In a practical sense, Raytheon might seem the obvious choice. Britain is a longtime buyer of U.S. defense products. More important, as Raytheon CEO Daniel Burnham pointed out last week at the Paris Air Show: “We have a missile, and the competition doesn’t.” But financial practicality isn’t the point here. This missile deal comes at a pivotal moment for a unifying Europe, which puts Raytheon at a serious disadvantage–no matter how good its technology. “It is a hugely symbolic issue,” says Tim Ripley of Center for Defense and Security at Lancaster University in England.
The war in Kosovo was a political success for Europe, but a military embarrassment: 75 percent of the aircraft and 80 percent of the munitions were supplied by the United States. “That is unnatural,” says Francois Heisbourg, a defense consultant in Paris. Now Europe wants what America has–advanced communications systems, cruise missiles, reconnaissance satellites and transport ships, along with a more unified command structure. Figuring out how to pay for it all is a big problem. But EU leaders are at least laying the groundwork. Almost simultaneous with Slobodan Milosevic’s capitulation, they announced at their Cologne summit that they are pushing ahead with the creation of a “common foreign and security policy”–a lofty, longtime goal. Javier Solana, NATO’s secretary-general, is Europe’s first defense czar. He’s got the tough job of trying to integrate Europe’s disparate defense policies. The EU also said that a joint Franco-German Eurocorps would be the backbone of an expanded pan-European rapid deployment force. Though the Europeans want to stay in NATO, they are eager to play a more active and autonomous role in settling regional conflicts–which means weaning themselves from both American politics and American weapons.
Solana’s appointment made a lot of headlines. Nearly as important as the political developments, however, are the implications for Europe’s defense companies, which have been trying to consolidate themselves. Two weeks ago the state-owned Spanish defense company, Casa, agreed to a merger with Dasa, the German defense arm of Daimler-Chrysler. It was the first cross-border corporate merger in the European defense industry–and, as such, a milestone. The question of who will merge with whom, on what terms, and with which national company seemingly in control, has been a knotty one for Europe ever since the end of the cold war. Two U.S. megamergers (Lockheed Corp. and Martin Marietta in 1995, and Boeing and McDonnell Douglas in 1997) stunned the Europeans. But despite shrinking defense budgets, they haven’t kept pace.
In late 1997, the British, French and German governments called for the formation of a single, unified European defense company. It was a grandiose idea, but it has produced some concrete action. Paris–which loves the idea of European corporate champions, especially when French companies run the show–has partially privatized both Aerospatiale (which is merging with its longtime commercial foe, Matra) and Thomson-CSF. Those were important steps, but as both the British and Germans have stated, the French government must more fully detach itself from the defense sector before Europe can achieve its ambitions. “Our goal is to build up European know-how, secure European jobs and be a strong competitor to the Americans,” says a German Defense Ministry official.
Kosovo made clear that Europe not only needs to spend more money on defense, but needs to spend it differently–on advanced systems, rather than personnel, and on research and development. America’s annual R&D budget is double that of the EU–and has been for 25 years. “We must bring more relevant military assets to the table,” says Heisbourg. Europe’s defense policies are still predicated on protecting territory with soldiers (a cold-war legacy) rather then projecting force, which is a U.S. specialty. Europe has about 2 million people in uniform, compared with 1.4 million in the United States. Meanwhile, Europe makes neither cruise missiles nor the equivalent of an AWACS (Airborne Warning and Control System), both of which were vital in Kosovo.
Europe grasps the problem. But fixing it will be expensive. The Meteor missile that Europe wants for the Eurofighter will cost euro-billions to develop. While British and French defense spending approaches U.S. levels (chart), all other European countries spend far less–especially on weapons procurement. “Other countries have to do more,” says an official at the French Defense Ministry. That may be wishful thinking. Italy is strapped, and Germany’s finance minister has called for defense spending to be cut by nearly 8 percent. “Europe’s armed forces are all under extreme budget pressure,” says Peter Schmitt of the Ebenhausen Foundation, Germany’s leading defense think tank. “Building up a strong European security role is going to take political will and financial resources that I don’t see at present.”
That said, the long-term outlook for enhanced defense cooperation is promising. For decades the French were the lone voice calling for a more autonomous European fighting force. Now they’ve been joined by the British. The conservative governments of Margaret Thatcher and John Major rejected the notion of a formal EU defense structure. But Tony Blair, an outspoken proponent of force in Kosovo, is a firm backer of European integration. “That is a major policy change,” says Ripley. Last December, at a summit in St. Malo, Blair and French President Jacques Chirac agreed to cooperate more closely on defense matters. That was a conceptual breakthrough.
Of course, European companies have been cooperating on specific projects for 30 years. But too often they’ve been pork-barrel efforts aimed more at spreading work around than producing products that are both commercially sound and strategically significant. The four-nation Eurofighter has been in the works for 20 years. France opted not to participate in the program and instead built a new fighter jet of its own, the Dassault-made Rafael fighter. It’s doubtful that both it and the Eurofighter can prosper in competition with the America’s forthcoming Joint Strike Fighter.
Last year the EU established a joint-procurement agency in Bonn, which goes by the acronym Occar. It was another important development, but Occar has gotten off to a rocky start. For example, a joint French, Italian and British frigate program has foundered–each country will now build its own ship. The picture is not entirely dismal, though: two weeks ago Britain committed itself to a $3.2 billion, five-nation antitank missile program called Trigat.
And the corporate consolidation continues. Two major defense groups have emerged–British Aerospace and Aerospatiale Matra–that will compete with the three major U.S. contractors (Boeing, Lockheed Martin and Raytheon). “That is the right balance,” says Heisbourg, “since Europe spends 60 percent of what the United States does on defense.” What Dasa, Europe’s No. 3 aerospace company, will do next has everybody guessing. Last year Dasa thought it would be hooking up with British Aerospace, but the deal fell through. Instead, BAe bought Marconi, another British firm, creating Europe’s biggest defense firm. While some have argued that the BAe-Marconi deal was a blow to European cooperation, just the opposite may be true. Along with recent moves in France, the BAe-Marconi marriage may clear the way for more transnational deals, because now there is only one major defense company in Britain, and two in France.
American policymakers like the idea of Europe’s taking more responsibility for regional defense. But the Pentagon has also raised trade concerns. U.S. Deputy Defense Secretary John Hamre fears that Europe is building a “fortress” around its defense industry, aimed at keeping out American products. If that happens, he told NEWSWEEK, “it won’t be in their interest, or ours, over time. They won’t get the best battlefield technology, and it will be harder for us to fight together as an alliance.” European officials retort that America has long been protectionist about its own defense companies, who sell seven times as much equipment in Europe as European firms do in the United States. Hamre counters that the sales imbalance is due mostly to a technology gap, not politics.
But there’s room for compromise. European companies, which already supply many subsystems to U.S. contractors, remain eager to collaborate on bigger deals. Lockheed Martin and Aerospatiale have talked about several projects, including a surveillance aircraft to compete with Boeing’s AWAC–but the U.S. Congress is sure to object to technology transfers with the rival French.
To be taken seriously, the EU has to make some tough decisions. Besides raising defense spending, the continent must reduce its excess manufacturing capacity so as to get real value for its money. Factories must be closed, jobs cut, in ways that promote European rather than national champions. It won’t be easy, but in the aftermath of Kosovo, the odds of it happening look better than ever. After years of ambitious talk, the Old World is finally taking the offensive on matters of defense.
Europeans want to unify and strengthen their military capabilities. But judging from the top 10 defense budgets in the 15-member EU, they’re not yet ready to pay for the project.
