Dec. 11 (Bloomberg) -- It has gone down in Pentagon lore as the “Last Supper”: a 1993 dinner party in which William Perry, then deputy U.S. defense secretary, told bosses of weapons manufacturers that post-Cold War budget cuts would force them to merge or go out of business.
The likes of Grumman Corp., Martin Marietta Corp. and McDonnell Douglas Corp. were soon absorbed by larger rivals. In Europe, most defense contractors continue to dine alone, as demonstrated by Germany’s veto last year of a merger between European Aeronautic, Defence & Space Co. and BAE Systems Plc, the twin European market leaders.
Across the 28-nation European Union, a largely national industrial base serves largely national strategic thinking, with the every-country-for-itself mentality reinforced by hard economic times. The costs were underscored this week when EADS announced its steepest job cuts in more than five years.
“Europe’s defense sector certainly needs a last supper,” said Nick Witney, a former head of the European Defence Agency, who is now with the European Council on Foreign Relations in London. “We’ve still got much too fragmented a defense industry in Europe.”
An EU leaders’ summit focused on defense next week is unlikely to reshape the landscape.
Ever since the collapse of the Soviet Union, the U.S. has been pleading for Europe to evolve from a consumer to a producer of security. NATO’s air campaign in Kosovo in 1999, more than a decade of war in Afghanistan and a no-fly operation over Libya in 2011 laid bare the widening gap between American and European military capabilities.
At the same time, Europe’s economic crisis has put the squeeze on defense budgets. Military spending fell by almost 10 percent in real terms from 2005 to 2010, and has probably dropped another 10 percent since then, the European Commission estimates. Asian defense spending surpassed Europe’s in 2012, the commission says.
Provincialism dictates how the shrinking pie is divided. About 80 percent of European investment in military equipment is spent nationally, according to the European Defence Agency, set up in 2004 to coordinate arms production and purchasing.
“We in Europe need to be and remain militarily capable and credible, but these are huge challenges,” Rini Goos, the EDA’s deputy chief executive, said at a Dec. 5 Security & Defence Agenda conference in Brussels. “Cooperation is survival. For that we need not only political will, but also political courage.”
In contrast with the U.S., the defense cutbacks haven’t spurred two types of mergers that would make sense for a continent of 500 million people with a common market and largely passport-free travel across national borders: the merger of armies, navies and air forces, and the merger of manufacturers that equip them.
While EADS is the product of a multi-national merger a decade ago of aviation, defense and space assets, the company remains vulnerable to shrinking European demand that conflicts with its inflated product range featuring about 400 lines.
Blaming the failure of the BAE merger and Europe’s military downsizing, EADS on Dec. 9 announced 5,800 job cuts, equal to 15 percent of its workforce in defense and space; it will shut facilities in Germany, France, Spain and the U.K., drawing the ire of unions and politicians, with both France and Germany owning direct stakes in the Toulouse, France-based company.
“There are too many national governments in the field of security and defense that think they can go on in the old way,” Michael Gahler, a German member of the European Parliament, said in an interview. “This old thinking must be overcome.”
European companies operate 17 production lines for tanks, armored vehicles and self-propelled artillery, compared to two in the U.S., according to Valerio Briani of the Istituto Affari Internazionali in Rome. Briani counts nine fighters or ground attack planes in use in Europe, compared to four in the U.S.; and 16 naval frigates in Europe, compared to a single class in the U.S.
The abundance of weapons types and standards makes joint operations harder, as shown by the mostly European-run mission over Libya that ended Muammar Qaddafi’s reign. Often, tanker planes from one European air force were unable to refuel fighter jets from another, forcing the U.S. to operate an airborne gas station.
To plug some of the capability gaps, EU leaders plan a range of small-bore initiatives at next week’s summit, including the renewal of a 2007 commitment to a build unmanned drones, an area now dominated by the U.S. and Israel. A draft summit statement also calls for “progress” on air-to-air refueling capacities.
“If you look at China, they’re not talking about air-to-air refueling issues, they’re talking about the development of aircraft carriers,” said Daniel Fiott, a researcher at the Institute for European Studies at VUB in Brussels. “Investing for the long term in real hard capabilities: that is the type of demand that’s needed, not just in the U.K., where they still have some notion of the importance of military power, but across Europe.”
Europe’s inability to produce mix-and-match equipment reflects the broader conflict over foreign-policy priorities and the use of weaponry. The paradoxes center on Germany, Europe’s main economic power, Britain, its chief military power, and France, which is caught between the two.
As Chancellor Angela Merkel was determining the fate of the euro in 2011, Germany sat out the Libya campaign, even pulling a warship from the Mediterranean Sea to advertise its neutrality. The boycott indicated that after contributing to the Kosovo and Afghanistan wars, Germany was becoming inward-looking again.
After a flirtation with European defense under Tony Blair, Britain is again looking to the U.S.-led NATO alliance as its military focus. Britain may soon look even further away: Prime Minister David Cameron is staking his 2015 re-election campaign on plans for a referendum on pulling the U.K. from the EU.
That leaves France, with Europe’s no. 2 military, puzzling through when and how to deploy it. Once the prime mover behind an EU defense independent of the U.S., France was a driving force in NATO’s Libya campaign and rushed to Mali’s defense against Islamist insurgents in January, only later getting EU backup. France has intervened in Africa again on a mission to end intra-ethnic fighting in the Central African Republic.
There is no “agreed long-term vision” for European international strategy, EU foreign policy chief Catherine Ashton said in a paper for the summit.
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