Europe First

US defense companies fear local suppliers favored for EU projects

main 0200376982 Reuters – German air force pilot defense military soldiers army weapons Tornado fighter plane
I only fly German. Source: Reuters

As Europe presses ahead with creating a more unified defense force, US politicians and arms makers are sounding the alarm. “Certainly we do not want this to be a protectionist vehicle for the EU,” Kay Bailey Hutchison, the US envoy to NATO, told reporters in Brussels on Tuesday. “We are going to watch carefully because, if that becomes the case, then it could splinter the strong security alliance that we have.”

Late last year, 25 EU member states agreed to launch the Permanent Structure Cooperation (PESCO) to advance defense cooperation in the European Union. PESCO was pushed through largely at Germany’s behest. Under the plan, European governments have come up with 17 relatively small projects including a €5 billion fund for military research.

It will be one of the hot topics discussed at the Munich Security Conference, the annual gathering of global security and defense policymakers and experts which runs from February 16 to 18. US Defense Secretary James Mattis, NATO Secretary-General Jens Stoltenberg and German Defense Minister Ursula von der Leyen will be among the attendees.

The Americans have reason to be concerned. EU leaders have agreed that the joint defense research fund being set up must support research by firms based in the EU and owned by Europeans, and that the rights to new technologies developed must remain in the EU on a permanent basis.

“We want the Europeans to have capabilities and strength, but not to fence off American products.”

Kay Bailey Hutchison, the US envoy to NATO

Germany and France in particular plan to use domestic companies in their planned defense cooperation. Chancellor Angela Merkel and French President Emmanuel Macron last year agreed that their countries will jointly develop a new generation of fighter jets and combat helicopters to replace the Eurofighter and Tiger, respectively. Airbus, a Franco-German defense company, currently makes both aircraft.

Defense Minister von der Leyen has repeatedly indicated that she wants companies to form consortia or to merge so that they can compete with US companies in bids for upcoming contracts. American weapons makers have been worried that they may get left out in the cold. “We want the Europeans to have capabilities and strength, but not to fence off American products,” Ms. Hutchison said.

Raytheon, which makes the Patriot missile defense system, has intensified its efforts to woo European customers. “We don’t see ourselves as a purely US company. Two-thirds of our partners are Europeans,” Raytheon executive Joe DeAntona told Handelsblatt.

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The US concerns might, however, be overblown, because doubts about the feasibility of PESCO are growing. Conservative lawmaker Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, said: “Europe needs an effective army. The EU should focus less on institutional integration. If even the defense ministry officially admits that the German military’s readiness is unsatisfactory, I see a core duty of the state at risk. What is the state still capable of?”

Wolfgang Ischinger, the head of the Munich Security Conference, said Europe urgently needs to agree concrete joint defense projects to breathe life into its plans for closer military cooperation. “As long as every little country can prevent a common foreign policy by casting its veto, the EU will be sidelined when it comes to solving international crises like now in Syria,” he warned.

Setting up an EU army would be an important step, he said, adding that it was disappointing that Germany’s coalition agreement envisaged only €1 billion ($1.24 billion) in additional funding for the military over the four-year parliamentary term running through 2021. A study by consultancy McKinsey for the MSC showed that Europe’s armies will need to invest €20 billion annually over the coming years to modernize their weapons systems for future joint foreign missions.

Other experts have worried whether European contractors are even capable of handling large volume orders to provide fighter jets, tanks and ships for several armies. Airbus struggled to deliver its A400M transport aircraft on time in 2016, which prompted Germany and France to order planes from US rival Lockheed Martin. If this is an example of favoring Europe’s defense industry, US suppliers should not be too concerned.

Till Hoppe is a Handelsblatt correspondent in Brussels, covering the European Union. Donata Riedel covers economic policy for Handelsblatt. To contact the authors: hoppe@handelsblatt.com and riedel@handelsblatt.com

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