Shaping Up the Defense Sector

The EU Commissioner responsible for enterprise and industry policy Günter Verheugen said on Thursday that EU's defense industry needed restructuring and consolidation if it were to survive and compete effectively against the United States.

"If we continue along the current path, the present fragmented industrial bases in Europe will not be sustainable," Verheugen told a defense conference in Brussels.

Verheugen stressed that the European defense sector in its current form was riddled with inefficiency and national protectionism. Maintaining national control in the defence sector has pushed the prices up and undermined the future of the 300,000 jobs in defense manufacturing across the EU.

"It means a lack of competition, an inability to exploit economies of scale and, above all, poor value for money for European taxpayers," he said.

Opening up the borders

Even though EU governments agreed last year to open up markets to more cross-border competition last year, the defense-related industries have been largely kept out of the remit of the internal market.

The 27-nation block, for instance, has 23 distinct national programs for building armored fighting vehicles.

"Cross-border competition in a continental-sized market is essential," EU foreign policy chief Jaiver Solana told the conference. "This is a matter on which its (the industry's) survival rests."

The EU Commission is expected to propose a new legislation later this year that would open the 30 billion euro ($39 billion) defense market to more cross-national competition. It would also remove the need for EU exporters to obtain security licenses for exporting defense-related goods to other EU nations.

At the moment, around 12,000 requests for such licenses are filed every year. In view of the close military cooperation between EU governments, only 15 licenses were refused in 2003, and none in 2004 and 2005.

"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," Solana said.

Trans-Atlantic Competition

Verheugen, who also serves as Vice President of the European Commission, blasted the United States for not opening up its defense markets to European contractors.

"The protectionist spirit in the United Sates is much more strong than in Europe," Verheugen said.

"Especially in Congress, it is obvious that as a result of the American electoral system you find such a position that American jobs must be protected, even if it is economically not very sound," he said.

After his recent meetings in Washington, however, Verheugen said he was optimistic that "a first set of rules" which would improve the exchange between the US and the EU could emerge later this year.

"If that does not work, it would be disappointing," he said.