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Ukraine puts Europe in front of the mirror: Brussels now wants its own weapons

2022-09-26T11:10:35.905Z

Brussels seeks to take advantage of the increase in military spending to promote its war industry, but it will not be easy



The early morning of February 24, 2022 was not the start of the war in Ukraine.

The Armed Forces of half of Europe were already on alert since, in 2014, the little green men (Russian soldiers in uniforms without insignia) invaded and occupied the Crimean peninsula and parts of the Ukrainian provinces of Donetsk and Lugansk, maintaining a conflict ever since. permanent armed conflict in which, according to the United Nations, more than 14,000 people lost their lives.

For the Ukrainians, the February invasion was nothing more than the definitive confirmation of a threat that many of them considered existential since their own independence day, more than 30 years ago.

"Until 2014, when people thought of the wars that European countries had to fight, it was understood that they had to fight terrorism," explains Lucie Béraud-Sudreau, director of the military spending and weapons production program at the International Institute of Stockholm Peace Research (SIPRI).

“Crimea changed those priorities.

From an expeditionary war it passed to another one of territorial defense.

But the urgency was felt in different ways.

The one that Spain had was not the same as the one that the countries bordering Russia have.”

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Neither big nor leaders: the Spanish defense industry seeks its niche in Europe

And that was appreciated in the money dedicated by European countries to their Armed Forces.

Between 2014 and 2020, NATO armies increased their budgets by $14 billion;

In 2019, military spending in the Atlantic Alliance exceeded one trillion dollars for the first time, an amount from which it has not fallen again.

And, most importantly: if in 2014 only 3 of the then 28 NATO members exceeded 2% of GDP in military spending, that number had risen to 10 (out of 30) in 2020. The European Commission wants to take advantage of this strong increase of military spending to develop its own arms industry, but the road does not seem easy.

The launch of what Moscow has called a "special military operation" (and in which the most conservative estimates calculate that more than 40,000 people have died, between civilians and soldiers), however, has meant a quantitative and qualitative leap in the European response to the Russian offensive.

The West has responded by sending money, humanitarian aid and weapons to Ukraine.

However, EU countries have been much more generous in the former than in the latter.

Until August, according to the Kiel Institute for the World Economy, the Twenty-seven had sent approximately 7,500 million euros in military material, a third of what the United States has sent.

And this is because the European Union, as a whole, has begun to look at its response capacity in the face of an armed operation against its territory.

And although she was well aware of it, what she has seen has not pleased her.

"European armies have been hollowed out and described as bonsai armies: they look like the real thing, but they have shrunk like miniature versions," Josep Borrell, the EU's top common policy and security officer, said last month.

Citing the chief of the French Defense Staff, Thierry Burkhard, Borrell recalled that the French Army had never been so small since 1945 and that the air force had cut its fleet by 30% since 1996.

Presentation of a Turkish combat drone at the Lithuanian Air Force base in Šiauliai. PETRAS MALUKAS (AFP via Getty Images)

Purchasing Policy

"The procurement system of the European industry has been geared towards satisfying the military capabilities associated with international crises and peacekeeping missions," explains Félix Arteaga, a researcher at the Elcano Royal Institute.

"The border defense did not enter into the strategic approach, as well as the investments in territorial defense."

With the objective defined by the Atlantic Alliance in its final document of the Madrid summit in hand, the European countries must act and act now.

The focus of the commitment is on expanding the rapid response groups located on the Russian border from battle groups (about the size of a Spanish battalion) to brigades, up to a total of 300,000 troops.

“Where and when needed, backed by quickly available trusted reinforcements, prepositioned equipment, and enhanced command and control,” the document explains.

"We will enhance our collective defense exercises to be prepared for high-intensity operations and ensure that we can reinforce any ally in a short time."

"Our armies must be able to handle both territorial defense and asymmetric warfare outside our borders,"

Borrell considered in his day.

“We have to do that within the framework of NATO, in fact, and even more so when almost all EU member states are now members [of the Alliance].”

All of this is above the current capacities of most NATO countries, which have committed themselves to making up for lost time and raising their military spending to 2%, and those who already earmarked that figure have guaranteed that they will still contribute plus.

Some, like the Baltic countries, have set themselves the goal of meeting their plans by the end of this year or next year.

Others intend to get there by the end of this decade, like Spain.

Money is not enough, however.

"To save costs, many armies had reduced stocks, especially in the most expensive equipment," recalls Arteaga.

“While there were situations of international missions, everyone trusted someone to lend them from their endowment.

But now it is no longer about material for voluntary missions, now they have the obligation to have that equipment.

The EU is now going to need to make an effort to buy modern equipment.”

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Josep Borrell: "We Europeans must be willing to pay a price for supporting Ukraine and maintaining unity"

In addition, the European Commission, as in other areas, wants the money it puts in to have a purpose.

Brussels has seen in the electrical response of European countries to the invasion of Ukraine an opportunity to exercise its geopolitical muscle.

"We must also be able to trust ourselves more and demonstrate our strategic responsibility when our security interests are at stake at our borders and beyond," Borrell continued.

"This is why EU member states must invest better and together and cooperate much more on defense."

“The first move that the Commission intends is to strengthen strategic capabilities so that it can face threats that were foreseen and that have materialized,” says Jesús Sánchez, president and CEO of Thales Spain.

And it is more: the Commission is looking for a way to incorporate this wave of military spending to strengthen the European defense industry, a business that, according to the continental employers' association ASD, had a turnover of 119,000 million euros in 2020 and directly employed 462,000 people.

Especially when a large part of the industry is specialized in high-tech products that are exportable and are part of the economy of knowledge and technology that Brussels seeks to promote.

"What recent history has shown is that everything military is always civil, and everything civilian is also military," Ángel Escribano, president of Escribano Mechanical and Technical, says by phone.

The fundamental problem is that European industry, with few exceptions, is not used to working as such.

"Although the sector is generally competitive, there are gaps," explained a report on the European defense industry, published by the Commission in April.

“Companies are still structured mainly at the national level, benefiting from a close relationship with governments.

This market structure, combined with low investment spending, has resulted in several players operating in small markets and thus producing small volumes.

A series of steps of national and European consolidation have lagged far behind US industrial consolidation.

Historically, this independence is due to reasons of national security and, in many cases, the pride of each manufacturing country.

But in recent decades, it also weighs that defense production has become the last refuge of industrial sectors that cannot compete in the civilian market.

And that is jobs, in some cases in depressed regions, and, consequently, a political hot potato that the States avoid touching.

"The ministries are not interested in promoting technology or the military industry, but rather national military capabilities," says Arteaga.

A tank with Ukrainian soldiers in the city of Izium.

Metin Aktas (Anadolu Agency via Getty Images)

internal competition

In addition, there is the competition that takes place within the EU itself.

According to ASD, 80% of the industry is concentrated in six countries, five of them in the European Union (Germany, Spain, France, Italy and Sweden) and one recently left it (United Kingdom).

"The problem for the industries and the States is in which link of the value chain they want to be," says Arteaga.

"If there is a competition for the European market, right now the only ones that are in a position to compete are the big ones, and they are all going to take the money and line their income statement."

The six major producers in the EU are the so-called "declaration of intent countries" because they are the ones that have the capacity to join international consortiums.

And these consortiums compete with each other.

The clearest example at the moment is that of the sixth generation fighters.

In 2019, Spain joined the European Future Combat Air System program, which also includes German and French companies.

There is another project, also called Future Combat Air System, centered on the United Kingdom and in which Italy and Sweden, members of the EU, also participate.

"Each country wants its own system," explains Jan Wille, a partner at Strategy&, PwC's global strategic consulting team, over the phone.

“There is cooperation between companies, but this cooperation is always temporary.

We cut the programs into pieces to give work to each of the partners.

The Eurofighter has four flight control computers, and each of them, the most important element of the aircraft, is made in a different country”.

"The beneficiary is US industry like Lockheed, because everyone wants the F-35," Wille says.

“European industry is not benefiting from this increase in spending.

On the contrary, it is fragmented.

US industry is the example, the competition and the nightmare of European manufacturers, backed by gigantic military spending, higher in absolute terms than any European country.

"The European industry is one of the most capable, but the Americans are ahead because one collects in relation to what one sows," Escribano considers.

“They say 'let's buy the new combat vehicle,' they put out a program, and they spend millions of dollars.

Europe spends 10 times less, for a guess”.

This very powerful military spending also allows US private companies to see the defense side of their business as a support to their civilian business, and not the other way around.

Boeing was able to fully enter the civil jet business thanks to the financial backing of its position as a military manufacturer.

"Most of the European defense industries depend, above all, on their civilian business, with a few exceptions," recalls Arteaga.

Because the United States also invests much more in innovation than the European Armed Forces.

And the synergy with the private sector and the universities is one of the factors of a scientific and technical production mechanism that Brussels views with admiration.

“The idea is to invest in space, security, defense, not because of the outputs it produces, but because in the process there are synergies between the industrial and civil sectors that improve technological capacity, increase economies of scale and would allow the development of better products. ”, says Arteaga.

“But in the defense industry that risk is something that is not wanted to be assumed, and the private sector asks to share risks.

The Commission has offered to share them”, he adds.

Above all, economies of scale allow them to have products earlier and at lower prices than Europeans.

And, in the emergencies caused by the Russian invasion, what is already available is the most valuable.

"Many Eastern countries bought US weapons because they were available," recalls Béraud-Sudreau.

"European projects are more long-term."

“If what it is about is useful material for Ukraine, the logical thing is to buy what is on the shelf”, considers Arteaga.

Given all this, the Commission's efforts are a first step, but, according to experts, insufficient.

"The Commission has made the diagnosis right, but the measures it has taken are in the process of being filmed or are in question," says Arteaga.

“There is a distance between what is said and what is done.

At the operational level, all those great teams, all the multipliers,

Integration

The integration of companies is, everyone agrees, fundamental.

"Europe has, fortunately, a competitive defense sector on the world scene," they point out from Airbus.

“But progress will ultimately be conditioned by our ability to forge close strategic alliances, on which the successes of our sector in the past have been based”.

One thing, at least, is favorable: the United States, even with Joe Biden's industrial commitment, does not want to discourage the ambitions of European industry.

"The American target is China," recalls Béraud-Sudreau.

"He wants the Europeans to take his side against Russia."

One of the hopes is that, as was done with the vaccines in 2020, Europe commits to the joint purchase of material.

But the expectations are not very flattering.

"It will be little money and there is a lot of opposition from the States," says Arteaga.

"In addition, there is a lot of structural reluctance: defense companies have difficulties accessing financing."

According to this expert, defense companies are labeled in such a way in the (increasingly important) ethical indices that investors view them with suspicion.

"We're going too slowly," says Wille.

“Promoting cooperation is the key idea.

After the invasion of Crimea, the Commission set a deadline of 2032, 18 years.

Six have passed and we have not advanced enough.

She needs to be more proactive and put more pressure.”

How do you change that dynamic?

"The experience is that Brussels is listened to when it puts money," says Arteaga.

“For a war situation like the one in Ukraine, a war economy is needed.

Since that has not been done nor will it be done, I speculate that what will happen, as it did in 2014, the realities, the elections, the economic situations will be the ones that really matter.

The actual investments will be mainly in old programs or national purchases.

Instead of producing together, each one will try to support their industry.

But maybe I'm in for a surprise."

"The obstacles are going to come from the industry itself," says Béraud-Sudreau.

“The question is who is going to do what.

It should help that the member states are mostly part of NATO."

Workers at the General Dynamics arms factory in Trubia (Asturias).

Jorge Peteiro (Europa Press via Getty Images)

A turning point with the divided Government

In 2022, Spain will celebrate 40 years since joining the Atlantic Alliance.

Originally, the last summit in Madrid was planned to serve as a commemoration of the event —which, at the time, was highly disputed politically—, but the outbreak of the war in Ukraine turned what was going to be an important event into one of the points turning point in NATO's history.

And, also, he focused on Spain's will and capacity to respond to the new challenges that the invasion of Ukraine imposes on its partners, both in the European Union and in the Atlantic Alliance.

The latest revision of the National Security Strategy, approved in December last year, makes only a passing mention of the possibility of territorial defense and the renewal of arsenals, with other objectives, which remain important, such as cybersecurity and disinformation as priorities.

In this sense, Spain sought (and, to a large extent, obtained) confirmation from NATO that, even with the height of the threat on the eastern border, the southern flank would not be neglected, the border that corresponds to Spain.

During the summit, the Spanish government promised to increase military spending to 2% of GDP until 2029, but the figure is misleading.

Until the Spanish Armed Forces really begin to be modernized, what has been sent to Ukraine must first be replenished and compensation for decades of disinvestment.

"Cover holes," a military command responded to this newspaper when asked what the Armed Forces would use the budget increase for.

At least, there is the consolation that you are not starting from scratch.

According to the employers' association Tedae, the sector in Spain had a turnover of 11,594 million euros in 2021 (of which 47% is exported) and provides almost 50,000 direct jobs.

"The situation in the industry is obviously positive", explains the president of Tedae, Ricardo Martí Fluxá.

"The turning point was in the eighties, when we entered the large international consortiums."

However, the Spanish industry is more than the international consortiums.

As in other sectors, SMEs play a fundamental role in the sector.

72% of the companies are small and medium-sized and they cover all areas, from state-of-the-art turbines to field rations, through artillery control systems and footwear.

“The big consortiums help small companies”, explains Martí Fluxá.

"You can have a hundred companies in one of them."

For Félix Arteaga, a researcher at the Elcano Royal Institute, the national industry suffers from problems similar to those of other large European countries: a very closed, poorly financed and highly fluctuating market, dependent more on political than military objectives.

"The objective is to integrate into European value chains, which will be led by the great national champions," he points out.

“If that gap is not guaranteed, countries will continue to put money to maintain jobs and maintain industrial capacity.

What is wanted is to integrate companies into that fabric.

In practice, only those that are already integrated enter”.

“We need to have predictability, and that has to be reflected in the Budgets”, complements Martí Fluxá.

“Not only do you have to invest more.

We have to do better."

In July, the Council of Ministers approved an extraordinary credit of 1.

000 million euros for the Ministry of Defense.

But, to meet these objectives, the first stumbling block is in the General State Budgets.

erratic communication

And this is where the main difficulty comes in: convincing a large part of the citizenry of the positive effects of military spending, especially when the economic crisis sets other priorities.

“Neither inflation nor unemployment are going to be solved by sowing Europe with more nuclear warheads or with more warships,” Gerardo Pisarello, of En Comú Podem, a party that is part of the coalition of government, which is a sign of how complicated the negotiations are going to be.

"We have not been able to communicate what we do well," says Martí Fluxá.

“This is a problem common to practically all European countries.

Our sector is resilient to crises.

The employment we create is of quality and is well paid”.

"In Spain, the defense sector has an immense driving potential and the generation of added value," they consider by email from Airbus.

"Expenditure on defense is useful because we are strengthening the democratic values ​​of Spain," Francisco Javier Romero, Director of Strategy at Navantia, explains by phone.

"We have to remove the prejudices of the country," says Ángel Escribano, president of Escribano Mechanical and Technical.

“You have to start collaborating more seriously and believe things more.

Everyone has to believe it”, he stresses.

And, above all, as in many other industries, insist that the Spanish product is comparable to or better than others from abroad.

"The greatest strength we have in Spain is the ability to adapt, the ability to collaborate, reinvent ourselves daily if necessary," says Jesús Sánchez, president of Thales Spain.

“Our most important weakness is that, being able to be one of the good guys, later we don't believe ourselves capable or we see ourselves as inferior to others.

Possibly, one of the biggest problems we can have is that having the most prepared generations, we are not capable of believing ourselves as good as the others”.

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Source: elparis

All business articles on 2022-09-26

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