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European Land Armaments: Time for Political Will

01 January 2004

For European businesses, the atmosphere at this year's event will probably be mixed. Conditions remain tough, especially for producers of tanks and other armoured fighting vehicles which are the core of the land armament industry. Since the Cold War ended, their domestic markets have shrunk away and the financial crisis affecting most countries of the European Union (EU) hinders any significant increase in defence budgets in the foreseeable future. On top of that, the costs of the growing number of crisis management operations have put further strain on investment budgets, and furthermore most of the remaining funding available for new defence equipment is allocated to a few major projects in other areas, such as the Eurofighter or the A400M transport aircraft.
The shrinking of markets more than ever calls for consolidation in the industry. This process is well advanced at the domestic level but, unlike their counterparts in the aeronautic industry, land defence equipment manufacturers have not yet started creating transnational companies which could streamline the European supply side and reach the critical size to survive on the market.
This stagnation has two main reasons. Firstly, privatisation is a slow and tedious process in some countries, making transnational mergers and acquisitions extremely difficult. Secondly, there is a lack of common programmes that could structure industrial cooperation. In the absence of a common system for the harmonisation of military requirements, each European country continues to conduct its own few projects on a purely national basis.
This fragmentation has several harmful effects on the European industry. To start with, production volumes for each individual programme remain too low to achieve the necessary economies of scale - although the cumulative totals of European procurement endeavours in the various main categories of equipment are not negligible. Further, there are insufficient resources in order to pursue the development of tomorrow's technologies on a national basis - hence a risk of eventually losing technological leadership in this area. This risk is all the more real since the United States launched its Future Combat Systems programme, expected to be fielded in 2015-2020 and designed to revolutionise land warfare through a "system-of-systems" approach. Great Britain, France and Germany have started investigating similar concepts (Future Rapid Effects System - FRES, Bulle Opérationnelle Aéroterrestre - BOA and Deutsche Heer 2020, respectively), but these efforts are much more limited and, once again, not coordinated.
Paradoxically enough, a U.S. competitor has taken advantage of this fragmentation to emerge as a European champion. After acquiring Steyr Spezialfahrzeuge in Austria, Santa Barbara in Spain, MOWAG AG in Switzerland and EKW in Germany, General Dynamics announced the acquisition of Alvis in the UK earlier this year. This transaction was seen as particularly important since Alvis is the only British manufacturer of armoured vehicles and tanks (since it acquired Vickers), bound to play the key part in the FRES programme. Moreover, Alvis has become a leading player in the European industry after it acquired Hägglunds in Sweden in 1997. Although Alvis' acquisition by a U.S. company will not necessarily impede ad hoc cooperation with other European manufacturers, it will probably make corporate links more difficult.
In view of such developments, Europeans should rally, at last, to develop a true common industrial strategy aimed at maintaining their technological autonomy in key areas. This is of course easier said than done, given budgetary constraints, the lack of common programmes and the different statuses of companies. One thing is clear, however: there is no alternative to cooperation. Europe must therefore tackle a double challenge.
Given the extremely limited number of major programmes, cooperation opportunities are too scarce to be missed. Failures like the French-German tank project or the VBCI/GTK/MRAV programme should therefore not be repeated. The big countries in particular should develop a common vision for their armed forces by 2020.
The ECAP (European Capabilities Action Plan) process should be expanded and transformed into a fully-fledged system for the harmonisation of Europe's military requirements. In this respect, the future "Intergovernmental Agency in the field of defence capabilities development, research, acquisition and armaments" could add real value.
By bringing armaments into the EU framework, the creation of this Agency is revolutionary in itself. In its initial stage, the Agency will act as a coordinating focus point for the existing network of armaments bodies and support the Council in the ECAP process. Once fully operational, the Agency will be responsible for the integration between the operational aspects of capabilities on the one hand, and the capability acquisition and development issues on the other. At that stage, the Agency will incorporate or assimilate the principles and practices of relevant elements of the OCCAR, Letter of Intent (LoI) Framework Agreement and WEAG (Western European Armaments Group).
A team of national experts is currently preparing the operational setting up of the Agency with a view to launch its activities by the end of 2004. But this is by no means a guarantee of success, especially as important divergences persist among member states on key issues like procurement philosophy or the degree of autonomy toward the United States. These divergences are particularly difficult to overcome in an intergovernmental decision-making process involving 25 countries. Add to that bureaucratic inertia and the traditional reluctance of national defence establishments to surrender prerogatives to European bodies, and one gets an idea of the difficulties involved to achieve efficient solutions.
In view of these obstacles, strong political will is essential for the Agency to exploit its full potential. As getting the Agency up to speed will take time anyway, it is particularly important to take courageous and ambitious decisions now that its foundations are being laid. Failing that, the price to be paid by the armed forces, the industry and, above all, the European tax payer will become too high.