. 1 (2017): 60–1.
8 Hartley, The Economics of Arms, 49. Estimates are based on updated information from Davies et al., ‘Intergenerational Equipment Cost Escalation’ and Philip G. Pugh, Source Book of Defence Equipment Costs (London: Dandy Books, 2007).
9 See Hove and Lillekvelland, ‘Investment Cost Escalation’, 212–15, who base their analysis on the “vicious circles” identified in Kirkpatrick and Pugh, ‘Towards the Starship Enterprise’ and David L.I. Kirkpatrick, ‘The Rising Unit Cost of Defence Equipment – The Reasons and the Results’, Defence and Peace Economics 6, no. 4 (1995): 263–88.
10 Ibid., 212–14.
11 Ibid., 212, 214–15.
12 Ibid., 212–13.
13 Ibid., 216–17.
14 Stephanie G. Neuman, ‘Power, Influence, and Hierarchy: Defense Industries in a Unipolar World’, Defence and Peace Economics 21, no. 1 (2010): 117.
15 Hove and Lillekvelland, ‘Investment Cost Escalation’, 218.
16 David L. I. Kirkpatrick, ‘Trends in the Costs of Weapon Systems and their Consequences’, Defence and Peace Economics 15, no. 3 (2004): 259–73. To be precise, these choices were formulated in response to the challenge posed by a growing ratio of fixed to variable cost in armaments. However, as this challenge is closely related to cost escalation, Kirkpatrick's suggestions are listed nevertheless.
17 Hartley and Solomon, ‘Special Issue: Defence Inflation’, 173.
18 Augustine, Augustine's Laws; Kenneth L. Adelman and Norman R. Augustine, The Defense Revolution: Strategy for the Brave New World (San Francisco: Institute for Contemporary Studies, 1990). Cited in Renaud Bellais, ‘The Economic Imperative of Europeanizing Defense Innovation’, in The Emergence of EU Defense Research Policy. From Innovation to Militarization, eds. Nikolaos Karampekios, Iraklis Oikonomou, and Elias G. Carayannis (Cham: Springer International Publishing, 2018): 97 and in Renaud Bellais and Daniel Fiott, ‘The European Defense Market: Disruptive Innovation and Market Destabilization’, The Economics of Peace and Security Journal 12, no. 1 (2017): 39.
19 Hove and Lillekvelland, ‘Investment Cost Escalation’, 218. In David L. I. Kirkpatrick, ‘A UK Perspective on Defence Equipment Acquisition’, Institute of Defence and Strategic Studies (IDSS) Working Paper Series, no. 41 (2003): 15, it is suggested that the “smallest practicable fleet size […] in a national force structure” might be around 100 for armoured fighting vehicles and around 20 for combat aircraft.
20 Bellais, ‘The Economic Imperative of Europeanizing Defense Innovation’, 97–8.
21 While three systems are currently produced in Europe (Typhoon, Rafale and JAS 39 Gripen), only France and Sweden maintain national programmes. For the next generation, France participates in the FCAS project together with Germany and Spain, while Sweden and Italy have entered the UK-led Tempest consortium. It has been argued that the FCAS and Tempest projects could eventually merge given the possibly insufficient demand to support two rival European projects. See, for example, Sara Young, ‘Britain Unveils Fighter Jet Model to Rival Franco-German Programme’, Reuters, July 16, 2018, https://uk.reuters.com/article/uk-britain-airshow-fighter/britain-unveils-fighter-jet-model-to-rival-franco-german-programme-idUKKBN1K60LG (accessed June 30, 2019).
22 Authors’ analysis, based on data provided by Eurostat, ‘Annual National Accounts: Main GDP Aggregates’, https://ec.europa.eu/eurostat/web/national-accounts/data/database (accessed October 16, 2019).
23 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Military Expenditure Database: Data for all Countries 1949–2017’, https://www.sipri.org/databases/milex (accessed June 30, 2019).
24 The gap between Western and East-Central Europe may be even larger with respect to the introduction of new military technologies. In 2017, those countries defined as ‘(East-) Central European’ by SIPRI accounted for 14% of Europe's total defence equipment procurement spending, but only for 4% of its defence R&D expenditure. Authors’ calculations, based on data available from the EDA, ‘EDA Collective and National Defence Data 2005–2017’, https://www.eda.europa.eu/docs/default-source/documents/defence-data-2005-2017.xlsx (accessed June 30, 2019).
25 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Military Expenditure Database’ and the International Monetary Fund, ‘World Economic Outlook Database’, https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/index.aspx (accessed June 30, 2019).
26 Patrick Keller, ‘Challenges for European Defense Budgets after the Economic Crisis’, National Security Outlook, no. 1 (Washington, DC: American Enterprise Institute, 2011), 1–8.
27 See also ibid., 1–8 on the adverse implications of budget cuts for European defence capabilities.
28 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Military Expenditure Database’.
29 See also Valerio Briani et al., The Development of a European Defence Technological and Industrial Base (EDTIB) (Brussels: Directorate-General for External Policies of the Union, 2013), 58.
30 See Jean-Pierre Darnis et al., ‘Lessons Learned from European Defence Equipment Programmes’, European Union Institute for Security Studies Occasional Papers, no. 69 (2007): 17.
31 See Briani et al., The Development of a European Defence Technological and Industrial Base, 28; Christian Mölling, ‘Der Europäische Rüstungssektor. Zwischen nationaler Politik und industrieller Globalisierung’, SWP-Studie, no. S 12/June 2015 (2015): 15, 17.
32 EDA, A Strategy for the European Defence Technological and Industrial Base (Brussels: EDA, May 14, 2007), 4. This view is widely shared in the literature, particularly with respect to the EDEM – see, for example, Romain Perrois, ‘EU Competition Law, the Scope of Merger Control and the Defence Industry: Analysis of Case Law and Methodology’, Helsinki Law Review, no. 2/2014 (2014): 232, 234–5; Jan Joel Andersson, ‘Defence Industry and Technology. The Base for a More Capable Europe’, in The Routledge Handbook of European Security, eds. Sven Biscop and Richard G. Whitman (Abingdon/New York: Routledge Taylor & Francis, 2014), 109, 113.
33 As stated in Keith Hartley, The Economics of Defence. A New Perspective (Abingdon/New York: Routledge Taylor & Francis, 2011), 143, “European nations are each buying their equipment from small national markets which only support small-scale domestic defence industries.”
34 Hartley, The Economics of Arms, 34–5.
35 Numbers were compiled by the authors from information taken from EDA, ‘EDA Collective and National Defence Data 2005–2017’ and EDA, ‘Defence Data 2016–2017: Key Findings and Analysis’: 11–12, 15, https://www.eda.europa.eu/docs/default-source/brochures/eda_defencedata_a4 (accessed June 30, 2019).
36 See Derek Braddon and Keith Hartley, ‘More for Less? Exploring the Economic Dimensions of Multilateral Collaboration in Military Aerospace Projects’, Journal of Defense Studies & Resource Management 2, no. 1 (2013): 11; Keith Hartley, ‘Defence Industrial Policy in a Military Alliance’, Journal of Peace Research 43, no. 4 (2006): 485–6.
37 Baudouin Heuninckx, ‘A Primer to Collaborative Defence Procurement in Europe: Troubles, Achievements and Prospects’, Public Procurement Law Review 17, no. 3 (2008), cited in Briani et al., The Development of a European Defence Technological and Industrial Base, 22, and Mölling, ‘Der Europäische Rüstungssektor’, 12.
38 A concise overview on defence-industrial cooperation among the V4 countries is provided by the Visegrád Group, ‘Visegrád Group Defence Cooperation’, http://www.visegradgroup.eu/about/cooperation/defence (accessed October 16, 2019). For an assessment of its evolution since 2004, see Anna Molnár and Zoltán Szenes, ‘Cooperation or Integration? The New Defence Initiatives in the Visegrád Group’, in Central and Eastern Europe in the EU. Challenges and Perspectives under Crisis Conditions, eds. Christian Schweiger and Anna Visvizi (Abingdon/New York: Routledge Taylor & Francis, 2018), 196–207.
39 Similar analyses were presented in several earlier publications – see, for example, European Commission, COM(2017) 315 Final: Reflection Paper on the Future of European Defence (Brussels: European Commission, 2017), 8; Valerio Briani, ‘Armaments Duplication in Europe: A Quantitative Assessment’, CEPS Policy Brief, no. 297 (2013): 3–5; Valerio Briani, ‘The Costs of Non-Europe in the Defence Field’ (Moncalieri/Rome: Centre for Studies on Federalism and Istituto Affari Internazionali, 2013), 42–8.
40 Briani, ‘Armaments Duplication in Europe’, 3–5; Briani, ‘The Costs of Non-Europe in the Defence Field’, 17, 42–8.
41 See also Hartley, The Economics of Arms, 76, and Hartley, The Economics of Defence, 165 for a comparison of the number of major arms manufacturers in Europe and the USA.
42 Richard A. Bitzinger et al., ‘Global Perspectives on the European Arms Industries’, The Economics of Peace and Security Journal 12, no. 12 (2017): 49.
43 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Industry Database: Data for the SIPRI Top 100 for 2002–17’, https://www.sipri.org/databases/armsindustry (accessed June 30, 2019) and Ian Anthony et al., ‘Arms Production’, in SIPRI Yearbook 1990. World Armaments and Disarmament (Oxford: Oxford University Press, 1990), 326–8.
44 Two important limitations are present in the cited figures. First, neither firms from the Warsaw Pact nor from China are listed in the ranking for 1988, and while suppliers from the former Warsaw Pact (notably from Russia, Poland and Ukraine) are included from 2002 onwards, reliable information on Chinese firms remains unavailable. As SIPRI estimates that at least ten Chinese arms producers would be listed in the Top 100 ranking if data were available (of which three would rank among the ten largest companies), the presented figures somewhat overstate the importance of all other countries in the global arms industry. Second, the lower number of US and European firms in 2017 as compared to 1988 is partly attributable to mergers and acquisitions that have taken place among them.
45 Aude Fleurant et al., ‘SIPRI Fact Sheet: The SIPRI Top 100 Arms-Producing and Military Services Companies, 2017’ (2018): 5–6, https://www.sipri.org/sites/default/files/2018-12/fs_arms_industry_2017_0.pdf, (accessed June 30, 2019).
46 Ibid., 6.
47 See Aude Fleurant and Yannick Quéau, ‘Quelles Perspectives pour l'Industrie Européenne des Armements Terrestres?’, Focus Stratégique, no. 50 (Paris: Institut Français des Relations Internationales, 2014), 33–5, who have analysed this development in detail with respect to the land systems sector.
48 Conclusions on the relative shares of European and non-European suppliers in the European procurement markets for aircraft, naval vessels and land systems are based on an assessment of (1) the equipment fielded by the individual European countries and (2) the largest ongoing European procurement programmes. Most of the data was provided by IISS, ‘Chapter Four: Europe’, The Military Balance 117, no. 1 (2017): 91–182. Supplemental information on European procurement in 2018/2019 was taken from secondary sources.
49 Briani et al., The Development of a European Defence Technological and Industrial Base, 10, 58. See also Adrien Caralp, ‘The Restructuring of the European Land Armaments Industry: Between Political Incentives and Economic Pressures’, The Economics of Peace and Security Journal 12, no. 1 (2017): 15 and Fleurant and Quéau, ‘Quelles Perspectives’, 53.
50 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Transfers Database’, https://sipri.org/databases/armstransfers (accessed June 30, 2019). France accounted for 24% of all European arms exports in 2014–2018, followed by Germany (23%), the United Kingdom (15%), Spain (11%), Italy (8%) and the Netherlands (7%).
51 See Aude Fleurant and Yannick Quéau, ‘Die französische Rüstungsindustrie. Strategische Autonomie mit Hindernissen’, DGAP Analyse, no. 15 (2014): 11.
52 For this reason, European arms exports have been labelled as a “vanishing lifeline” by Fleurant and Quéau, ‘Quelles Perspectives’, 53 and Caralp, ‘The Restructuring of the European Land Armaments Industry’, 15.
53 Jacques S. Gansler, Democracy's Arsenal. Creating a Twenty-First-Century Defense Industry (Cambridge, MA: MIT Press, 2011): 32. See also Ron Smith, ‘The Defense Industry in an Age of Austerity’, The Economics of Peace and Security Journal 8, no. 1 (2013): 19; John Paul Dunne and Eamon Surry, ‘Arms Production’, in SIPRI Yearbook 2006. Armaments, Disarmament and International Security (Oxford: Oxford University Press, 2006), 399.
54 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Military Expenditure Database’.
55 Gansler, Democracy's Arsenal, 31–4. On the role of subsidies in creating the enlarged US defence groups, see also Raul Caruso and Andrea Locatelli, ‘Company Survey Series II: Finmeccanica amid International Market and State Control: A Survey of Italian Defence Industry’, Defence and Peace Economics 24, no. 1 (2013): 91; Dunne and Surry, ‘Arms Production’, 399.
56 Smith, ‘The Defense Industry in an Age of Austerity’, 19; Caruso and Locatelli, ‘Company Survey Series II: Finmeccanica’, 91; Dunne and Surry, ‘Arms Production’, 399–401.
57 Caruso and Locatelli, ‘Company Survey Series II: Finmeccanica’, 91–3. Further reflections on the European consolidation process are provided by Smith, ‘The Defense Industry in an Age of Austerity’, 19–20; Dunne and Surry, ‘Arms Production’, 400–7.
58 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Industry Database’. The analysis presented in this section is partly adapted from earlier discussions offered in Hartley, The Economics of Arms, 24–8 and Hartley, The Economics of Defence, 134–43.
59 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Industry Database’. The fact that the leading European arms manufacturers are about half the size of the largest US companies (in terms of their average arms sales) has also been observed by Hartley in several earlier studies. See Hartley, The Economics of Arms, 142; Hartley, Bellais, and Hébert, ‘The Evolution and Future of European Defence Firms’, 87; Hartley, ‘Defence Industrial Policy in a Military Alliance’, 477–8; Keith Hartley, ‘Creating a European Defence Industrial Base’, Security Challenges 7, no. 3 (2011): 100–8.
60 Hartley, for example, argues that Europe is characterised by overcapacities due to an excessive number of relatively small competitors which are less able to exploit economies of scale and learning as compared to their larger US rivals. See Hartley, The Economics of Arms, 24, 26; Hartley, ‘Creating a European Defence Industrial Base’, 100–7, 109.
61 Concerning other established and emerging producers, size advantages over the European arms industry are non-existent. Notably, the arms sales of BAE Systems, Airbus, Leonardo and the Thales Group were several times larger than those of the leading arms manufacturers from Japan, Israel, India, South Korea, Singapore, Turkey, Ukraine, Australia, Brazil and Canada. Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Industry Database’.
62 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Industry Database’.
63 Fleurant et al., ‘SIPRI Fact Sheet 2017’, 2.
64 SIPRI, ‘SIPRI Arms Industry Database’.
65 Michael Brzoska and Peter Lock, ‘Restructuring of Arms Production in Western Europe: Introduction’, in Restructuring of Arms Production in Western Europe, eds. Michael Brzoska and Peter Lock (Oxford: Oxford University Press, 1992), 9, in reference to an illustration developed by Björn Hagelin.
66 Ibid., 6–9. See also Terrence Guay and Robert Callum, ‘The Transformation and Future Prospects of Europe's Defence Industry’, International Affairs 78, no. 4 (2002): 764–5; Andrew Moravcsik, ‘The European Armaments Industry at the Crossroads’, Survival 32, no. 1 (1990): 67.
67 Further possible strategies, such as the diversification into other military or civilian markets and the exit from arms production, are not presented in detail in this study as (a) a diversification into other military sectors often implies collaboration or consolidation (whose prospects are already discussed in the following sections) and (b) the exit from arms production, while possibly a viable option for individual arms producers, would likely be incompatible with the preservation of the European security of supply if it occurred on a large scale.
68 See Hartley, The Economics of Arms, 52, 118, 120.
69 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Arms Transfers Database’.
70 ASD, ‘Facts & Figures 2017’ (2018): 10–11, https://www.asd-europe.org/sites/default/files/atoms/files/ASDFactsandFigures2017 (accessed June 30, 2019). In contrast to the SIPRI data on arms trade cited before, the ASD data (a) covers only 17 European countries (16 EU Member States plus Norway), (b) additionally includes Turkey and (c) is not restricted to major types of armaments.
71 Total ASD defence exports amounted to 42 €bn in 2016. In the same year, the equipment procurement expenditure of all 27 EDA Member States reached 30.9 €bn. See ASD, ‘Facts & Figures 2017’, 11 and EDA, ‘Defence Data 2016–2017’, 10.
72 For example, large fluctuations in European naval exports have been found by Renaud Bellais, ‘Against the Odds: The Evolution of the European Naval Shipbuilding Industry’, The Economics of Peace and Security Journal 12, no. 1 (2017): 9.
73 See Guy Chazan, ‘Germany Extends Arms Embargo Against Saudi Arabia’, Financial Times, March 29, 2019, https://www.ft.com/content/1e7cdd04-5205-11e9-9c76-bf4a0ce37d49 (accessed October 16, 2019).
74 See Bellais, ‘Against the Odds’, 10. This challenge has also been reported by Briani et al., The Development of a European Defence Technological and Industrial Base, 60.
75 Bellais, ‘The Economic Imperative of Europeanizing Defense Innovation’, 100.
76 See Fleurant and Quéau, ‘Quelles Perspectives’, 43. In Mölling, ‘Der Europäische Rüstungssektor’, 8 and in Martin Zapfe and Michael Haas, ‘Rüstungsbeschaffung (1): Politisch-militärischer Rahmen’, CSS Analysen zur Sicherheitspolitik, no. 181 (2015): 2–3, it is argued that trans-European solutions to the internal weaknesses of the European arms industry have been impaired by the fact that European arms manufacturers are often direct competitors for vital orders on the export market.
77 Briani et al., The Development of a European Defence Technological and Industrial Base, 10. This argument has also been expressed by other scholars. See, for example, Bellais, ‘Against the Odds’, 10; Caralp, ‘The Restructuring of the European Land Armaments Industry’, 15; Mölling, ‘Der Europäische Rüstungssektor’, 15; Fleurant and Quéau, ‘Quelles Perspectives’, 33–5, 53.
78 Hartley, The Economics of Defence, 168–70. On the potential economic benefits of collaboration in military R&D and production, see also Keith Hartley and Derek Braddon, ‘Collaborative Projects and the Number of Partner Nations’, Defence and Peace Economics 25, no. 6 (2014): 535–7 as well as Christian Mölling and Torben Schütz, ‘European Armament Collaboration: What We Can Learn from History and Concepts’, in The Emergence of EU Defense Research Policy, eds. Karampekios, Oikonomou, and Carayannis (2018): 134–6.
79 See Hartley, The Economics of Arms, 114–15; Hartley, The Economics of Defence, 168; Jan Joel Andersson, ‘Cold War Dinosaurs or Hi-Tech Arms Providers? The West European Land Armaments Industry at the Turn of the Millennium’, Western European Union Institute for Security Studies Occasional Papers, no. 23 (2001): 3, 24–5. For an overview of major European collaborative military aircraft projects since the 1960s, see Braddon and Hartley, ‘More for Less?’, 2–3.
80 Hartley, ‘Creating a European Defence Industrial Base’, 101.
81 Hartley, The Economics of Defence, 171–3. Further information on potential economic inefficiencies in collaborative arms programmes is provided by Ron Matthews, ‘European Collaboration in the Development of New Weapon Systems’, in The Emergence of EU Defense Research Policy, eds. Karampekios, Oikonomou, and Carayannis (2018): 123–5.
82 See Hartley, The Economics of Defence, 171–2; Hartley and Braddon, ‘Collaborative Projects and the Number of Partner Nations’, 539; Moravcsik, ‘The European Armaments Industry at the Crossroads’, 74.
83 See Keith Hartley, ‘The Economics of European Defense Industrial Policy’, in The Emergence of EU Defense Research Policy, eds. Karampekios, Oikonomou, and Carayannis (2018): 84–5, 87; Braddon and Hartley, ‘More for Less?’, 4–5; Darnis et al., ‘Lessons Learned from European Defence Equipment Programmes’, 13; Kirkpatrick, ‘A UK Perspective on Defence Equipment Acquisition’, 15; Andrew D. James, ‘Comparing European Responses to Defense Industry Globalization’, Defense & Security Analysis 18, no. 2 (2002): 137; Daniel Keohane, ‘The EU and Armaments Co-Operation’, Centre for European Reform Working Paper (2002): 21–3.
84 See, for example, Moravcsik, ‘The European Armaments Industry at the Crossroads’, 75–6.
85 See Hartley, ‘The Economics of European Defense Industrial Policy’, 85–7.
86 See Gansler, Democracy's Arsenal, 314–15, in reference to NAO, Ministry of Defence: Maximising the Benefits of Defence Equipment Co-Operation (London: National Audit Office of the United Kingdom, 2001) and NAO, Ministry of Defence: Major Projects Report 2004 (London: National Audit Office of the United Kingdom, 2004).
87 See Braddon and Hartley, ‘More for Less?’, 6–10; Keith Hartley, ‘Collaboration and European Defence Industrial Policy’, Defence and Peace Economics 19, no. 4 (2008): 308–15.
88 See, for example, Bellais, ‘Against the Odds’, 7 and James, ‘Comparing European Responses to Defense Industry Globalization’, 137.
89 See Andersson, ‘Cold War Dinosaurs or Hi-Tech Arms Providers?’, 4–5, in reference to Andrew Moravcsik, ‘Armaments Among Allies: European Weapons Collaboration, 1975–1985’, in Double-Edged Diplomacy: International Bargaining and Domestic Politics, eds. Peter B. Evans, Harold K. Jacobson, and Robert D. Putnam (Berkeley: University of California Press, 1993).
90 On the disagreements that led to the French withdrawal from the intended five-country FEFA project, see Lars Benecke, Ulrich Krafft, and Friedhelm Meyer zu Natrup, ‘Franco-West German Technological Co-Operation’, Survival 28, no. 3 (1986): 237–9; Markus N. Heinrich, ‘The Eurofighter Typhoon Programme: Economic and Industrial Implications of Collaborative Defence Manufacturing’, Defence Studies 15, no. 4 (2015): 353.
91 See Bellais, ‘Against the Odds’, 7; Wim A. Smit, ‘La Construction Navale Militaire en Europe: Caractéristiques et Perspectives’, in Géopolitique et Industries Navales. L’Épreuve de la Globalisation, eds. Roland de Penanros and Thierry Sellin (Paris: CIRPES, 2003): 48.
92 See Hartley, ‘Creating a European Defence Industrial Base’, 100, 104, 106, 109–10. The economic imperatives for consolidation in the European arms industry are also discussed by Bellais, ‘Against the Odds’, 6–7; Bitzinger et al., ‘Global Perspectives on the European Arms Industries’, 47–50; Briani et al., ‘The Development of a European Defence Technological and Industrial Base’, 33, 36, 38, 50.
93 See, for example, Bellais, ‘Against the Odds’, 6–7; Hartley, Bellais, and Hébert, ‘The Evolution and Future of European Defence Firms’, 94–5; Keith Hayward, ‘The Globalisation of the Defence Business’, in Europe's Defence Industry: A Transatlantic Future?, eds. Gordon Adams et al. (London: Centre for European Reform, 1999), 12–13.
94 See Andersson, ‘Cold War Dinosaurs or Hi-Tech Arms Providers?’, 24–5; Elisabeth Sköns and Hannes Baumann, ‘Arms Production’, in SIPRI Yearbook 2003. Armaments, Disarmament and International Security (Oxford: Oxford University Press, 2003), 384, in reference to Burkard Schmitt, ‘From Cooperation to Integration: Defence and Aerospace Industries in Europe’, Western European Union Institute for Security Studies Chaillot Papers, no. 40 (2000).
95 It should of course be mentioned that, besides closer European consolidation, some European arms producers may also have the option to integrate their activities into non-European arms industries. Notably, transatlantic linkages have become strong in some defence-industrial segments. Saab, for example, has forged close ties with the US aerospace industry. While the scope of this article does not permit to assess the possibility of further transatlantic consolidation in detail, additional reflections are offered in the concluding section.
96 See, for example, Caralp, ‘The Restructuring of the European Land Armaments Industry’, 17.
97 Rheinmetall, ‘Ad-Hoc: Rheinmetall AG Confirms Talks Regarding a Potential Acquisition of a Stake in KNDS Leading to an Indirect Acquisition of KNDS’ Subsidiary Krauss-Maffei Wegmann GmbH & Co. KG’, November 28, 2018, https://www.rheinmetall.com/en/rheinmetall_ag/press/news/archiv/archive2018/news_details_11_16192.php (accessed June 30, 2019).
98 Bellais, ‘Against the Odds’, 5–6.
99 See, for example, Véronique Guillermard, ‘STX: «L'Airbus du Naval» Refait Surface’, Le Figaro, July 30, 2017, http://www.lefigaro.fr/societes/2017/07/30/20005-20170730ARTFIG00105-stx-l-airbus-du-naval-refait-surface.php (accessed June 30, 2019); Rob Taylor, ‘European Shipbuilding Tie-Up Sets Sights on Asia’, The Wall Street Journal, October 5, 2017, https://www.wsj.com/articles/european-shipbuilding-tie-up-sets-sights-on-asia-1507181851 (accessed June 30, 2019).
100 See Hove and Lillekvelland, ‘Investment Cost Escalation’, 215–16; Smith, ‘The Defense Industry in an Age of Austerity’, 19; Hartley, Bellais, and Hébert, ‘The Evolution and Future of European Defence Firms’, 87–8; Dunne et al., ‘The Evolution of the International Arms Industry’, 99.
101 Bruce Clark, ‘More Harm than Good? The Dangers of Defence Industry Consolidation’, in Adams et al., Europe's Defence Industry: A Transatlantic Future? (1999): 16.
102 Ibid., 18–19.
103 See, for example, Jocelyn Mawdsley, ‘The European Union and Defense Industrial Policy’, Bonn International Center for Conversion Papers, no. 31 (2003): 28; Erik Kopač, ‘Defense Industry Restructuring: Trends in European and U.S. Defense Companies’, Transition Studies Review 13, no. 2 (2006): 294–5.
104 See, for example, Stephan von Henneberg, ‘Is Bigger Always Better? A German Perspective on Defence Industry Restructuring’, in Europe's Defence Industry: A Transatlantic Future?, eds. Adams et al. (1999), 31–2.
105 See Clark, ‘More Harm than Good?’, 16; Chris Crane, ‘Dealing with Reality: The Difficulties of European Consolidation’, in Europe's Defence Industry: A Transatlantic Future?, eds. Adams et al. (1999), 24.
106 It has been suggested that unwillingness to support further consolidation due to competition concerns might lead to higher market concentration if European firms are unable to prevail against larger foreign rivals. With respect to large transport aircraft, for example, the creation of a European monopoly via Airbus may have prevented “a global monopoly of [Boeing],” see Denis Verret, ‘Monopoly Versus Competitiveness: Europe's False Dilemma’, in Europe's Defence Industry: A Transatlantic Future?, eds. Adams et al. (1999), 35–6.
107 See Briani, ‘Armaments Duplication in Europe’, 6. In Hartley, ‘Creating a European Defence Industrial Base’, 110–11, it is similarly argued that certain core capabilities of the EDTIB may only be retained if they are shielded from competition.
108 See Jean-Marie Bockel, The State of Europe's Defence Industrial Base (166 ESC 17 E bis) (Brussels: NATO Parliamentary Assembly, Economics and Security Committee, 2017), 4.
109 Hartley, ‘The Economics of European Defense Industrial Policy’, 90.
110 For example, whereas the EDEM pursues market liberalisation, certain protective measures may be required to strengthen the EDTIB. See Hartley, ‘The Economics of European Defense Industrial Policy’, 90; Hartley, ‘Creating a European Defence Industrial Base’, 110–11.
111 Hartley, ‘Creating a European Defence Industrial Base’, 95.
112 Michael Blauberger and Moritz Weiss, ‘“If You Can't Beat Me, Join Me!” How the Commission Pushed and Pulled Member States into Legislating Defence Procurement’, Journal of European Public Policy 20, no. 8 (2013): 1125; Wally Struys, ‘The Future of the Defence Firm in Small and Medium Countries’, Defence and Peace Economics 15, no. 6 (2004): 554.
113 Hartley, ‘Creating a European Defence Industrial Base’, 95–6, 110–11; Daniel Fiott, ‘European Defence-Industrial Cooperation: From Keynes to Clausewitz’, Global Affairs 1, no. 2 (2015): 160.
114 Authors’ calculations, based on data provided by SIPRI, ‘SIPRI Military Expenditure Database’.
115 See Framework Agreement Concerning Measures to Facilitate the Restructuring and Operation of the European Defence Industry, July 27, 2000: 3, 6–19.
116 Briani et al., The Development of a European Defence Technological and Industrial Base, 61.
117 OCCAR, ‘About Us: History’, http://www.occar.int/history (accessed June 30, 2019).
118 Belgium joined OCCAR in 2003, followed by Spain in 2005. Five additional countries – Finland, Lithuania, Netherlands, Poland and Turkey – participate in OCCAR via some individual programmes without being members of the organisation.
119 In contrast to the traditional application of ‘juste retour’ (i.e., allocating work shares in strict equivalence to the partner nations’ financial contributions), OCCAR implements a flexible ‘global balance’ approach which leaves more room for economic efficiency considerations. See OCCAR, ‘OCCAR Pocket Guide 2018’ (2018): 4, 7, http://www.occar.int/sites/default/files/downloads/M_OCCARPocketGuide2018_komplett.pdf (accessed June 30, 2019); Keohane, ‘The EU and Armaments Co-Operation’, 25.
120 See Burkard Schmitt, ‘Defence Procurement in the European Union: The Current Debate’, Report of an European Union Institute for Security Studies Task Force (2005): 17.
121 See Schmitt, ‘Defence Procurement in the European Union’, 17.
122 Ibid., 17–18.
123 See Moritz Weiss and Michael Blauberger, ‘Judicialized Law-Making and Opportunistic Enforcement: Explaining the EU's Challenge of National Defence Offsets’, Journal of Common Market Studies 54, no. 2 (2016): 452; Blauberger and Weiss, ‘If You Can't Beat Me, Join Me!’, 1129.
124 European Parliament, ‘Fact Sheets on the European Union: Defence Industry’, http://www.europarl.europa.eu/factsheets/en/sheet/65/defence-industry (accessed June 30, 2019).
125 Furthermore, administrative agreements signed with Norway, Switzerland, Serbia and Ukraine allow these countries to participate in certain EDA projects.
126 EDA, A Strategy for the European Defence Technological and Industrial Base, 1–2.
127 See European Commission, COM(2007) 764 Final: A Strategy for a Stronger and more Competitive European Defence Industry (Brussels: European Commission, 2007): 5. The ESDP was replaced by the Common Security and Defence Policy (CSDP) in 2009.
128 See Fiott, ‘European Defence-Industrial Cooperation’, 160.
129 Both ‘Defence Directives’ were adopted in 2009.
130 Blauberger and Weiss, ‘If You Can't Beat Me, Join Me!’, 1121, 1125.
131 See Matthews, ‘European Collaboration in the Development of New Weapon Systems’, 116–17; Blauberger and Weiss, ‘If You Can't Beat Me, Join Me!’, 1121, 1125; Catherine Hoeffler, ‘European Armament Co-Operation and the Renewal of Industrial Policy Motives’, Journal of European Public Policy 19, no. 3 (2012): 444.
132 See Matthews, ‘European Collaboration in the Development of New Weapon Systems’, 117; Blauberger and Weiss, ‘If You Can't Beat Me, Join Me!’, 1131; Hoeffler, ‘European Armament Co-operation and the Renewal of Industrial Policy Motives’, 444. While the exemption of collaborative programmes may appear incompatible with the creation of the EDEM, it was regarded as necessary to strengthen the EDTIB – see Blauberger and Weiss, ‘If You Can't Beat Me, Join Me!’, 1131.
133 See Weiss and Blauberger, ‘Judicialized Law-Making and Opportunistic Enforcement’, 453–6.
134 Briani et al., ‘The Development of a European Defence Technological and Industrial Base’, 58–60.
135 Ibid., 48, 59.
136 Ibid., 59.
137 Ibid., 59. This view is shared by John Paul Dunne and Ron Smith, ‘The Evolution of Concentration in the Arms Market’, The Economics of Peace and Security Journal 11, no. 1 (2016): 16, who argue that “national governments’ policies such as the blocking of the 2012 proposal to merge BAE [Systems] and EADS have restrained the tendency to higher concentration that would have resulted from the operation of market forces. Market forces, however, are likely to maintain the pressure toward concentration.”
138 Briani et al., ‘The Development of a European Defence Technological and Industrial Base’, 59.
139 Ibid., 71–3.
140 Jean-Claude Juncker, ‘State of the Union 2016’, September 14, 2016: 63, https://publications.europa.eu/en/publication-detail/-/publication/c9ff4ff6-9a81-11e6-9bca-01aa75ed71a1/language-en/format-PDF/source-30945725 (accessed June 30, 2019).
141 Ibid., 63.
142 European Commission, ‘European Defence Action Plan: Towards a European Defence Fund’, November 30, 2017, http://europa.eu/rapid/press-release_IP-16-4088_en.htm (accessed June 30, 2019).
143 European Commission, ‘Towards a European Defence Union. Permanent Cooperation and the European Defence Fund’ (2017): 2, 4, https://ec.europa.eu/commission/sites/beta-political/files/defence-union_en.pdf (accessed June 30, 2019).
144 European Commission, ‘A European Defence Fund: €5.5 Billion per Year to Boost Europe's Defence Capabilities’, June 7, 2017, https://europa.eu/rapid/press-release_IP-17-1508_en.htm (accessed January 14, 2019).
145 Hartley, ‘The Emergence of EU Defense Research Policy’, 84; Antonio Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, Global Affairs 3, no. 2 (2017): 141–2, 144; Olivier de France et al., ‘The Impact of Brexit on the European Armament Industry’, ARES – Armament Industry European Research Group. Report, no. 19 (2017): 21.
146 Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 142; Paola Sartori, Alessandro Marrone, and Michele Nones, Looking Through the Fog of Brexit: Scenarios and Implications for the European Defence Industry (Rome: Istituto Affari Internazionali, 2018): 34, 38.
147 Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 142.
148 de France et al., ‘The Impact of Brexit on the European Armament Industry’, 7.
149 For a discussion on the possible models for a future economic relationship between the United Kingdom and the EU, see James Black et al., Defence and Security after Brexit. Understanding the Possible Implications of the UK's Decision to Leave the EU (Santa Monica/Cambridge: RAND Corporation): 35–6; Bastian Giegerich and Christian Mölling, The United Kingdom's Contribution to European Security and Defence (London: International Institute for Strategic Studies, 2018): 9.
150 See, for example, Hartley, ‘The Economics of European Defense Industrial Policy’, 91.
151 See Giegerich and Mölling, The United Kingdom's Contribution to European Security and Defence, 13–14; Black et al., Defence and Security after Brexit, 45–6; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 13–14. According to Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 25, 54, the EDA might even enter a closer agreement with the United Kingdom as compared to the limited arrangements signed with Norway and Switzerland.
152 See Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 22; Black et al., Defence and Security after Brexit, 59; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 13–14.
153 See Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 22, 40–1; Black et al., Defence and Security after Brexit, 59; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 14.
154 See de France et al., ‘The Impact of Brexit on the European Armament Industry’, 10–12. See also Giegerich and Mölling, The United Kingdom's Contribution to European Security and Defence, 14 on the possibilities of a continuing participation of the United Kingdom in the EDF.
155 See Black et al., Defence and Security after Brexit, 49–51; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 15–17.
156 See, for example, Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 143–4.
157 See, for example, de France et al., ‘The Impact of Brexit on the European Armament Industry’, 13.
158 See Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 57. Concerning collaborative projects, a similar argument has been promoted by Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 140, 148–9.
159 See Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 52–3.
160 Ministry of Defence of the United Kingdom, National Shipbuilding Strategy: The Future of Naval Shipbuilding in the UK (London: Ministry of Defence of the United Kingdom, 2017), 23, 33.
161 Young, ‘Britain Unveils Fighter Jet Model to Rival Franco-German Programme’.
162 Ministry of Defence of the United Kingdom, Combat Air Strategy: An Ambitious Vision for the Future (London: Ministry of Defence of the United Kingdom, 2018), 4–5, 15.
163 See Giegerich and Mölling, The United Kingdom's Contribution to European Security and Defence, 11; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 21–2. The view that existing collaborative programmes are unlikely to be affected significantly is also shared by Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 35 and Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 144.
164 See Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 144; de France et al., ‘The Impact of Brexit on the European Armament Industry’, 19–21.
165 See Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 23.
166 See, for example, Calcara, ‘Brexit: What Impact on Armaments Cooperation?’, 145.
167 See Beth Stevenson, ‘Establishment of Rheinmetall BAE Systems Land Completed’, Jane's Defence Weekly, July 1, 2019, https://www.janes.com/article/89603/establishment-of-rheinmetall-bae-systems-land-completed (accessed October 16, 2019).
168 See Caralp, ‘The Restructuring of the European Land Armaments Industry’, 15; Mölling, ‘Der Europäische Rüstungssektor’, 27; Fleurant and Quéau, ‘Quelles Perspectives’, 33–5, 53; Briani et al., The Development of a European Defence Technological and Industrial Base, 10.
169 Andersson, ‘Defence Industry and Technology’, 106.
170 Sartori, Marrone, and Nones, Looking Through the Fog of Brexit, 57.
171 Nayantara D. Hensel, The Defence Industrial Base. Strategies for a Changing World (Abingdon/New York: Routledge Taylor & Francis, 2015), 111–19.