1307 The EU Arms Industry and the EU Crisis

Globalization has greatly modified the arms trade. The crisis affecting the European Union (EU) and USA has contributed to shift the main destination of military equipment to the Middle East and Asia. The EU military industry that in the past directed its production to the EU and the USA currently exports what it produces to developing countries[1]. Military expenditure that generates fewer jobs than the same expenditure in education, health or public transport should be diverted to create new jobs.


The financial and economic crisis affecting the EU and the ensuing austerity measures have impacted the defence budgets in most EU member states. From 2008 on, 21 countries have reduced their military expenditure. From 2007 to 2012, only Cyprus, Finland, Germany, Luxembourg, Poland and Sweden increased their military expenditure. Greece cut its expenditure by 36%, Italy by 37%, Portugal by 16% and Spain by 18% in 2011. This was done mainly by cutting back on personnel and reducing salaries and pensions, while the spending on weapons has hardly gone down, except for decommissions and cancellation or reduction of orders of heavy military instruments.


In many EU countries, buying too much and too sophisticated military equipment contributed to the crisis by increasing the debt burden as they have to pay the debt service, maintenance and operational costs for years. Despite cuts in defence acquisition, 2 years after the crisis the budgets for military equipment rose from €38.8 billion in 2006 to €42.9 billion in 2010. Italy with its €1.8 trillion debt currently spends on military equipment a higher proportion of its GDP than it did in 1995[2]. Military spending played a role not only in causing the crisis but even more in perpetuating it. When money has been lent (bailout) to countries in difficulties, Germany, France and the UK have insisted that payment of debts to arms suppliers be given priority, while imposing austerity measures and deep cuts in public spending.


According to SIPRI[3] in the period 2008 to 2010, the volume of international transfers of conventional weapons increased by 14% compared to the period 2003 to 2007. The main exporters of weapons are the USA (30%) and Russia (27%), but the EU member states together account for the 28% of global sales of arms, making the EU as a whole the second main exporter of weapons, a market worth US$ 37,218 million. The major EU exporters to the global market are Germany (8%), France (6%), UK (3.7%), Spain (3%) and Italy (2.4%). The Netherlands, Sweden, Belgium, Poland, Finland, Portugal, Austria, Romania, Ireland, Denmark, Czech Republic, Bulgaria, Slovakia, Luxemburg, Hungary follow in order of importance. The UK used to be the 5th most important global arms exporter but has now been overtaken by China. From 2008-2012, world military expenditure rose, the main buyers being China, India, Saudi Arabia, Pakistan, South Korea and Singapore. The EU arms industry has seized this opportunity to extend its market to developing countries.


Different factors have contributed to the reorientation of the arms market. The rising price of oil and minerals has enabled producer countries to increase their defence budgets. The conflicts in the Middle East and Asia have pushed countries in the region to increase their military expenditure. Competition between military industries and the new producer countries facilitates the buying of weapons. The great sums involved in arms contracts enable the buyer to impose conditions on the industry, insisting on provision of services, maintenance and training as well as establishing their own production capacity.


As a result, the EU military industries grant to subsidiaries or companies in other countries a license for the production of weapons, in exchange for the payment of royalties, henceforth transferring the production of weapons, ammunition or components to that country. This hinders the control of arms, as it opens up a risk that the government of this country will grant export licenses for these weapons to be exported to “dangerous[4]” countries.


If, say, India wants to buy a large quantity of arms from BAE-UK, the Indian government may be interested in producing the arms or munitions at home as this has many advantages and is economically more viable. So India will buy the weapons from BAE-UK only if BAE grants an Indian company e.g. Hindustan Aeronautics Limited (HAL) the license to produce those arms in India. BAE-UK then requests the UK government an export license to sell a producing license to HAL-India. HAL-India or the company that acquires the producing license may be a subsidiary of BAE or a different company that pays royalties to BAE-UK. Usually the UK government will grant the export license. From then on, that type of weapon will be produced in India and the UK government has no further say. This opens up a risk that the Indian government (or any other government) will grant export licenses for these weapons to be exported to “dangerous[5]” countries.


Arms industries are supported by their national governments. The decreased demand at home increases political support for promoting arms sales abroad, often with the direct intervention of political leaders[6] or the royal family.  Governments grant different forms of hidden subsidies: they favour their own industries in their arms procurements, help them to get markets abroad, allow tax exemption, provide grants for research and, what is worse, grant government-guaranteed export credits to the exporters, protecting them against non-payment by an importer. This means allocation of public subsidies to the arms industry which often uses bribery to win arms orders and sells arms and military equipment even to dictatorial regimes, like the Spanish military vehicles sold to Zimbabwe.


The strong lobby of the EU arms industry in Brussels, the ‘AeroSpace and Defence Industries Association of Europe (ASD)’ is demanding greater EU support for the military industry for research and development, favourable legislation and the funding of their projects. They pretend that any cut in military expenditure is a disaster for the EU economy in loss of jobs. Yet research studies show that investment in the military is the least effective way to create jobs. A University of Massachusetts study shows that $1 billion spent on defence creates a total of 8,555 jobs, while the same amount spent on personal consumption generates 10,779 jobs, on health care 12,883 jobs and on education 17,687 jobs. Defence generates the fewest jobs of any of the alternative uses presented. Channelling funds into clean energy, health care, public transport and education creates significantly more opportunities for employment than spending the same amount on the military.


In a time of austerity where the creation of jobs is imperative, the expenditure on military equipment cannot be justified and needs to be reversed. However, the strong lobby of the arms industry will make effective military cuts very difficult. Another means the EU should use to fight the crisis is writing off odious, illegal or illegitimate debts caused by arms deals concluded through bribes, pressures. This would be a step to making those who caused the crisis pay for it. These measures would be in accordance with the wishes of the EU’s citizens rather than its war mongers’.


The level of military spending is hard to explain in a post-Cold War world and amidst a global financial crisis. Economists would call this an “opportunity cost”. I call it “human opportunity lost.”  Ban Ki-Moon, UN Secretary-General.


Begoña Iñarra

AEFJN Executive Secretary

[1] Harmonized EU Arms Exports Policies in Times of Austerity? By Jan Grebe- BICC- June 2013  http://www.greens-efa.eu/fileadmin/dam/Documents/Studies/Study%20arms%20exports.pdf

[2] Europe’s guns, debt and corruption by Frank Slijper, April 2013 http://www.opendemocracy.net/frank-slijper/europe%E2%80%99s-guns-debt-and-corruption

[4] Countries in conflict or where Human Rights are not respected.

[5] Countries in conflict or where Human Rights are not respected.

[6] Early in 2013 French president François Hollande visited the United Arab Emirates to press them to buy the Rafale fighter aircraft. UK Prime Minister David Cameron visited the Emirates and Saudi Arabia in November 2012 to promote major arms sales packages. Spain hopes to win a highly controversial contract from Saudi Arabia for 250 Leopard 2 tanks, for which it is competing with Germany – the original builder of the tank.




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