How the EDF and the EDIS Will Fail Europe
Article written in cooperation with Aleph Alumnus Federico Pasotti
Wholly Unprepared
As the war in Ukraine brought back large-scale near-peer armed conflict to Europe for the first time since at least the 1990s, the continent was found to be deeply unprepared - both in political and practical terms.
For starters, European states were divided on the steps to take to counter the Russian invasion of Ukraine, with many western leaders calling for a negotiated settlement to the war and opposing the shipment of “offensive weapons” to Ukraine deep into 2022. At that time, NATO’s eastern flank, led by Poland and the Baltics, took the lead in supplying Soviet-era weapons and munitions to Kyiv to fuel its war effort.
Those weapons and munitions, however, would eventually run out, and that’s where the second type of European unreadiness came to the fore - while aiding Kyiv’s war effort, European stocks, particularly of artillery shells, were woefully inadequate for the training requirements of the undersized continental armies, and even less suited for a full-scale war. At the peak of the 2023 counteroffensive, Ukrainian forces were burning through their stockpile at a rate of approximately 6,000 shells per day - which, while high, is still substantially lower than Russia’s rate of almost 60,000 per day at the beginning of the invasion and its 20,000 shells fired daily while defending from Ukraine’s 2023 offensive.
Today, as Russia’s forces are able to fire 10,000 shells daily, Ukraine hopes to be able to sustain a minimum fire rate of 2,000-4,000 shells in the near future. Most of Ukraine’s shell consumption, for obvious reasons, cannot come from within Ukraine: while the supply of 122mm shells is often domestic, with some support from post-Soviet NATO states, NATO-standard 155mm shells have to be imported to support Kyiv’s war effort.
That, however, is precisely the issue: NATO member states, while keen to support Ukraine, must also consider their own needs and avoid the excessive depletion of their ammunition stockpiles. In this regard, while the US was somewhat unprepared, NATO’s European states fared extremely poorly: Rheinmetall, one of Europe’s largest defence concerns, only was tooled to produce 100,000 155mm shells per year before Russia’s escalation of the war against Ukraine. The situation was - and in some measures still is today - so grim that most of the shells supplied to Ukraine by the US are being replaced or replenished indirectly by purchases from South Korea, one of the few countries to maintain a respectable stock of 155HEs.
Baby Steps
As the war in Ukraine has made abundantly clear to everyone, EU defence industrial capabilities are far below what was required for a bloc with the economic strength and political ambition of the EU.
To try and bolster domestic production, Brussels passed two pieces of legislation in March 2022 and March 2023: the European Defence Industry Reinforcement through common Procurement Act (EDIRPA) and the Act in Support of Ammunition Production (ASAP), respectively.
Combined, EDIRPA and ASAP represented €800 million of investment in the European defence industry, albeit with different targets - one focused on improving cooperation within the bloc on defence procurement, the other focused on bolstering ammunition production and tackling critical bottlenecks along the supply chain.
Considering the traditional lack of common EU action on the topic of defence, the Union’s steps in the last two years are certainly praiseworthy and, to some extent, they have already started to have a positive effect, with EU production of artillery shells projected to reach 2 million by 2025, from less than 250.000 shells per year in 2022.
The EU’s latest step in the field of defence economics and industrial planning came in the first week of March 2024 with the announcement, by Commissioners Breton and Vestager, and High Representative Borrell, of a European Defence Industrial Strategy (EDIS). Within this context, the announcement of EDIS would seem to be nothing but yet another piece of highly positive news. However, as was the case with the EU’s Net Zero Industry Act (explored here), a number of issues arise.
New Commitments, Old Issues
The issues that surface when talking about EDIS are not new - one could say they are, in fact, older than the EU itself (the European Coal and Steel Community was preceded by a failed attempt at unifying the German, Italian and French armies that was promptly torpedoed by none other than Charles de Gaulle himself). These are issues that EU analysts are used to seeing in all sorts of planning documents set forth by the Commission and that political experts at the EU level recognise as endemic to European policy-making.
The first of these issues, and probably the most important, is the arbitrary nature of the targets set by the Commission regarding the expansion of the European Defence Industrial and Technological Base (EDITB). These targets are ambitious, possibly to the point of being deleterious, and are to be reached by deploying €1.5 billion in EU funds and up to €2 billion in private financing in accordance with the European Defence Industrial Programme (EDIP) Regulation, the money being redirected from the preexisting European Defence Fund (EDF).
The EDIS sets out four main targets:
35% of EU defence market to be represented by intra-EU trade by 2030,
40% of equipment to be procured collaboratively by 2030,
50% of equipment to be procured from within the EU by 2030,
60% of equipment to be procured from within the EU by 2035.
These targets are, again, very ambitious. The actual extent of the ambition, however, is only made clear when considering the current state of the procurement of defence equipment and materiel in the EU.
Collaborative Procurement
According to data from the European Parliament Research Service (EPRS) and the European Defence Agency (EDA), collaborative equipment purchases peaked in 2011, when they represented 25% of total procurement at the EU level, but have declined ever since, reaching 11% in 2020 and then rebounding to 18% in 2021. If this was not enough, it must be noted that the EDA’s 2007 Framework for a Joint Strategy on Defence Research and Technology, adopted at a time when collaborative procurement represented 18% of total procurement in the EU, set a 35% benchmark for collaborative procurement - a target which was never achieved.
An optimistic assessment may point to the fact that the 35% benchmark approved in 2007 did not have any money backing it, just political declarations, and that its establishment was soon followed by the 2008 financial crisis first, and the 2009-12 sovereign debt crisis. Nevertheless, it must be noted how EU member states were in a better financial position in 2007, with more fiscal space, than they are today, that the delta between the target set and the reality on the ground was lower then than it is today, and that, crucially, the 2007 framework did not set a date for the benchmark to be achieved, while the EDIS sets out a five-year term to more than double the percentage of overall procurement obtained collaboratively.
Domestic Procurement
The war in Ukraine accelerated military procurement and rearmament programmes across NATO. This was especially the case on the eastern flank of the alliance, where (as detailed here) Poland embarked on a multi-year rearmament programme aimed at creating “the strongest army on the continent” by planning to purchase at least $120 billion worth of equipment by 2035 - most of which was to be procured in the first few years of the programme.
Poland’s spending spree is noteworthy, but it is also symbolic and indicative of a wider trend. French President Emmanuel Macron announced in Spring 2023 that the country would invest €400 billion in defence between 2024 and 2030, with the military budget reaching almost €60 billion by the end of the decade. On the same note, Germany announced its much-touted-yet-not-as-much-implemented Zeitenwende or Turning point in defence policy in 2022, vowing to boost defence spending by making use of a €100 billion special fund.
The main problem, however, is that much of this procurement comes from outside Europe, thus not helping to develop the bloc’s Defence Industrial Base (DIB). Poland’s spending spree, for instance, saw as many as $49 billion spent on foreign equipment (mostly from the US and the ROK). While Warsaw’s agreements also include a number of tech-sharing provisions that would wound up being beneficial to the country’s (and the EU’s) DIB, the problem still remains. At the EU level, as much as 75% of procurement comes from outside the bloc, according to IRIS, a French think tank.
From a defence economics and (multi)national security standpoint, such a level of dependency on foreign contractors is a serious issue. There are, however, reasons behind it. The US military industry is more developed, more advanced, and more capable of delivering high quality products than the European defence industry - although European products are also very high quality and generally focus on enabling some kind of asymmetric warfare , the scale of the US military-industrial complex’s ability to deliver equipment is unmatched.
The reason for that is to be found within Europe itself - decades of peace dividends, declining military spending and increased dependency on the US for security purposes led to a decline in the demand for military equipment beyond parade fighters and coastal defence, low-intensity warships, which itself led to increased spending on foreign-made solutions, as Europe’s DIB, without reliable purchasing partners, shrank its manufacturing capacity accordingly.
Beyond the structural lack of defence spending, the other main issue that has constrained the European defence industry since the end of the Cold War is the variety of equipment requirements. As per-unit development and (initial) deployment costs continue to increase, the presence of 27 different armed forces, each with its own set of requirements (which also often differ between service branches within a country’s armed forces) makes it difficult to develop defence solutions that can be produced at scale, reducing long-run production costs and increasing production efficiency.
To counter this, the EDIS and the EDIP plan to foster aggregation within the European defence sector by creating “European Champions” in Aerospace and Defence, hoping this could create corporations able to shoulder the rising development and production costs of modern equipment. The problem with this view is that collaborative development and industry aggregation cannot solve an issue the root of which is the lack of common defence requirements: even if the entire defence industry at the EU level were to be united in a single mega-corporation, it would be hindered by the presence of 27 different sets of requirements.
What can actually solve the issue is a push from the EU to have collaborative planning rather than development: if planning is carried out collaboratively by member states, it becomes easier to draw up common requirements for defence equipment, making collaborative development of equipment and their large-scale production more viable. To make collaborative planning itself more viable, a certain degree of common security policy should be sought by European institutions as much as by national governments.
These common requirements can, however, only be sustained with increased funding, and therefore the EDIS’ push for increased procurement from domestic sources must be accompanied by an equal push for greater domestic spending on defence. As of March 2023, the European Commission has announced €1.5 billion to support the EDIS and the EDIP through the European Defence Fund. For a bloc with overall defence spending equal to €240 billion in 2022, €1.5 billion until the end of the MFF in 2027 is, in one word, peanuts.
“Technicalities”
One important aspect of any industrial strategy appears to be sorely lacking from the EDIS: its technical implementation. To be more precise, while the EDIP Regulation does set out some measures aimed at generating the intended outcomes of the EDIS, these lack any technical insight or detail as to how and why they should actually enable the EU defence industry to reach EDIS targets.
These measures include a “new regulatory framework” called the Structure for European Armament Programme (SEAP) to enable greater integration, a European Military Sales Mechanism to harmonise rules between member states (modelled on the American AECA), launch of European Defence Projects of Common Interests (EDPCIs, modelled after IPCEIs), and a financing mechanism for SMEs and Small Mid-Caps (the Fund to Accelerate Defence Supply Chain Transformation or FAST). The EDIP also seeks to establish a European Defence Industry Readiness Board (EDIRB) and a European Defence Industry Group, both of which would assist the EU in planning policy in the defence and security sectors, with an eye to the streamlining and standardisation of procurement processes, harmonising practices and increasing common procurement.
Again - all of these policies appear to be positive. It is certainly good that the EU, in the wake of repeated failing by member states to agree on assistance to Ukraine, set up its own military sales mechanism. It is also good that it establishes a fast line of credit for SMEs and Small Mid-Caps active in the defence sector. More than anything, a push for common planning and procurement (which the EDIRB is supposed to enable) is clearly needed. The problem is that all these steps and measures lack a detailed technical assessment of how they could generate the expected outcomes.
With regards to the EDIRB, for instance, EDIP Chapter V does not set out any procedure or mechanism through which the Board can actually, actively pursue and enable joint planning between member states. At best, it can assist the Commission in the implementation of SEAP and in identifying funding priorities within the defence industry, as well as coordinating and streamlining action and collaboration between EU bodies on the topic of defence.
In the end, the success of any policy in the field of defence and security economics can only be measured by one of two metrics: either the actual expansion of the defence industrial base and of its yearly production capacity given unchanging technology, or the lack of reduction of the defence industrial base given improving technology. Anything else, even if positive, is a secondary outcome. At this point, the twin questions of joint procurement and planning and increased spending come back to the fore - with the EDIS lacking proper answers.
In short - the EDIP, while including measures that, on the surface, appear positive, lacks the teeth it would need to make a dent in the dire situation of the EU’s defence industrial base. Issues with the EDIS are not only related to its targets and the measures its legislative arm, the EDIP, seeks to implement: political and financial issues both persist.
Politically Unfeasible
Politically, the EDIS and the EDIP are a dead-end. European elections are fast approaching, the Commission is historically unpopular and so is the President of the Commission Ursula Von Der Leyen. Furthermore, a change in the EU’s governing coalition is, while not certain, certainly likely. These are precisely the reasons why the Spanish presidency of the European Council aimed to close all main dossiers by the end of 2023 (STEP and AI Act among them): 2024, as an election year, means no substantial legislative progress can be made on any dossier.
The most optimistic institutional scenario possible would be that, following the EU elections in June 2024, the Union has a new commission by September and that the EDIP can be revised and resubmitted to the Parliament and the Council by early 2025, with opinions from the parliamentary committees responsible coming in by late spring 2025. This implies that a European parliament first reading vote would come no earlier than late summer or early autumn 2025, with no end in sight for the entire process until early 2026. At that point, however, the final stage of negotiations for the EU’s new MFF (Multi-year Financial Framework) would take precedence over pretty much any other debate at the EU level, meaning EDIP is likely, in the best case scenario, not to be adopted until late 2026 or early 2027.
However, the most optimistic scenario is not the most realistic one. Consider the last three Commissions - the Von Der Leyen, Juncker and Barroso Commissions. The Barroso Commission was in charge starting in 2004 and ending in 2014 - following the 2004 EU elections (held in mid June), the Commission was formed in late november 2004; the Juncker Commission, following the late may 2014 elections, was formed on November 1 2014; finally, the Von Der Leyen Commission was formed on December 1, 2019 after the late May 2019 elections. In short - the most likely scenario is that a new Commission will only be formed between november and december 2024, further slowing down the process of adoption for the EDIP Regulation.
Money Problems
Let us, for the sake of argument, shelve the question of the political feasibility of EDIP and EDIS: say that EDIP is adopted and enters into force starting on January 1 2025, and that its €1.5 billion in funding (that currently run out in 2027) will be renewed until the end of the next MFF in 2033. What then?
The European defence industrial base would have five years and a total of approximately €3 billion in EU funding (plus expected private investment of €4 billion) to reach the targets set out in EDIS. As previously mentioned, EU member state spending on defence reached €240 billion in 2022, is estimated to have reached €280 billion in 2023 and is projected to break the 300-billion mark and reach €350 billion in 2024.
Assuming spending remains stable from 2024 to 2030 (it won’t, but there are no reliable projections for the post-2024 period, so let’s assume it will), this would imply cumulative defence spending in the 2025-2030 period totalling €2.1 trillion across all EU member states.
Given EU funding through the EDF and the private financing that EU funds are expected to leverage, EDIP would generate a total of €7 billion in investment in the European defence technological and industrial base in the same period. €7 billion represents less than a ten thousandth of cumulative EU defence spending in this scenario, at 0.0033%.
Clearly, €7 billion would never even be remotely enough to bolster EU defence equipment production to the point where it can cover 50% of EU procurement needs by 2030 and 60% by 2035. What would be needed are large-scale, structural investment and incentives from the EU to bolster domestic production and to “buy European” in defence.
An alternative approach could be the centralised EU-level financing of procurement of ammunition to cover up the gaps left by the lack of spending by member states, coupled with NGEU-style grants to member states to invest in bolstering the production capabilities of their defence industrial base. Although politically difficult, it would be less unfeasible than the EDIP, especially considering the implied enlargement of the EU mandate would be much smaller in this case. Then again, just €7 billion over six years would not cut it, and larger financial resources would be needed.
Europe’s Worst?
When Von Der Leyen assumed office as the President of the Commission in late 2019, much was made that her record until that point had been far from stellar.
She had been a government minister in Germany for fourteen years at that point, first as Minister of Family Affairs, Senior Citizens, Women and Youth from 2005 to 2009, then as Minister for Labour and Social Affairs from 2009 to 2013, then finally, and crucially, as Minister of Defence between 2013 and 2019. It is as German Defence Minister that Von Der Leyen became (in)famous.
Under her watch, external consultants were awarded lucrative contracts that went against the internal rules of the German MoD and that outsourced the overview of significant portions of the internal workings of the ministry (such as its digitisation process) to external consultants like KPMG, BCG and Accenture (whose income from dealings with the German MoD rose from less than €500 thousand in 2014 to €20 million per year by the time Von Der Leyen left office to join the EU Commission).
But more pertinent to the Commission’s latest proposal is Von Der Leyen’s record as Defence Minister regarding the improvement (or lack thereof) of equipment, personnel, and general readiness in the Bundeswehr.
Under Von Der Leyen’s stewardship, as reported by Politico, the German Armed Forces reached the point where, in 2018, less than 30% of Eurofighter jets and less than 20% of its Tiger helicopters were serviceable, and German army units stationed in Lithuania communicated by means of unsecure mobile phones due to a lack of radio equipment. Notably, German forces were so under-equipped in 2015 that soldiers would resort to detaching vehicle-mounted machine guns for infantry use and substituting them with black-painted broomsticks during NATO exercises. According to German documents leaked in 2015, the Bundesheer at that point was in such dire straits that German NATO task force units would lack 30% of general-purpose machine guns, 75% of NVGs, and 40% of pistols.
Procurement of much-needed replacements such as the Baden-Wurttemberg frigate was also marred by issues and cost overruns, with domestic production at this point mostly catered towards exporting top-of-the-line products such as the latest variants of the Leopard 2 MBT rather than servicing domestic procurement needs.
Von Der Leyen’s performance as German Defence Minister was so poor, it prompted some in the SPD (at the time allied with Merkel’s CDU-CSU) to call her “the worst Defence Minister since reunification.”
It is indicative that the person who is broadly considered to have been the worst German Defence Minister since reunification gave birth to an incomplete, underfunded, and misguided piece of policy such as the EDIS, which clearly laid bare Europe’s defence failures of the last decades and why they’re bound to be repeated. Maybe she wasn’t just Germany’s worst. But hey, at least Rheinmetall will get some orders for their off-the-shelf APCs that no one really wants to buy, thanks to the European taxpayer’s pockets. No Fuchs given.
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