Opinion of the European Economic and Social Committee on ‘Defence Investment Gaps Analysis and the way forward’

(JOIN(2022) 24 final)

(2023/C 100/20)

Rapporteur:	Panagiotis GKOFAS
Co-rapporteur:	Jan PIE

Referral	European Commission, 28.6.2022
Legal basis	Article 304 of the Treaty on the Functioning of the European Union
Section responsible	Consultative Commission on Industrial Change
Adopted in section	11.11.2022
Adopted at plenary	14.12.2022
Plenary session No	574
Outcome of vote (for/against/abstentions)	202/6/4

1.   Conclusions and recommendations

1.1.

The EESC supports the initiatives proposed in the Joint Communication on the Defence Investment Gaps Analysis and way forward. The Joint Communication is an important step towards fostering defence cooperation between Member States, which is necessary for reducing costly duplications of military capabilities and avoiding fragmentation of the EU defence market. The EESC stresses the following main points of the opinion.

1.1.1.

An EU defence industry strategy should stem from a strong European defence and security policy.

1.1.2.

Low investment volumes and lack of coordination between Member States in R & D, production and procurement create capability gaps, and fragment the European defence technological industrial base (EDTIB).

1.1.3.

The EESC supports the concrete measures proposed by the EC — the EDIRPA and the EDIP — and calls for more coordination between Member States on defence policies and procurement at EU level.

1.1.4.

National defence budgets should be reviewed in order to foresee annually the quota that is allocated for consolidating the common European defence investments. In this way, they will contribute to assessing the financial base for concrete EU coordinated actions that are dedicated to boosting the European defence capabilities.

1.1.5.

There should be a special focus on modern forms of warfare (such as cyberattacks, digital wars and fake news propaganda).

1.1.6.

The European Parliament must develop a monitoring mechanism for implementing the European defence policy (contracts, procurement, investment), and must acquire appropriate technical and institutional tools to do so.

1.1.7.

The European Commission is encouraged to present an ambitious proposal that goes beyond a possible VAT waiver and includes strong measures to help industry adjust to new strategic challenges.

1.2.

The EESC shares the Joint Communication’s assessment of defence investment gaps in the European Union. This underinvestment has weakened Europe’s security, undermined NATO and weakened the Union’s position vis-à-vis other global powers. At the same time, gaps persist in defence investment inside the European Union. This goes against the principle of solidarity between Member States and enhances centrifugal political powers that distort efforts to develop a common security culture and defence policy in Europe.

1.3.

The EESC welcomes the announcement of several Members States to increase their defence budgets and calls upon them to stick to their commitment to invest not only more, but also better, addressing the need to deepen European citizens’ solidarity and urgent-situation-preparedness culture. It is of utmost importance to coordinate national defence efforts at European level that do not cause collateral damage to recent EU initiatives or stifle ongoing or planned European development projects. This increased European coordination should be seen as a way to also strengthen NATO’s overall capacities. The EESC supports the idea of enhancing the European defence cooperation framework, especially through joint procurement. In this regard, the EESC fully supports the immediate establishment of the Defence Joint Procurement Task Force as a means to coordinate Member States’ responses to very short-term urgent needs — notably the replenishment of stocks — at EU level.

1.4.

The EESC calls for further technical exploration on how to achieve a European interface optimising the output of national defence expenditure at EU level.

1.5.

The EESC welcomes the proposed short-term EUR 500 million instrument over two years (2022-2024) to incentivise joint procurement. Based on the work of the Joint Procurement Task Force, the instrument can help to structure and coordinate the current demand for urgently needed defence products and prevent crowding-out effects.

1.6.

The EESC also welcomes the announcement of a European Defence Investment Programme (EDIP) for jointly developed defence projects and encourages the Commission to rapidly present an ambitious proposal that goes beyond a possible VAT waiver and includes strong measures to help industry adjust to new strategic challenges. The European Union needs to develop investment initiatives that will enable industry cooperation through start-ups and SMEs (following the EU Small Business Act), and fully utilise the defence sector’s highly skilled workforce, while also upgrading and creating new skills via specific R & D programmes and European projects that allow national industries to collaborate.

1.7.

The EESC welcomes the Commission’s announcement on putting forward a critical raw materials (CRM) initiative, including legislative measures, to strengthen the EU’s resilience and security of supply related to CRMs. The EESC believes that this initiative must take into consideration the strategic importance of the defence sector.

1.8.

The integration of a common defence policy would allow for more autonomous industrial innovation, more technological spillovers between military and civil sectors, and more effective and independent defence and EU energy policies.

1.9.

The EESC recognises the importance of building a strong cybersecurity nexus that will tackle new hybrid warfare. Given its role in tackling new hybrid warfare, it should be a main focus in future cybersecurity investments.

1.10.

The EESC believes that the joint communication does not provide sufficient strategic guidance to further develop the EDTIB. In response to the new security challenges that threaten the European solidarity framework, a comprehensive European defence industrial strategy is needed that aligns all industrial policy measures towards strengthening EDTIB performance on its core functions. In this respect, the joint communication is only one step in the right direction.

1.11.

The EESC recommends creating a scientific committee/agency, under the political supervision of European Parliament, that continuously monitors and assesses key aspects of defence investment and provides guidance for efficiently allocating financial and military resources. Results and recommendations should be made available for each Member State.

1.12.

The EESC believes that the European Defence sector can incentivise synergies and cooperation between many economic sectors, actors and stakeholders. Particular attention should be given to the SMEs in line with the Small Business Act.

2.   Background

2.1.

At the meeting in Versailles in March 2022, EU Heads of State or Government expressed their commitment to boosting European defence capabilities in light of the Russian military aggression against Ukraine. They committed to 1) increasing defence expenditures; 2) stepping up cooperation through joint projects; 3) mitigating shortfalls and meeting capability objectives; 4) boosting innovation, including through civil/military synergies; and 5) strengthening and developing our defence industry, including SMEs.

2.2.

In addition, EU Heads of States or Government invited the European Commission, in cooperation with the European Defence Agency, ‘to put forward an analysis of the defence investment gaps by mid-May and to propose any further initiative necessary to strengthen the European defence industrial and technological base’.

2.3.

In response to this tasking, the European Commission and the High Representative/Head of the European Defence Agency (EDA), submitted to the European Council a set of actions and recommendations with the aim of ensuring that the announced increases in defence spending by Member States do not lead to further fragmentation of the European defence sector, and that they result in a stronger EU defence technological and industrial base. These recommendations include, in particular, measures to foster joint procurement, upgrade defence programming and ramp-up manufacturing capabilities. A special reference is also made to enhancing financing opportunities for the defence sector.

2.4.

The recommendations of the Joint Communication are based on an assessment of current investment and capability gaps. Despite the increased European defence expenditure in 2020, only 11 % of investment was spent in a collaborative way — far below the 35 % benchmark agreed by Member States in the EDA framework and set within the permanent structured cooperation (PESCO) — compared to 89 % spent on a national basis. It is worth noting that EU Member States face different risks and have different capacities to respond to military or other crises that require differentiated defence resources.

2.5.

In addition, Member States’ combined defence research and technology (R&T) spending (EUR 2,5 billion) amounts to only 1,2 % of their total defence spending; far below the 2 % benchmark agreed in the EDA framework and set as a more binding commitment within PESCO.

2.6.

Moreover, the European defence sector still experiences significant inefficiencies: low economies of scale, market and production fragmentation, duplication and multiplication of defence systems of the same kind, etc. The lack of cooperation between Member States weakens the industrial and technological capabilities necessary to preserve the EU’s defence capacity and meet its current and future security needs.

3.   General comments

3.1.

Investments in the defence sector should work pre-emptively and act as a factor of deterrence and stability, seeking to increase security and reduce conflict risks, rather than inducing further arms races and increasing the probability of new conflicts, be they regional or global.

3.2.

Diplomacy should ideally always prevail in conflict prevention and resolution. The use of military force should remain an ultimate deterrent tool and last resort. Development prospects and economic welfare should be used to defend European values of peace, democracy, solidarity and stability before any military action is taken. The EESC supports all international attempts to achieve peaceful, fair and concrete resolutions of conflicts, disputes and/or illegal acts (invasion, occupation, threats against state sovereignty, intimidation), within the framework of the UN Charter parameters and the Council of Europe resolution, (for example, in situations such as those in Ukraine, Cyprus, the Western Balkans and elsewhere).

3.3.

The EESC is convinced of the need for close coordination between EU and NATO. Both organisations have their own specific tools and strengths that must be used in a complementary way with the common objective to guarantee Europe’s security.

3.4.

The EESC regrets that years of severe underinvestment in defence have led to industrial and capability gaps in the EU. It also recognises that the EDTIB is currently sized for peacetime operations (i.e. low production cadence) and calls for measures to help the EDTIB meet the sudden increase of demand triggered by the war against Ukraine.

3.5.

The EESC supports the Joint Communication’s calls to Member States to buy the necessary defence equipment and material in a collaborative way. Joint procurement of urgently needed products would provide greater value for money, enhance interoperability and avoid the most exposed Member States facing the inability to obtain what they need because of conflicting demands on the defence industry, which cannot respond to such a demand surge in the short term.

3.6.

The EESC also supports the proposal to incentivise common procurement via the EU budget through a dedicated short-term instrument. The EU financial support brought through this instrument should stimulate cooperative defence procurement by Member States and benefit the EDTIB, while ensuring the European armed forces’ ability to act, their security of supply, and increased interoperability.

3.7.

The EESC also looks forward to the proposal for an EDIP. At the same time, we question whether it will be sufficient to incentivise the joint procurement of jointly developed projects through a VAT waiver. What is needed is to enable the EDTIB to support European armed forces, also for and during long, large-scale conflicts. This would require the systematic use of different industrial policy tools to strengthen supply chains, foster skills, establish strategic stocks, etc. The EDIP should therefore follow a comprehensive approach to support the necessary transformation of the EDTIB.

3.8.

At the same time, the Joint Communication lacks ambition in other initiatives, such as the EDF. The EESC recommends using the flexibility of the current Multiannual Financial Framework (MFF) to significantly increase the EDF budget to a level that matches the announced increases of Members States’ defence spending. This is necessary to ensure the EDF’s leverage and power to incentivise cooperation. The EDF is supposed to play a crucial role in overcoming the fragmentation of European defence systems and in reducing the defence investment gap. The EESC believes that the EDF could potentially fulfil this role if the Member States significantly improve their cooperation. The EDF should be evaluated regularly and strengthened if this effectively contributes to more cohesion and efficiency in European defence spending. The added European value is of utmost importance to justify this tool. In addition, the EESC suggests making it a priority to make the EDF more strategic (identifying a limited number of adequately funded flagship projects), more reactive (increasing the budget line for SMEs and disruptive technologies, organising open calls to speed up reactions to innovative ideas, defining fast-track procedures for urgent projects, etc.) and more efficient (optimising defence transfers for EDF projects, harmonising the IP framework, defining sustainable solutions for handling classified data, etc.).

3.9.

Moreover, the EESC believes that a holistic and strategic raw materials/CRM policy is now crucial for reducing Europe’s strategic dependencies on autocratic regimes. In the EESC’s view, this strategy should be based on three pillars: 1) free and open global access to raw materials/CRM; 2) strengthening European/domestic raw materials/CRM exploitation and processing, tax incentives, stockpiling initiatives; and 3) recycling raw materials/CRM, improving framework conditions for a circular economy.

3.10.

The EESC believes that the EDTIB’s primary mission is to support European armed forces in fulfilling their tasks. To this end, the EESC is convinced that the EDTIB must be able to perform four core functions: 1) deliver at all times and under any circumstances the required defence equipment and related services; 2) improve key defence technologies and their applications and develop new, enhanced versions and the next generations of those; 3) react to newly emerging technological trends and breakthroughs by competitors and potential adversaries; and 4) challenge competitors and potential adversaries by developing innovative concepts, disruptive technologies and totally new applications. Starting from the Joint Communication, the Commission and Member States should urgently develop a comprehensive defence industrial strategy aimed at enhancing the EDTIB’s performance on these core functions.

4.   Specific comments

4.1.

The EESC also recognises the importance of building a strong cybersecurity nexus that will tackle new hybrid warfare, such as cyber-attacks and digital malpractices in recent international non-military or military conflicts. Therefore, there should be a special focus on cybersecurity investments, a sector that has grown rapidly over the last decade and seems to rapidly alter international and domestic affairs and policy considerations.

4.2.

The EESC emphasises that the European Union needs to develop investment initiatives that will enable industry cooperation through start-ups and SMEs, and fully utilise the highly skilled defence sector workforce, while also upgrading and creating new skills via European cooperative programmes.

4.3.

The EESC reiterates its proposal to establish an online one-stop shop for SMEs and start-ups — an online ‘EU SME corner’ — offering the possibility to enter predefined data and receive in return tailor-made information about the best-suited EU programmes that can provide support.

4.4.

Regarding the measures to support critical technologies and industrial capacities, reducing critical dependencies along defence value chains remains vital. This ranges from access to critical raw materials to the supply of critical components, subsystems, etc. It also includes the financial and economic stability of the industrial supply chain and the availability of sufficient skills to meet current and future capability and technological requirements. The EESC would also like to emphasise its views and recommendations already outlined in its opinion on the Roadmap on critical technologies for security and defence (CCMI/189).

4.5.

The design of a new defence investment paradigm in Europe should also take into account social and environmental criteria, meeting the need to effectively integrate reliable and transferable tools into the Green Deal and the sustainability objectives (SDGs), and thus responding to major European priorities and risks, such as the circular economy, civil protection, natural disasters, emergency management and maritime terrorist actions. Crisis management and climate crisis phenomena require immediate complementary actions and modern tools. A separate collaboration scheme should be discussed with DG ECHO.