Big game of business

Then what conflicts were the armed forces of NATO members preparing for?

Over more than 3 decades, it was assumed that the military's main task would be to participate in crisis management operations, specified as NATO ISAF operations in Afghanistan or earlier United States and their allies' coalition operations in Iraq and smaller ones, the European Union in Africa or even earlier in the Western Balkans. Even if they were very dangerous to soldiers, they did not fight in trenches at the time, nor did many ammunition be used. Why? due to the fact that these were asymmetric conflicts, i.e. with opponents – frequently extra-state actors, specified as the Taliban – who did not have the possible at least akin to NATO and utilized a completely different maneuver and had different operational objectives than Russia in its actions against Ukraine.

What were the consequences of this approach?

The states assumed that their armed forces would fight a much weaker opponent, so, colloquially, they would usage little ammunition and request less weapons systems, and they would besides have time to replenish supplies, repair equipment, etc. In specified conflicts, even precise weapons were not needed in very large quantities – in order to destruct Libya's anti-aircraft defence during the operation in 2011, only a fewer 100 rockets were needed, as now – including drones – Russia can direct 1 night against Ukraine. Therefore, there were no large orders for countermeasures in the industry. What happened on February 24, 2022, was found the armed forces of the European states, but besides the United States, and their defence manufacture functioning in another reality, rooted in the post-war logic of the dividend of peace.

How did he respond to the post-modern strategical concepts of the Western arms industry?

The industry, which is mostly private, simply adapted to this situation and went towards maximizing profit. He began developing innovative but very costly weapons systems, which he then produced on a tiny scale, searching for export markets to increase even a bit of production and spread very advanced R & D costs. In the case of combat vehicles, the safety of the crew was a priority, due to the fact that the political presumption was that first of all, the life of soldiers on missions had to be protected due to the fact that each victim was a problem for the authorities. Therefore, present Leopard 2 in the latest version of the A8 could cost up to EUR 30 million, and a very large part of this sum is due to advanced passive and active defence systems. At the same time, the capacity for mass and fast production of simple ammunition or for the fast servicing of damaged equipment withdrawn from the line was neglected.

When did NATO members see that they had a serious problem?

It was only diagnosed erstwhile Ukraine began asking another states for ammunition in the spring of 2022, presenting calculations of how much it needed to defend itself. Then the Western capitals realized their supplies were slim. The ammunition could be scarce for Ukraine quickly, but besides for its own needs, which meant that NATO members' national military capabilities ceased to be credible, especially in the light of Russia's ability to fight on a massive scale. This return to industrial warfare, as the British RUSI Institute (Royal United Services Institute) put it, in its report, was a shock for Western political and military elites.

So can we talk about the crisis of the European armory?

It was not a crisis, it was an adjustment to a marketplace shaped by perception of threats that proved to be ineffective. At the same time, the weakness of the European defence manufacture has paradoxically become a very good chance for the European Union as an inclusive organisation. Over the last 2 years, the European Commission has proposed a number of groundbreaking initiatives, financial and regulatory instruments to aid countries transform the defence sector at national level to increase integration and cooperation between associate States in a delicate defence area. This allows us to anticipate a kind of integration leap, a fresh EU competence in a strategically crucial area. This is clearly seen on the side of the EU institutions. In addition to the allocation of almost all the European Peace Facility (EPF) to refinance associate States' arms supply from their warehouses and linear units to Ukraine, the EU has besides proposed very rapidly breakthrough tools to straight support the defence manufacture in Europe. 2 acts were adopted: the ASAP with a budget of EUR 500 million, to increase the EU defence industry's capacity in the field of ammunition production, and the EDIRPA, with a budget of EUR 300 million, to accelerate the production of ammunition for Ukraine and to rebuild associate States' own warehouses. Most importantly, cooperation between countries is simply a prerequisite for EU co-financing – only multi-national projects can get them, i.e. those that make fresh economic, military and political links between EU countries.

What are the effects of European initiatives, peculiarly concerning the supply of artillery ammunition to Ukraine?

The effects of ASAP and EDIRPA, in which the first financial decisions were not settled until the end of 2024, have yet to wait. While Ukraine is already receiving a tranche of missiles recently produced in Europe, we are far from the minute erstwhile the European manufacture reaches the capacity needed in the military assessment at this phase to proceed to support Ukraine and rebuild its own stocks in the context of the possible threat of war with Russia. EU leaders have declared that by the end of 2024 European plants will be able to supply 1.7 million artillery ammunition of 155 mm a year, the media say that the real level is half a million. It is so hard to talk about achieving the objectives. global initiatives specified as the alleged Czech Ammunition Initiative have been a success, although not a 100 per cent, with a crucial increase in ammunition acquisition from non-EU countries, thus not contributing to improving the state of the Union's defence industry.

You have expectations of a fast increase in production, and as the arms manufacture sees?

The manufacture stresses that it expects governments to have a long-term possible of buying if they are to invest in capacity development. Any company that wants to invest, for example in a fresh production line, must know that this is not a two- or three-year perspective, but longer. Then he can buy machines, build halls, hire people and plan production for years ahead. Meanwhile, in Europe, arms companies are inactive not certain that the announced government procurement, due to rising defence spending, will proceed in 3–5 years. For this reason, switching to the fast production of weapons, and above all, ammunition, goes very slowly. This is best done by countries whose governments effectively make a multi-annual marketplace outlook for their industry, utilizing national financial tools from the economical policy area, frequently simply straight placing ammunition orders with their national producers.

Which countries have affirmative effects?

Such an example is Germany. Last year, they signed 2 large multi-annual ammunition production agreements with their national industrial leaders – Rheinmetall for €8.5 billion and the consortium of Diehl and Norwegian Nammo for €15 billion. Moreover, Germany effectively, at political and military level, sells Leopard 2 in various versions as a standard European next generation tank, as evidenced by fresh decisions by Lithuania, the Czech Republic and Norway.

What is the situation in France with the largest arms manufacture in the EU?

France has never been peculiarly focused on the production of land systems, but it besides grants long-term contracts to its industrial leaders, e.g. Nexter for the production of Caesar self-propelled booms or Serval armoured vehicles. It is, however, much more active in aviation, radar and rocket technologies. The game includes projects of a fresh generation of European rocket launchers, but besides long-range missiles, promoted and developed by France besides under existing EU mechanisms, including the European Defence Fund (EDF). Let us remember that for the almost completely privatised defence manufacture in Western European countries, although in a different way controlled by governments, cost-effectiveness is the most important. And its condition is the long-term possible of selling, servicing, modernization and yet besides the disposal of sold weapons. If it cannot be provided by a tiny national market, the manufacture expects governments to support it in seeking export markets or lobbying for a "Europeanisation" of a peculiar task or technology, i.e. obtaining EU backing for it.

We know about government loans, and can arms companies borrow from commercial banks?

Arms companies in the EU find it hard to rise private capital due to their circumstantial sphere of activity. In line with sustainable improvement regulations, the ESG, which the EU continues to exacerbate, including as part of the green transition, a large part of private funding, is and will not be available to them. This is simply a very large regulation and the Union has realised that, in order to soften its own rules, it must change the explanation of the regulation so that private backing can be made possible, for example, to support dual-purpose projects, i.e. applicable civilian and military ones.

The functioning of the European arms manufacture is affected by the dependence on equipment suppliers or components outside NATO and the EU. Is that a serious problem?

Extremely serious, due to the fact that after the COVID-19 pandemic it was realised that in very many critical areas of Europe's technology, but besides the United States is dependent on 3rd countries, and mostly on China. The worst part is that no 1 has the full cognition of what truly depends on supply chains from non-European non-Western suppliers. We are practically constantly learning about fresh problems in this area, and this applies not only to simple materials like powder, but besides to advanced components specified as semiconductors or battery elements, optoelectronics, etc. Therefore, 2025 in the EU's activities is expected to be a time to map what can indirectly be achieved by associate States in support of the defence industry. The EU can thus become an additional actor in industrial and defence policy and thus, albeit indirectly, defence policy in Europe. This is absolutely groundbreaking for the full European integration project, because, here, the Union is already entering the defence area permanently and very strongly.

What will EDIP budget be?

It is expected to have a much larger budget than earlier initiatives, specified as EDF, which has a full of EUR 8 billion for the full 2021–2027 period. The leaders of the EU institutions gave EUR 100 billion, but we do not know where this money would come from and whether it would be entirely attributed to EDIP. They would surely not be from the EU budget, but from any additional sources, possibly from the alleged common defence bonds, although specified a solution, analogous to the common debt, which allowed for post-covidal reconstruction of Europe, any countries, mainly Germany, refuse to agree. However, Berlin's approach may change erstwhile a fresh government coalition is formed after the February parliamentary elections. For now, the European Commission has EUR 1.5 billion reserved for EDIP for the period 2025–2027. However, negotiations on EDIP are ongoing and will besides be the subject of work during the Polish Presidency of the Council of the European Union.

Who has so far gained the most from EU defence initiatives?

Beneficiaries of the existing EU instruments, starting with the European Defence Fund, supporting investigation into fresh defence technologies, are primarily consortia with large defence companies from Western European countries that have the most developed defence industry. Since the United Kingdom is outside the European Union, these have been Germany, France, Spain, Italy and Sweden.

Is it due to the fact that there are peculiar preferences for the greats?

These countries are successful due to the fact that the grant proposals and projects of their large companies are assessed by the applicable EU institutions to strengthen the technological and industrial base of the European defence manufacture and to build the EU's defence technology autonomy in the long term. They so prosecute the economical and political objectives of the European Commission. It is actual that the EC aims at bringing tiny and medium-sized enterprises into defence projects, diversifying these consortia geographically and stimulating cross-border cooperation on the improvement of fresh technologies. In practice, however, large companies play a major function in specified consortia, which invitation smaller partners to cooperate – on unequal terms – to increase the chances of obtaining grants. They aim not to make fresh supply chains and to strengthen cooperation with the weaker defence industry, but to strengthen their own competitiveness in the EU marketplace and beyond. And thus, by force, the European defence manufacture in practice is consolidating increasingly around the strongest players.

What can Poland benefit from programmes to strengthen its defence sector?

For us, it is essential that the European Union helps associate States rapidly get fresh military capabilities. From the point of view of the Polish safety interest, the stronger the armed forces of European countries, the better, due to the fact that they contribute to the possible of deterrence and defence of NATO against Russia, and thus credible militaryly, for example, Germany is both a strong pillar of the Union and NATO. From our perspective, the fast improvement of the military capacity of European states is of fundamental importance, especially since everyone now agrees that Russia is the main threat to Europe's security. This is besides crucial to Donald Trump's expected policy. The arming of Europe and the improvement of military capacity, credible in the context of deterrence and defence against Russia, will be the best consequence to its allegations that Europeans spend besides small on defence and trust entirely on the US in the context of the Russian threat. A strong military Europe would besides become a more reliable global partner for the US.

Can it be said that there is simply a division of roles in the defence sphere: NATO will focus on military activities and the Union is to be liable for industrial and defence potential?

This is precisely the division of tasks that emerges to us, and the EU's precedence is to increase its capacity to strengthen the defence industry. However, there are differences in the Union in this respect – there are countries that mainly want to strengthen Europe's military possible rapidly and the defence manufacture sees it as a tool to accomplish this objective. But there are besides countries that want, above all, to increase the growth of the European defence industry, to increase its competitiveness, to make up for the technological gap between European and American industry, and to this end they want to exploit the safety crisis in Europe, recognising that the Russian threat is marginal to them, and that the scenarios of the escalation of Russia's conflict with NATO are unlikely.

I'm assuming that we're closer to the first option, which puts military possible at the forefront.

That is right, we have always looked at the Union's industrial policy as a tool to support the improvement of Europe's military potential. Therefore, like many associate States, not only from the east flank, we are protesting the narrow approach to EDIP. It assumes that his money will be utilized only for European strictly projects, in which no non-Union entity, specified as an American or British subsidiary, participates. The logic of the European Commission is that we are to usage European money to strengthen the EU's defence manufacture and there is no area for deeper cooperation with the Americans, the British, the Koreans or Israelis. This is simply a problem for us due to the fact that we want the EU to aid countries rapidly get military capabilities, which can besides be developed in part in cooperation with partners outside the Union. And that's the bone of disagreement. At the beginning of 2025, the most crucial negotiations on EDIP will be held on this subject.

What are the chances of changing Brussels' approach to industrial-defensive cooperation with external partners?

To date, the main opponents of the approach proposed by Poland, the French and Germany soften their position. This is not amazing to me, due to the fact that very many countries in Europe are working together in the defence manufacture with the US or the UK, and it is not convenient for them to make the fresh EU regulations besides restrictive in this regard. In addition to funds and beginning up to cooperation with external partners, there is another level of dispute in the EU – between countries that want a greater function for the European Commission and those who fear it or simply do not want it, due to the fact that they are very attached to sovereignty in the area of defence. And paradoxically, France has been sending signals for any time that the ambitions of the European institutions, and especially the European Commission, are besides far-reaching and not in the hands of Paris. In this dispute, the French and Poles are on 1 side.

What is Berlin's position on this issue?

Since the collapse of the coalition of alleged traffic lights, Germany has been undecided. This is why the full process of strengthening European defence, in which the EU will go, will have a very large impact on how the government will make in Berlin after the February elections.

We talked about structural issues, money, political conditions, but the main issue remains: will Europe have a weapon maker?

This is simply a very large problem, due to the fact that we have insufficient skilled labour on the labour market, and the solutions we can introduce will only produce results in two, three, four, possibly 5 years, depending on which workers we are talking about. In the case of engineering staff, the defence manufacture cannot compete in terms of wage for work, with civilian high-tech industries. In the European Defence manufacture strategy there is simply a separate, very tiny part devoted to the expansion of human resources for European industry. So we're just identifying the problem and we're starting to discuss what to do with it.

Further EU countries are announcing or preparing strategies for the defence industry. Will these national strategies disagree from what Brussels wants?

This is inevitable and, moreover, there is an knowing for the above in the EU institutions. The European Commission is aware that even with fresh instruments and budgets it will always be just an additional pillar of associate States' industrial and defence policy. There are in practice 3 dimensions of industrial and defence policy at national level. The first is the national dimension, which means that each country will always, in any part, place arms contracts in its national industry, utilizing any special, uncompetitive procedures, justifying this in 1 way or another and circumventing – legally, as it is possible under Article 346 of the Treaty on the Functioning of the European Union – European regulations. States will do so due to a vital safety interest, including safety of supply, or to keep their own industrial capacity. The second pillar is bilateral cooperation with non-EU strategical partners. We usually think about the United States, due to their unique position, but it is besides about Britain, which is already outside the Union. In consequence to Russia's full-scale aggression against Ukraine, many EU countries want to strengthen their political relations or military and industrial cooperation with the US. They will make sovereign decisions to establish intergovernmental cooperation with the US in arms programmes. European cooperation will only be the 3rd pillar of industrial and defence policy. And now the game is to make it crucial in terms of value and technology. If the European Union yet agrees to spend only a fewer billion euros on joint arms purchases for a fewer years, no 1 will consider it a success, due to the fact that this money can buy nothing meaningful. The credibility of the EU will be severely impaired and a signal will be sent to Russia about the deficiency of European will to arm themselves. Therefore, only large backing can give impetus to the improvement of military capabilities under the aegis of the EU. It does not even should be EUR 100 billion, which function as a symbol, but less, e.g. EUR 50 billion, of course spread over respective years. This will already be a crucial contribution to European defence. A separate issue is what these funds will be spent on. In 2023, the EU identified 22 precedence areas for capacity development. With a long list like this, you can't spend quite a few money. Poland, together with Greece, proposed that the EU's flagship task should be anti-missile defence, due to the fact that under specified a diverse system, which would be developed under the EU flag and financed from EU money, many different partners' industrial interests can be reconciled while at the same time providing Europe with the much needed capacities.

How rapidly can the EU improvement its defence manufacture and strengthen multilateral cooperation so that it can not only meet the needs of its members' armed forces but besides support its partners, specified as Ukraine?

Structural change in all area of the economy takes time, but can be shortened by utilizing an active economical policy, that is, spending money on thoughtful priorities and imposing a way of implementing them. For individual countries, there is frequently a deficiency of consistency and a change in the objectives of subsequent governments. In the EU itself, the problem is deeper: the interests of the associate States are different due to the fact that they are all trying to fit into the not largest (although they are expected to grow in line with the announcements of increased defence spending) of the European defence market. Who will be able to make technology, an arms strategy that, through EU co-financing and the participation of key partners, will have European position – of course informal, based on marketplace power alternatively than arbitrary decision – this will win in the long term.

Dr Marcin Terlikowski is an analyst, head of the Office for investigation and Analysis of the Polish Institute of global Affairs. In its research, it deals, inter alia, with the defence policy of major European countries, as well as industrial and defence cooperation in Europe and in the transatlantic dimension, including the EU's defence role.