MERGING MILITARY

More Bang for the Buck

Zum deutschlandweiten Tag der Bundeswehr am 11.06.2016 besucht Bundesverteidigungsministerin Ursula von der Leyen (CDU) die Wettiner Kaserne in Frankenberg (Sachsen). Der Tag der Bundeswehr fand nach 2015 zum zweiten Mal statt. Foto: Kristin Schmidt/dpa +++(c) dpa - Bildfunk+++
Ursula von der Leyen, Germany's defense minister, is pushing for Germany to consider taking up a greater role militarily.
  • Why it matters

    Why it matters

    If E.U. members specialized capabilities and shared military material, they could save 7 percent of their defense budgets, according to McKinsey consultants. In Germany alone, that would be €2.3 billion per year.

  • Facts

    Facts

    • Germany’s government will this week consider taking on a more assertive military role as part of a once-a-decade review of security policy.
    • Germany’s defense minister planned to call on its armed forces to share capabilities with neighboring countries and purchase military equipment in a European context.
    • The merger of Munich-based KMW with Paris-based Nexter Systems could create one of the largest European defense manufacturers.
    •  
  • Audio

    Audio

  • Pdf

When it comes to the military, Frank Haun wants to see more European integration, not less. The chief executive of German tank manufacturer Krauss-Maffei Wegmann believes Europe should better integrate its arms industry between different countries.

“The more that the same weapons systems are used, the lower the costs are,” said Mr. Haun.

For example, if France and Germany produced and even ordered tanks together, the quantities could be larger, production less expensive – and profits higher.

It’s a dream for a major tank manufacturer like Krauss-Maffei that may be slowly gathering steam in European political circles. Germany may surprisingly be taking the lead in making that happen.

Long reluctant to take up a primarily role in military matters in Europe – understandable given its history – the country’s defense ministry this week is expected to usher in a shift towards a more assertive stance.

A new policy paper is calling for Germany – and Europe – to take on a greater leadership in managing global conflicts. Consolidating the European defense industry is a big piece of that puzzle – and may also be the most challenging.

German Defense Minister Ursula von der Leyen plans to present a report on this new direction in European defense this week, following the NATO summit in Warsaw over the weekend. The report will also be discussed by German Chancellor Angela Merkel’s cabinet.

The white paper marks the most important position paper on security policy in the last 10 years. It includes promises of additional spending and increasing troop strength.

According to the report, Germany’s armed forces should forge ahead by sharing capabilities with neighboring countries and purchasing military equipment in a European context — in order to create a “truly integrated” arms industry.

The goal, in short, is to make defense in Europe cheaper: In view of “limited leeway for necessary increases in the defense budget,” the focus must be on “division of labor, specialization and interlocking of the armed forces, standardization of the armaments industry, and harmonization of procurement cycles,” the report reads.

But the question remains: Will political leaders, who have long viewed armaments as a national matter, really support the consolidation of defense across different countries?

“Politics has to create a better framework for European-wide armaments procurement.”

Frank Haun, CEO of German tank manufacturer KMW

It’s something that Mr. Haun believes is sorely needed. Until now, politicians have often talked about “Europeanizing” the military but typically don’t even open up their national weapons spending to multinational bidding, the tank manufacturer complained.

In hopes that will someday change, his Munich-based family firm, known as KMW, is merging with its French rival Nexter Systems. It marked one of the biggest European mergers announced last year and will create one of the largest European defense manufacturers.

Mr. Haun is betting that in the future there will be a European-wide call for bids to build a new battle tank – and that shoulder-to-shoulder with the French, he could win the contract.

“Somebody has to start with “Europeanization,” he said.

But such matters are often easier on paper. In real political life, something usually gets in the way, for example the British exit from the European Union.

Like many projects across Europe, Brexit is complicating the new efforts to consolidate European defense. The British furnish one fifth of the European Union’s military capacity.

If Britain leaves, “there will be no more impetus for the Europeanization of arms policies,” said Rolf Mützenich, deputy head of the center-left Social Democrats’ parliamentary group.

Even before the shock of the British referendum, politics has often gotten in the way. The biggest problem: Many European countries have found it difficult politically to back up their pledges with real money.

In Germany, diplomats have warned extensively about “new risks,” including self-proclaimed Islamic State terrorists, Vladimir Putin’s Russia or cyber-attacks. But defense ministry officials acknowledge that the German armed forces are “not prepared to the aspired extent” to protect against such threats. The military lacks financial provisions and needs “to counter administrative cumbersomeness, redundancies and inefficiencies,” officials said.

Is that honest self-criticism or self-serving political PR to get the money flowing?

Defense Minister von der Leyen can allow herself sharp-tongued formulations as long as her predecessors were responsible for years of underfinancing. The country currently spends about 1.2 percent of gross domestic product on its military – well below the 2 percent required by NATO.

By contrast, Ms. von der Leyen has tried to shine as a reformer: By 2030, she has promised that €130 billion more than planned will have been pumped into the defense budget.

That sounds like lots of money. But it’s not. As long as tax revenues grow along with the German economy, there should be even more wiggle-room in the defense budget. Moreover, a large percentage of the additional funds go for personnel costs and missing equipment, for example knapsacks and spare parts for tanks, rather than a major upgrade in military hardware.

Given those budget constraints, it is all the more important that the federal government use its money more effectively. The goal of European consolidation is therefore to get “more bang for the buck,” as a leading defense ministry official put it.

Fewer Soldiers, Bigger Budget-01

 

Much could be saved by harmonizing the procurement and operation of armaments. According to a McKinsey study, for instance, E.U. member states could save at least €500 million each year if they combined maintenance for their 16 types of aircraft.

Another example: The German armed forces fight alongside many European allies in foreign interventions. But they all drive different armored vehicles – and all need different spare parts.

Europeans can achieve better coordination when members of the NATO military alliance show some initiative. Its bigger members, for example, monitor the airspace of the Baltic states, so Estonia, Latvia and Lithuania don’t have to build up expensive air forces.

The military calls this “pooling.” If it gives rise to a joint command structure, the talk is of “sharing” – as in the case of AWAC surveillance planes stationed near Cologne and operating for all NATO states.

The McKinsey paper argued that if E.U. countries used more such “pooling” options — by specializing capabilities and sharing military material, for example — 7 percent of their defense budgets could be freed for other purposes. In Germany alone, that would be €2.3 billion per year.

The trouble is that more efficiency in armaments issues goes hand in hand with reductions in national sovereignty. There is reason to doubt that Poland would want to voluntarily subordinate their tank brigades to a German division, for instance.

Ms. von der Leyen would like to be a model for her partners. Her new report said that Germany “consciously accepts mutual dependencies with regard to security issues” and seeks “multinational solutions to closing capability gaps” — especially in the areas of cyber-defense, drones and satellite communication.

The approach conforms to NATO’s Framework Nation Concept that, under Germany’s initiative, seeks to improve the division of labor between the alliance’s members when it comes to military spending.

The basic idea is to plan the purchase of weapons together. And when they are used, one country takes command. That would mean each country doesn’t have to be capable of everything or purchase everything.

“The military division of labor can easily lead to an industrial one,” said Christian Mölling, a military expert at the German Marshall Fund in Berlin.

But the devil is in the details: Up to now, weapons projects run by European consortia regularly have cost overruns.

For example Airbus, the European multinational aerospace and defense firm, is 107 months behind schedule and at least €7 billion over budget in delivering its troubled military transport, the A400M.

It is only the latest example of a series of dubious, pan-European weapons projects.

Frequently, nations’ extra wishes are partly responsible for the fiasco. Moreover, almost every government insists that domestic companies should get a piece of the pie, regardless of whether they are qualified or not.

“Negotiating an E.U.-wide armaments project is as complicated as a joint United Nations resolution,” complained one official at the German defense ministry.

Still, Germany is moving ahead. The armed forces recently issued a European-wide call for bids regarding construction of a frigate – an order worth some €4 billion that E.U. countries would normally keep for themselves.

Ms. von der Leyen hopes to set a good example and thereby put an end to the disagreements. Her white paper envisions weapons “design that is as uniform as possible, on the basis of uniform capability requirements.”

Organization would be left to a “leading nation,” regardless of whether or not it is Germany. Only for “strategic” technologies — such as encryption systems or submarines — would Germany insist on retaining leadership.

The new rocket-defense system MEADS, for example, is slated to be built by the German subsidiary of the Paris-based guided missile manufacturer MBDA.

In reverse, it might be that the Tornado fighter jet is replaced by a French model. Or that Corvettes from Italy guard the North Sea. In that way, European arms projects could be realized more quickly and efficiently.

But Tobias Lindner, a parliamentary defense expert for the Green Party, is skeptical. He fears national interests would ultimately win out.

“When the real test comes, the political establishment will once again give in to lobbyists from the German defense industry and push through national solutions,” he said.

And many issues will remain controversial for economic reasons as well. Each country wants its own companies to get the contract – and thereby create jobs. For example, calling for bids for a battle tank raises the crucial question of who should build it: the German firm Rheinmetall, or perhaps the French?

German tank manufacturer Frank Haun is clear on this point. “Politics has to create a better framework for European-wide armaments procurement,” he said.

But the head of KMW is realistic enough not to count on rapid progress. For now at least, Mr. Haun intends to put his faith only in his own entrepreneurial maneuvers to keep the company profitable.

 

This article first appeared in the German business weekly WirtschaftsWoche, a sister publication of Handelsblatt. Christopher Cermak of Handeslblatt Global Edition contributed to this story. To contact the author: florian.willershausen@wiwo.de 

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!