The European Defence Industry and the War in Ukraine: New windows of opportunity?

“I know that public opinion prefers butter to cannons, but for years we have been under-investing (…) This war against Ukraine has been a brutal wake up for all of us” Joseph Borrell, High Representative of the European Union, Openening Remarks during the European Defence Agency’s Annual Conference, 12 August 2022. 

With these words, the head of European diplomacy addressed the public in the opening speech of the Annual Conference of the European Defence Agency. Throughout a speech of  thirty minutes, he made clear the delicate situation experienced by the twenty-seven European armies: The stockpiles are almost empty and we do not have the capacity to fill them.

Bearing in mind there is a war on the borders of the European Union, any scenario is possible at the moment of greatest military tension across the continent since the Second World War. Borrell not only referred to the worrying situation in regard to the near future, but also reproached the behaviour of the past, when talking about war was a taboo and investing in military resources was an anti-popular measure. According to his words, we are now in a war that is real, and we no longer talk about it in empty terms.

In the midst of international tensions and without an answer to the question about the real risk of ending up in an armed conflict with Russia, it is apparent that the EU is focusing on the empty stockpiles of the European armies, an unlikely scenario in case the war reached the European capitals. Consequently, all kinds of financial and administrative resources are being mobilised to boost the European defence industry, or better said the European Defence Industries. Nevertheless, this sector still remains under the national direction of the Member States and escapes the rules of the Single European Market, with this being one of the many reasons why the production and sale of weapons that would help filling the stock lines is slowing down.

On a related topic : The lack of unity in the EU’s defence and security policies : Europe at a crossroads ?

Challenges and Complexity: The European Defence Industry in the Context of Arms Production and Supply

The European Defence Industry is made up of national companies focused on the production of weapons, which follow the regulations and standards of their respective countries. In this regard, the European sector is divided into 27 different industries, although the truth is that only two countries represented 50% of the total arms production in the EU during the period 2013-2022.

On a global scale, European industries are quite powerful. In 2020, among the five largest arms exporters in the world, there were three EU Member States; United States, Russia, Germany, France and Spain. When it comes to the top ten, we also find Italy and the Netherlands. However, the large-scale invasion of Ukraine in 2022, has slightly modified the statistics where we see some revealing data that deserves special attention; 

First of all, Poland has become one of the main global arms exporters as it is the third largest supplier of arms to Ukraine after the United States and the United Kingdom. Secondly, Russia is likely to cease to be the second global arms exporter, to become the third behind France. On one side, this shift might happen in part by the sanctions against Russia, and on the other, because the country has decided to stop exporting the weapons it produces to avoid running out of stock. In third place, the United States has come to export practically half of the weapons sold in the world, reaching 44%, a figure linked to our fourth data, since Europe has doubled its imports in 2022 when compared to the previous year, being the United States its first provider.

But why do these numbers matter, and how do they relate to Borrell’s words? There are several reasons that help us to understand the difficulty of the European Defence Industry when it comes to providing weapons to Ukraine, without paying the price of emptying the stock lines.

In the first place, we find a lack of political will, for various reasons: when it comes to Hungary, the country has an industry capable enough to increase the production of arms, however, Orban refuses to export defensive materials to Ukraine partially due to his personal relation with Putin,  and because of the fact that the EU has no legal instruments to force the country to do so. Germany has a delicate position on armed conflicts due to its recent past, and this idea has a very strong weight in public opinion, opposition and government.

On the other hand, Germany slightly achieved good relations with Russia during Merkel’s term, a position which the current government of Scholz tried to maintain. This resulted in Germany being  heavily criticised by countries such as Poland or the United States for its  hesitant  position regarding the war since its beginning. Recently, tensions between France and Germany rose due to the German position on the European anti-missile shield. While the latter advocated American and Israeli technology, the former opted for products manufactured by the European industry, especially in Germany, but the German Chancellor did not want to be involved so deeply in the conflict by becoming the European power providing the most weapons. Other powerful arms manufacturers such as Spain are among those that are providing the least defensive material due to political pressure within the left-leaning coalition government, among others, since Prime Minister Pedro Sanchez relies on the left-wing party Podemos, and they strongly oppose sending weapons to Ukraine.

Secondly, some countries are hesitant to hand over their own arsenal to the Ukrainian army for fear of emptying their own stock lines, which is why the EU has sought to find a solution to this problem, through the use of the European Peace Facility Fund (EPF), to financially compensate those countries that deliver their own weapons to the neighbouring country, an idea that has not worked properly due to late payment and because the reimbursement is not complete.  Other European initiatives seek to promote more military aid such as the European Defence Fund (EDF), the European Defence Industrial Development Programme (EDIDP) or the aforementioned EPF.

Third, among the limitations on the European level, we find the fact that the European Defence Industry does not follow the rules of the European Single Market, as is the case of other sectors such as the Chemical Industry. In our case, each Member State establishes its rules, with their consequent bureaucratic and legal limitations that prevent the free movement of weapons. The most recent example, which involved an international political scandal, was the case of Poland and the German-made Leopard 2 tanks. The Polish government had these tanks in its army, but wanted to transfer them to Ukraine, something it could not do unless Germany authorised to do so. The latter asked Poland to hand over its old Soviet-type tanks, a model to which the Ukrainian army was used to, without the need for training on how to use the sophisticated German technology.  In addition, the German factories could not produce as fast as the war was evolving either, but the true motive  was  that the German chancellor was not willing to get directly involved in the conflict as we explained before.

Furthermore, internal and international pressure with the United States involved, forced the German government to authorise the transfer of the aforementioned tanks, which would not arrive minimum in one year. The administrative and legal aspects involving the lack of a Single Market for the Defence Industry, have these consequences among others, such as the double purchasing by different countries due to the lack of coordination. In this sense, Borrell has been an advocate in the development of a sort of a single defence market to avoid these kinds of scenarios.

Finally, there is a problem not linked to the economic or financial aspect but to the capacity to produce weapons, since Europe cannot keep up with the war, which has shown that the European Defence Industry does not have the necessary defensive capabilities. We see an example in how countries like Slovakia, the Czech Republic, Poland or Greece, have transferred old equipment from their armies, to later ask Germany to replace it with its new technology such as GTK Boxer tanks, to which Germany has responded it has not finished yet producing as much as they need for its own army.

To understand the problem with figures, Ukraine consumes in a month the double of what Europe produces in a year. In the case of Russia, it consumes in a single day the same as twenty-seven countries produce in a month, or putting it in a different way, Russia fired in only two days the whole stock of the United Kingdom. In this sense, the European Commissioner for the Internal Market, Thierry Breton, has toured fifteen factories in the EU seeking to find a way to increase production, ensuring that it is time for the European Defence Industry to enter a war economy production model. Regarding production, Borrell assures that in the EU there are factories with the capacity to produce the weapons that Ukraine needs, but that it is necessary to produce more and faster within Europe, not without ruling out the idea of ​​buying from third countries, something that would hurt European companies. Due to the limited capacity to manufacture as many arms as needed, Member States such as Poland or Slovakia have started to buy military equipment to third countries such as Canada, Australia or South Korea, and other fifteen NATO Member States have signed trade agreements with Israel and the United States after an initiative from Sweden and Finland.

On a related topic : Europe de la Défense, dix ans après la crise

Opportunity or risk?

As it can be observed, the European Defence Industry is facing the limits of supplying Ukraine with what it needs without emptying the stock lines of the Member States. On the one hand, we can expect that the conflict in Ukraine, the pressure from the United States and the increase in military budget by the vast majority of the Member States will lead to greater common European initiatives seeking to homogenising a sector divided into twenty-seven different industries, unable to provide arms a single country while continuing the supply to third countries and recovering the stock in the national stock lines, thus contributing to a prosperous development and strengthening of the European Defence Industry. On the other hand, if no measures are taken, it may be that given its obvious limitations, the situation will lead Member States to decide to find supplies in third countries, causing a major harm to the European Defence Industry.

On a related topic : A new DG for the European Commission ? Meet DG Defence