One of the innovations put forward by the new European Commission President, Ursula von der Leyen, has been the creation of a single Directorate-General (DG) for defence industry and space.

Meanwhile, this announcement has lured some of us. The Commission is not getting involved in military affairs. It merely wants to push for a single defence market that will drive manufacturing costs down thanks to competition and economies of scale.

But why and how did this historic decision come about? Various factors need to be considered.

rising defence costs

First, there are economic factors. In recent years, the cost of defence equipment has been rising sharply, by 5% to 10% every year. In the face of ten years of austerity measures, most EU countries have hardly been able to maintain a fully-fledged national military. Moreover, the current rearmament race creates tensions on the market.

Overlaps, inefficiencies and lack of coordination also beset European defence efforts. The European defence industry remains primarily national and fragmented. According to the Commission, the cost of ‘non-Europe’ in the field of defence equipment had reached roughly EUR 25 bn annually in 2017. That is approximately 12% of the aggregated national defence budgets at EU level (roughly EUR 240 bn). It appears obvious that collaboration and integration in the defence industry has been warranted for a long time by compelling economic arguments. But progress remained meagre because of a lack of a political support.

the political lever: Brexit

The prospect of the UK’s withdrawal from the EU (Brexit) unleashed the potential for defence cooperation on the continent. Combined with Trump’s reservation about NATO, Brexit helped the EU27 to assert unity and political ambition by taking action in the area of defence. The British had traditionally opposed progress in EU defence cooperation (often pushed by Paris and mildly supported by Berlin). For London, the EU should remain an intergovernmental platform, and should not assert itself as a supranational global player. Between 2009 and 2015, on Common Foreign and Security Policy matters, of all the initiatives put on the agenda by the Council, the UK blocked 35% – the highest figure ever reached by any member state.

new policy tools before the institution

In 2017, two breakthroughs heralded the creation of the new DG. On a political level, the Council finally adopted the launch of the Permanent Structured Cooperation (PESCO), a collaboration platform first envisaged in the European Constitution (2004) and later ratified with the Treaty of Lisbon (2009).

Operationally, a clear financial incentive has helped boost cooperation between the Member States. PESCO-approved projects receive 20% to 30% in funding from the European Defence Fund (EDF). Manufacturing projects must bring together companies from at least three member states to obtain funding from the EDF. The aim is clearly to spur efficiency through industrial cooperation.

PESCO has endorsed 13 new projects on 12 November, which brings the total number of military projects to 47. Any Member State can participate in one or more of these projects. For the period 2021-2027, European leaders plan on earmarking EUR 13 bn the EDF. It represents 1.1% of the total EU budget, almost a twenty-fold increase compared to the previous financing cycle (0.06% in the MFF 2014-20).

Interestingly, as for the single currency, the EU has created new policy tools before the institution to run and monitor them. DG defence industry and space will be responsible for managing the allocation of EDF funds. The main objective is to create an open and competitive European defence equipment market.

prospects for the transatlantic partnership

It is worth assessing the role of the United States too. The changing transatlantic relationship has also facilitated the creation of the DG and it may impact its evolution in years to come. Since the start of the 21st century, the US has been refocusing a growing share of its diplomatic and military efforts in Asia at the expense of Europe, having fewer interests in protecting the old continent.

In 2011, the US announced its intention to cap its contribution to 50% of NATO financial commitments (instead of 75%). In comparison, France contributes less than 5% of the budget – 1.84% of its GDP. European countries were thus asked to raise their military spending to 2% of their GDP. In 2019, only Greece, Estonia, the UK, Romania, Poland and Latvia have fulfilled this commitment. That’s only six of the 22 countries that are members of both the EU and NATO. According to the European Court of Auditors, the EU-NATO member states would need to increase their defence spending by 45% to meet their 2% threshold.

Washington has been lukewarm about PESCO and the EDF. Economically, US companies are excluded from the scheme. Strategically, the project aims at enhancing the military capabilities of EU member states, 22 of which are NATO members. The US had argued for EU member states to increase their military equipment expenditures without implementing ‘EU preference’ schemes. In the long run, PESCO and the EDF could boost EU defence capability and, consequently, European sovereignty outside of the remit of the United States.
If new DG will help the EU assert itself as a global strategic player, how will Brussels manage its relationship with Washington? How will the European External Action Service react?