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Jun 24, 2019 | 09:00 GMT

7 mins read

Europe's Finally Upping Its Defense Spending, and U.S. Companies Want in

European leaders pose during the launch of the Permanent Structured Cooperation (PESCO), a pact bringing together 25 EU governments to jointly fund, develop and deploy armed forces.
(DAN KITWOOD/Getty Images)
Highlights
  • The European Union's plans to develop a military initiative and a multi-billion dollar defense fund have threatened the United States' access to its EU allies' defense markets.
  • Washington's military and industrial ties to Europe are critical not only to U.S. defense companies but also its larger global strategy against Russia and China's growing influence, which is why the United States has so strongly opposed the bloc's programs.
  • To Europe, however, these initiatives serve as key steps to forming a common defense capability while helping the Continent achieve a level of geopolitical independence from the United States.

The United States has been calling on its European allies to increase their defense spending in recent years, expressing the need to create a stronger Western military alliance. And recently, the European Union has taken efforts to do just that by developing a new military initiative, called the Permanent Structured Cooperation (PESCO), along with a multi-billion European Defense Fund (EDF). But these programs aren't exactly what Washington had in mind. While the United States may be getting what it asked for in regards to a stronger European military force, it's also one that's specifically designed to be less reliant on U.S. defense exports — which Washington hasn't taken so kindly to. 

The Big Picture

In recent years, Europe has established various separate institutions and platforms that allow the Continent's separate armed forces to achieve higher degrees of efficiency and cross-border cooperation. But these efforts, which have largely been spearheaded by France and Germany, have put Brussels at odds with the United States, its key defense ally and supplier since World War II. 

On June 17, a top Pentagon official warned that the U.S. government could go so far as to limit European companies' access the U.S. defense market, should the European Union continue to inhibit its involvement in programs such as PESCO. But in addition to the threats posed to U.S. defense contractors, perhaps what's even more worrisome to the United States are the implications that a more autonomous Europe would have for its global competitions against China and Russia. Thus, the United States will continue to fight against EU efforts to streamline the bloc's defense-related research and investment every step of the way. 

The Push for an Independent Defense Force

Europe sees the EDF and PESCO as key to making the Continent less dependent on the United States in terms of defense. There is a broadly shared view that Europe needs more strategic autonomy on the global stage — and a more sovereign defense industry is a critical step toward achieving that goal. The United States, however, has argued that a EU military pact would undermine the power of NATO. In response, Brussels has insisted that these measures will, in fact, complement NATO's mission by making the defense sectors of individual EU countries more efficient and effective.

Over the years, the European Union, as well as smaller subgroups of member states, have floated various ways to better integrate Europe's military capabilities. But the development of PESCO is different in that it lays out a direct strategy for actually consolidating the Continent's defense technology and industry capabilities. PESCO essentially creates a space for European partners to jointly work toward the common security needs of the bloc, while the EDF guarantees a roughly $13 billion budget for research, development and production. 

This graphic shows the defense trade between PESCO countries and the United States.

Knowing that the United States would expect to receive a big piece of the EDF's multi-billion dollar pie, Brussels deliberately put rules in place to ensure that the budget is used for its intended purpose — that is, developing Europe's own defense capabilities. This includes requiring all EU members in PESCO to unanimously approve the engagement of third parties in EDF-funded defense projects. And even if an outside party (such as a U.S. company) is granted approval, EU rules still prohibit any technology developed under PESCO projects from being transferred outside the bloc, thus preventing U.S. firms from using any of the expertise they garnered from a PESCO project back at home.

These restrictions have been at the core of the United States' concerns with the military pact. Washington has argued that the restrictions essentially shut out the U.S. defense industry from accessing the EDF's budget. But this, of course, is just what Europe intended. 

The Leaders of the Fight: France and Germany

Some of the most vocal countries pushing for a unified European defense force are, unsurprisingly, those that have already developed a high degree of autonomy from the U.S. defense industry — namely, Germany and France. As two of the largest economies in the bloc, both countries have leveraged their far-reaching influence in the European Union to position themselves as the main protagonists in the push to integrate the bloc's defense capabilities. 

Compared with other EU members, France, in particular, jealously guards its strategic autonomy on defense, as it has a history of isolating itself from global alliances such as NATO. Today, France offers the United States very little access to its arms industry — only importing U.S. military equipment based on niche capabilities. But while the U.S. defense market isn't exactly open to the European defense industry either, France has actually managed to achieve a defense trade surplus with the United States over the past decade, as has Germany. 

A Long Time Coming

This push by Germany and France for more strategic autonomy from the United States can largely be traced back to the way Europe's defense industries have developed since World War II. The aftermath of the conflict left most of the Continent (and its defense industries) in shambles. Thus, Washington's European allies (with the exception of the United Kingdom) depended heavily on U.S. arms imports during the initial stages of the Cold War. But as Europe's economies and industrial defense capabilities gradually began to recover over the years, so did its political identity and ambitions for more self-sufficiency. And, as a result, imports from the United States started to drop significantly.

For France, a major turning point occurred during the 1956 Suez Crisis, when the United States demanded Paris halt its military operations in Egypt. To Paris, this shone a light on the United States' unreliability as an ally, and the necessity for an independent defense industry. By the end of the First Indochina War in 1954, France had, for the first time since World War II, weaned itself off of an immediate reliance on U.S. military equipment, meaning it could afford to shift toward greater autonomy.

For West Germany, this development occurred more gradually. With Washington's help, Bonn had been able to sufficiently rearm itself in the 1970s. At the same time, the country was also reorienting itself toward European cooperation, which largely included fostering closer ties with its former foe, France. 

The United States has been pressing its EU allies to ramp up defense efforts for a while. But now that the bloc is doing just that — and without U.S. help — Washington isn't pleased.

Germany and France have sought to free their defense industries from the United States, in part, due to the desire to both boost their own economies and guarantee no-strings-attached access to weaponry. But another big element was the desire to avoid purchasing products under the International Traffic in Arms Regulations (ITAR), which requires U.S. approval to move or resell any U.S.-produced weapon systems. This regulation has profoundly limited Europe's strategic autonomy — which explains why countries like France have rarely exposed themselves to any U.S. defense imports affected by ITAR.

A Kink in the U.S.'s Global Plans 

But as European states, especially France and Germany, continue to develop increasingly autonomous defense industries, the more it risks ruffling the feathers of the United States — particularly within the context of Washington's escalating great power competitions. The United States' narrowed focus on stemming China and Russia's global influence has become a defining element in its overtures to Europe in recent years. In addition to pressuring EU countries to increase their defense spending (as well as their role in NATO), the United States has also attempted to dissuade EU members from consuming Russian natural gas or partnering with Chinese tech giant Huawei for the rollout of their 5G telecommunications networks. 

As Washington continues to go further on that path, its desire to force European countries — and the European Union as a whole — into its global strategy will only grow stronger. But while a less autonomous Europe might've once had little choice but to bend to Washington's every whim, EU powers like Germany and France now have increasingly less need to be at the United States' beck and call. 

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