Summary: European Defence Technological and Industrial Base - Speech by EUHR Solana (1 February 2007: Brussels)
Key-note speech by, Javier Solana, EU High Representative for the Common Foreign and Security Policy, Head of the European Defence Agency, EDA CONFERENCE ON THE EUROPEAN DEFENCE TECHNOLOGICAL AND INDUSTRIAL BASE, Brussels
Ladies and Gentlemen, I am very pleased to have the opportunity to speak and be with you today. The European Defence and Technological and Industrial Base is the defence theme for 2007. There are difficult decisions and significant changes that lie ahead and that need to be taken. Therefore, it is important that we are here, together, to agree on how we move forward in the right direction and at the right speed.
In one month we will be celebrating the 50th anniversary of the signature of the Treaty of Rome. Its aim was economic integration. And it has been a clear and undeniable success.
Yet defence has been largely excluded from this process of economic integration. Defence was judged too special, too sensitive. And although much has changed in the last 50 years, to this day, Member States continue to have the right to judge their own national security interests. In particular, Member States still decide how much, or how little, defence integration they want. But we are reaching a crossroads. The future health, and maybe even the survival, of Europe's defence industry needs a
European approach, and a European strategy.
No-one would argue that the defence industry matters in Europe. We know it matters to our economies, sustaining some 300,000 high technology jobs. A healthy defence industry, as well as a healthy defence research base, helps to sustain political and popular support for our armed forces and our defence missions. And we are all aware that it is the very foundation upon which so much of our security and defence efforts is built.
It is also clear that as defence becomes increasingly a high technology business, it becomes increasingly important, for reasons of operational autonomy, to understand and control the technology embedded in sophisticated systems. But we all need to be just as clear that the defence industry is under stress. Defence budgets in Europe, and in particular their investment elements, have been cut back since the end of the Cold War.
The US defence budget is more than twice the aggregate of European defence spending - and over 30% of it goes on research and equipment. In Europe, we invest less than 20% of our spending in that way. Consider research and development, and the mismatch is even worse. Between 2000 and 2005, government funding of US defence research and development grew by over 9% per annum. In Europe, the rate was less than 1.5%.
In consequence, the totality of defence R&D spending by European governments is now only about one sixth of what the Pentagon spends. It should come as no surprise, then, that North America holds five times as many aerospace and defence patents as Europe.
But these figures say that is unlikely that we can sustain a globally-competitive European defence industry -competitive today with the Americans, and competitive tomorrow with the Chinese and Indians - unless there are some pretty radical changes.
We retain many areas of excellence within the European Defence Technological and Industrial Base (or DTIB, as you will excuse me for calling it). We have world-leading technology in, for example, the helicopter, guided missiles and land system sectors; in combat aircraft manufacturing and propulsion; in communications. But we retain these advantages because we invested heavily in them in the past. The figures I have just given you demonstrate that we have ceased to do that. As the European
Defence Agency's Long-Term Vision (accepted by Europe's Defence Ministers last autumn) assessed: "Unless something is done, the trends point towards a steady contraction of the European defence industry into niche producers working increasingly for US primes".
Well, what is to be done? At the strategic level, there is no mystery. The European Heads of State and Government knew the broad answers when they decided to set up the EDA. We have to spend more.
At a minimum, that means re-deploying defence funds so that we increase the share of defence budgets going to investment. And we have to spend more together. No-one should remain under the illusion that a healthy and comprehensive DTIB can be sustained on a national basis.
We are, you might say, condemned to cooperate - to pool our efforts and resources. On the government side, we must combine our requirements so as to offer industry projects with a worthwhile economy of scale. And we must encourage the restructuring and consolidation of the supply side as well.
So far, so good - but how, in practice, to make these things happen? Well, first let me remind you of a couple of things we have already done.
We have taken the first important strides towards the creation of a genuine defence equipment market in Europe. You will know that the 22-nation Code of Conduct on defence procurement became operational last summer. Before this, the majority of defence contracts, withheld by national governments from the normal European internal market, have gone to national manufacturers.
Now these contracts are advertised on the EDA's Electronic Bulletin Board to suppliers across Europe. Of course, we have made only a start. There is more work to be done with our Member States to ensure that this initiative is fully exploited, and that the cross-border contracts in reality begin to flow. We need to tackle the many impediments to the smooth movement of defence goods and services around our continent (such as security of supply, offsets, and the bureaucracy required for transits
and transfers).
But we have made a good start here, and we should remind ourselves why. It is not only that competition will be good for the customer - governments, the armed forces, and the tax-payer. More especially, cross-border competition in a continental-sized market is essential if we are to achieve the consolidation of the demand and supply sides of this industry. This is a matter on which its survival rests.
The second thing we have already done is put the spotlight on defence research and technology - first through our efforts at the European summit at Hampton Court a little over a year ago, and then again at last year's EDA conference.
"Spend more, spend better, and spend more together" became the leitmotiv of that day. I remember sharing the platform with Tom Enders - as I do today with Åke Svensson - and hearing Tom challenge us to achieve a joint budget of €50m for European defence research.
And that, of course, is exactly what we did. Last November Defence Ministers launched a €50m to the Joint Investment Programme on Force Protection with almost 20 European Member States contributing. We should again succeed this year too, and convert the outcomes of this conference into concrete achievement.
What more can governments do? You in this hall today are supremely well-qualified to identify the right answers. And that is why you are here. If successful, we will present your contribution , as an embryo European defence industrial strategy, to Defence Ministers at their next EDA Steering Board meeting in May.
Let me just give you some thoughts:
First, the bottom-line we should never forget is that we need to increase what we invest in defence - that is, increase spending on research, development and equipment procurement: either by increasing overall defence budgets, or by moving money out of running costs into investment within defence budgets, or both.
Second, we must pull together the demand side - aligning national requirements into consolidated orders. And we must recognise that this is wholly unnatural behaviour for Ministries of Defence. It will not happen by itself. It needs political determination. But it makes operational as well as economic sense.
Third, we must exploit all the resources available in the enlarged Union. Many civil industries, notably the automotive and IT businesses, have realised the benefits of investing in those vibrant and strongly-growing economies which joined the Union in 2004. There is a wealth of human capital newly available to Europe, whether in the university or the laboratory, or on the factory floor, which we can and must involve more effectively. This aspect and the role of Small and Medium Size
enterprises have yet to be fully exploited in the development of the European DTIB.
And fourth, I suggest, we must be very clear what we want. There are two issues here. The first is that there is no future for a defence industry which does not provide what the armed forces of the future want to buy. But this means that there is an obligation on ministries of defence to communicate their future requirements to industry. And before they can do that, they need to work out what they are. This, of course, was a key motivation behind the production of the EDA's Long-Term Vision to
which I have already referred. It is primarily an effort to identify the key capabilities that we will need over the next two decades. And that is why one of the EDA's key activities for 2007 will be to follow it up with a more detailed Capability Development Plan.
The second aspect of "knowing what you want" is to develop a shared understanding of the sort of future European DTIB that we all want to see.
In that context, you have in your conference packs a copy of what I think is a very serious document -entitled "Characteristics of a strong future European DTIB", which the European National Armaments Directors agreed in the Agency Steering Board last September.
It evokes a future technological and industrial base which is capable, competent and competitive - and which is above all European. That is to say, it is something more than the sum of 24 national parts. It is integrated, and inter-dependent - with specialisation replacing the duplication that we find today, and mutual reliance on diverse centres of excellence replacing a sort of desperate "last man standing" attempt to protect whatever capabilities may endure today, irrespective of whether
that makes economic or military sense.
This is an ambitious vision - but I have yet to hear a plausible alternative. Because defence is different, realising this vision will require a good deal of political will. Clearly, the necessary re-structuring of the DTIB must also be assisted by market forces. More competition and more effective government action are the twin horses that we must harness together.
And we must act soon, if a globally competitive European DTIB is to continue to exist. We must realise that this is not merely a matter of economics, but it is a matter of the infrastructure of Europe's essential security.
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