Market and regulatory reforms aimed at creating a more efficient European defense industry could help make up for budget pressures hitting the continent’s military spending levels, according to a new report released by a Washington think tank last week.
“Smaller budgets and reduced force structure can have negative impacts on military capabilities and missions,” says a Nov. 4 report from the Center for Strategic and International Studies (CSIS). “These negative impacts could be mitigated if Europe were to take specific, conscious actions, such as increasing specialization, including in its defense industry.”
Stephen Flanagan, senior vice president at CSIS, told an audience in Washington that several factors inhibit specialization, including perceived national interest.
“European defense acquisition regulations have caused duplication of efforts and market inefficiencies,” Flanagan said.
However, that situation may be changing. In recent years, the European Union has initiated a series of important regulatory reforms with the aim of modifying bureaucratic hurdles and reducing the fragmentation in Europe’s defense market, according to the CSIS report.
“If these reforms are successful, the European defense market may become more open and competitive,” said Flanagan.
A more open and competitive European market could improve Europe’s defense posture, according to the CSIS analysis. For that to happen, though, the European defense industry needs to be sufficiently competitive to sustain itself in a global market.
Key financial metrics reveal that for the past decade the European defense sector has been performing on par with–and occasionally even exceeding–its commercial industrial peers in Europe, according to the CSIS report. The report authors argue that this fact should lend support for a regulatory environment that supports a more open, competitive European defense market. “The European defense industry will either remain export-oriented or will begin to focus on platform integration in the future,” said Flanagan.
The report also notes that European defense budgets exhibit two key but opposing trends. The first is that total defense spending in Europe adjusted for inflation declined from 251 billion euros in 2001 to 218 billion euros in 2009. This trend cuts across all defense spending categories. The apparently opposite trend is that aggregate spending on a per- soldier basis actually grew significantly from 73,000 euros in 2001 to 91,000 in 2009.
Jim Townsend, the U.S. deputy assistant defense secretary for European and NATO policy, noted that, If spending were concentrated on improving quality of capabilities and work force, European defense could focus on smaller, more expeditionary-capable forces.
“These nations will need to be creative with tighter budgets,” Townsend said. He noted that efforts such as NATO’s C-17 consortium have proven successful.
“That kind of approach only works for certain specialties,” he added, “but it gave us an example of a new way of thinking.”
Townsend said European countries would be wise to maintain “smaller but more capable forces.”
“Future investments are likely to be in special operations and light forces,” he said.
He added that some traditional impediments to intra-European cooperation are eroding. For example, France and the United Kingdom last month began negotiations toward more bilateral military cooperation, and regional pacts in Scandinavia and elsewhere seem to be on the rise, according to Townsend.