Conclusions and Policy Implications
As set out in the Final Report to the European Commission, January 2001

(III) SCENARIO THREE: Transatlantic Discord: Divide and Rule

4.8.1 There exists a fundamental risk in transatlantic relations that has to do with the types and use of the armed forces. Apart from different conclusions with regard to Russia's future, the European discussion of new threats and military out-of-area obligations has not matured to give a clear guidance of how much military potential is enough and what this potential should be composed of. Military-bureaucratic structures are slow in redirecting the available resources to the emerging scenarios in which the armed forces are likely to be tasked with new missions requiring distinct training and new equipment. Ideological and political battles are waged over the true nature of new threats and the appropriate responses within NATO. Joint statements obscure transatlantic and intra-European differences. In this relative political vacuum entrenched bureaucratic and industrial interests as well as military subgroups continue to fight more or less successfully for their respective survival.

4.8.2 In this scenario the procurement climate in Europe would initially develop in the direction of civil-military technological integration. This would take place against a presumed background of good security relations with Russia and hence of limited pressure for national European armaments. European military expenditures would therefore not increase to the extent desired by the US. Seen from the US, Europe would not be living up to its NATO obligations, leading to a weakening of political will in Washington to work in the ways required for the Transatlantic Harmony scenario to succeed.

4.8.3 In our third scenario, Europe also does not succeed in establishing a common defence entity, and hence does not manage to create the scale of integrated arms market that could support major European defence companies, in terms both of orders and of R&D. Hence, national governmental support for national defence firms (in terms of sales, export credit guarantees, and so on) would continue to divide Europe.

4.8.4 A further consequence of this line of development is that the smaller countries would remain on the periphery. Indeed, as we already see, support for European mergers and acquisitions is most pronounced in the six Letter of Intent/Framework countries: Britain, France, Germany, Italy, Spain and Sweden. These are precisely the countries with the major defence industries and the major stakes in the common European market. But the principal inefficiency of the military institution is structurally predetermined and very obvious in the smaller European NATO-member states. The defence budgets of smaller countries may reach a point where the maintenance of a procurement bureaucracy eats up a dangerously growing proportion of the cake to be distributed in the form of procurement contracts.

4.8.5 Hence, Europe's military-technological and defence-industrial ambitions would remain divided and driven by diverse national government and/or competitive company interests. Nor would they find much support in European defence institutions since there remains a plethora of such institutions (Assembly of Western European Union 1999). Moreover, while on the surface most of Europe's arms industry is privatised, in reality special relations remain in place between major arms manufacturers, the national procurement bureaucracy and the export promotion bureaucracies. The efficiency of the European defence effort is increasingly threatened by the fact that all organisational functions are being unproductively carried out in parallel in the major nations which structurally lowers the ratio of disposable investment and fixed costs. The transatlantic card is only rhetorically played to enhance the respective national military effort (Detlev 1999).

4.8.6 The third scenario supposes that this unstable European situation is taken advantage of by the US. Despite the gap between the political and military ambitions on both sides of the Atlantic, there is still an American rhetoric supporting a strong and united Europe including a strong European defence industry. In reality, however, the US uses sophisticated methods in order to divide and rule. The negative US reaction in 1999 to future transatlantic mergers may well not change. In the words of one commentator: 'there will be no transatlantic merger in the strategic industries that is not a direct American takeover of a foreign company, leaving the US partner in unambiguous technological control' (Pfaff 1999).

4.8.7 The third scenario envisages that US companies will continue to be present on the European market, with economically competitive bids for defence contracts. Based on the European market structure as well as US bilateral relations, some European countries are likely to gain more than others from such contracts. Far-reaching and favourable US collaborative offers, such as the offer to the UK in 1999 for the BVRAAM alternative to the European Meteor missile, will repeatedly threaten the success of European projects. Such offers, supported by bilateral US co-operation agreements with European nations, put the European governments in dilemmas between supporting Europe or buying from the US. In this way, the US would have repeated opportunities to intervene in European moves towards closer military-industrial co-operation.

4.8.8 Even without an explicit political Divide and Rule strategy, competitive relations between US companies may complicate the strategy choices in Europe. In fact, economically more efficient arms procurement in Europe based on transatlantic solutions may in the end increase the potentials to Divide and Rule. US companies such as Lockheed Martin or Boeing may be eager to establish cooperation with major European companies because the other company has done so or in order to gain competitive benefits. Possible closer coopera­tion between BAE SYSTEMS and Boeing, for instance, may be a way to compensate for BAe's participation in the Lockheed Martin JSF team. The US could selectively open the US market by putting a high price on the closest forms of cooperation and influence as in the JSF, in reality restricting such participation to only a few. Again, the UK stands out as crucial. But when the JSF or similar projects are finished, or if the situation changes for other reasons, the basis for such cooperation may disappear. If European companies have then based their future strategies on the continuation and strengthening of such transatlantic cooperation, the consequences may be severe for Europe's possibilities to recuperate.

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