Arms Procurement (I): The Political-Military Framework

With Russia’s annexation of Crimea and the open advances of the so-called “Islamic State” (IS) during 2014, the ability of Eu­ropean states to ensure their security is be­ing scrutinized with a new sense of urgen­cy. In the medium term, one crucial element in this context is the procurement of arma­ments, especially of main weapons systems such as combat aircraft and warships. The underlying structures and processes are, in principle, comparable across all European states – regardless of whether they are NATO or EU members or not.

This analysis deals with the politico-mili­tary framework for future arms procure­ment in Europe. At its core are two ques­tions: What are the basic structural problems of European arms procurement, and in which areas might conditions still be favorable for closer European coopera­tion? Our accompanying analysis goes one step further and looks at the dynamics of current and future armaments programs alongside the implications of military-technological developments for arms pro­curement.

In the past, high hopes were frequently placed in cooperation projects and the “Europeanization” of both arms procure­ment and the weapons industry – and nearly every time, those expectations have been disappointed. This is unlikely to change fundamentally. One factor that ap­plies to all aspects of European arms pro­curement is that governments remain sov­ereign, and decide what they wish to buy and with whom to cooperate. Thus, arms procurement in Europe will continue to be determined by national concerns for the foreseeable future. While some steps to­wards more Europeanization of arms pro­curement have been taken, they will likely only return results in the medium to long term. Furthermore, any tentative progress will most likely be achieved via armed forc­es and the arms industry.

Challenges of Arms Procurement

It is important to sketch the basic parame­ters of arms procurement in Europe. The arms industry is not mainly driven by the logic of economic efficiency. Its first, and most fundamental task, is to serve as a reli­able source of equipment supplies for the armies of individual states. Accordingly, se­curity of supply and technical superiority have always been – and still remain – con­ceptually more important than economic efficiency. At the same time, defense spend­ing is subject to a great deal of domestic scrutiny, and the financial determinants have been becoming more constrained over the decades, irrespective of whether de­fense budgets in individual European states are rising or falling.

The reason for this is the so-called “defense economic problem”: The rapidly increasing technical complexity of modern weapons systems requires states to maintain huge research and development (R&D) capaci­ties, in turn continuously increasing the price of weapons systems – for high-tech defense goods, average inflation is often around 10 per cent per year. Since national defense budgets are not increasing propor­tionally, and in many cases have decreased substantially, fewer weapons systems are being purchased. However, in extreme cas­es, fewer purchases hardly results in any savings, since fixed R&D investments and production costs cause the unit price to rise. This is especially problematic for Western countries, whose defense spend­ing is relatively low when compared with their economic power, although their ar­mies remain high-tech by global standards.

The desire to break out of this vicious circle is the fundamental economic motivation for inter-state cooperation in arms procure­ment. The core problems of cooperation become clear when analyzing the classic market actors in arms procurement – sell­ers, buyers, and regulators.

For buyers, closer cooperation between states is meant to enhance the efficiency of their procurement. For instance, R&D costs can be shouldered jointly, and unit quantities increased, to attain economies of scale. Among the best-known multination­al cooperation projects for developing and producing sophisticated weapons systems are the Panavia Tornado (involving three project nations) and the Eurofighter Ty­phoon (four nations). These types of pro­jects not only provide a long-term frame­work for cooperation between national defense industries; they also require har­monization of military capability planning, and as such are the most publicly visible symbols of multilateral cooperation. But even here, the constellation of interests among European purchasers is not uni­formly “European”: smaller member states in particular, that lack a substantial arma­ments base of their own, often prefer to purchase armaments from the US and are less interested in a consolidated European market. While a desire to avoid commit­ting to complex and expensive multina­tional projects plays a role here, the decisive factor (more often than not) is the desire to further cement a close alliance with the US.

One of the fundamental conditions for in­ter-state cooperation is that various na­tional military requirements should at least be compatible. In Europe, it is mainly NATO and the EU that promote more harmonization of military requirements. Within NATO, the Defense Planning Process is supposed to encourage the har­monization of defense planning; in the EU framework, the European Defence Agency (EDA), founded in 2004, has a similar role. High hopes had been attached to the EDA in particular. However, the results so far have disappointed even its most ardent advocates. The agency is tightly controlled by its member states, which have shown little interest so far in seeing it be­come more independent and active. De­spite decades of military cooperation with­in NATO and the EU, European states continue to go about defense planning in a largely uncoordinated manner. This is par­ticularly true for land-based systems. For instance, Poland, France, and Germany currently develop and procure most of their land vehicles largely uncoordinated, and overwhelmingly from national producers.

Suppliers have traditionally been govern­ment-owned or semi-state industries. Be­cause they were exempt from the rules of the European common market for over half a century, these industries largely re­main structured along national lines. Sub­stantial consolidation only emerged at the beginning of the last decade – the Airbus Group and MBDA (a company specializ­ing in guided missiles) being among the best-known examples. This development was largely restricted, however, to the R&D-intensive aerospace industry. The European industry for ground and naval defense systems, however, remains highly fragmented. Advocates hope that further consolidation will result in a reduction of excess capacities and redundancies. Critics note the emergence of European monopo­lies in an environment with insufficient competition, resulting in positions of un­healthy, politically uncontrollable market power.

Overall, the EU’s efforts to promote con­solidation of the industry into a European Defence Technological and Industrial Base (EDTIB) have shown few results. The in­terests of states with strong defense indus­tries are too disparate to those who have none, with the former seeming to be insuf­ficiently prepared to jeopardize their own jobs and interests in favor of consolidated industries. Ambitious EU plans thus do not seem promising, and the EU will un­likely evolve from its important advocacy role for the time being.

With regard to the regulation of arms pro­curement, the picture is different. For dec­ades, this has essentially consisted of na­tional protectionist measures. It was only in 2009 that the EU’s “defense package” forced an expansion of the single market to include defense products – notably, as a compromise package that included numer­ous important exceptions. It is true that the governmental process of awarding arms contracts, which had still been a largely na­tional affair, was constrained to some de­gree, and the decades-old practice of ex­cluding all arms deals from the European single market ended. Nevertheless, the two EU guidelines included in the package ac­knowledge the continuing reality of na­tional protectionism, explicitly allow coop­eration in major projects without competition, and tend to assume a creeping Europeanization of the awarding of weap­ons contracts over the long run. Accord­ingly, those aspects of armaments deals that have long been criticized, but simply un­derscore the political nature of arms pro­curement, will continue to require atten­tion. Both the frequently inefficient division of work packages in accordance with the share of funding contributed by individual states in cooperation projects (juste retour), and ubiquitous offset deals, will be more regulated but not prevented in the foreseeable future.

This is all the more true since, for the fore­seeable future, arms exports are not con­ceivable without such arrangements. Moreover, in this context, the critically im­portant legislation for exports to non-EU states remains a strictly national affair, con­stituting a substantial obstacle for any mul­tinational cooperation. Significant differ­ences remain between arms-exporting countries in terms of the strategic and moral aspects of arms exports – especially since European weapons systems and the countries that use them are often direct competitors on the export market. How­ever, as long as profitable orders within Eu­rope remain rare and most states refrain from directly subsidizing the arms industry, exports are increasingly the most profitable source of income for the weapons-produc­ing industry. A binding harmonization of export rules therefore remains off the table, given the deep-seated political differences between European governments.