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<TITLE>Daimler-Benz Board Member Wolfgang Piller's Speech to 1998 NATO
Workshop, Vienna</TITLE>
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<BODY LINK="0000ff" BGPROPERTIES="FIXED" BGCOLOR="ffffff"><BASEFONT SIZE="3">
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="6" FACE="Palatino">The
Interdependence of European Sovereignty and the Defense-Industrial Base</FONT></P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="4" FACE="Palatino">Dr.
Wolfgang Piller, Member of the Board of Management, Daimler-Benz Aerospace</FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">As we all
know, the face of NATO is changing. In 1999, Poland, the Czech Republic,
and Hungary will be joining the Alliance, and the door is open for other
countries to follow suit. NATO has also concluded a Basic Act with Russia
that takes into account our special relationship and that enables Russia
to become an integral component of the overall European safety
architecture. As we can see, major political steps are being taken towards
creating a new NATO and toward building a unified Europe. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">In Europe,
NATO’s enlargement is being paralleled by the opening of the European
Union to new members. NATO and the EU are pursuing a common goal—to
create a permanent and stable security system in a free and prosperous
economic and social order whose roots are in a market economy. The
antagonism that formerly pervaded political, military, and economic
affairs has been replaced by cooperation, turning former adversaries into
partners in a multipolar world order—one characterized by growing
diversity and complexity in international political, social, and economic
developments and relationships. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>THE
CHALLENGES OF GLOBALIZATION</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">From our
industrial perspective, this interweaving of interests mirrors the
increasing trend towards globalization—a trend that has received
additional impetus from the opening of Eastern European markets once
hidden away behind the Iron Curtain. The world is now developing into a
single large marketplace that offers not only new sales opportunities, but
also new competition and chances to cooperate as well. Companies that do
not take up the challenge that globalization provides will lose their
competitive edge and become insignificant. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The European
defense industry, which seems to have been paralyzed at the start of the
1990s following the decline of East-West conflict and the dramatic
collapse of defense budgets, now understands this challenge. My colleague
John Weston, from British Aerospace, spoke at last year’s Workshop in
Prague of the conclusions this understanding has led to—namely, the
need to consolidate the European armaments industry and the awareness that
Europe can compete in the global arena only by establishing a European
aerospace and defense company—and I would like to add, a European
aerospace and defense market. </FONT></P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>DEVELOPING
A EUROPEAN AEROSPACE AND DEFENSE COMPANY</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The process
to create such a company is now accelerating. Asked by the British,
French, and German governments to work with them, Aerospatiale, British
Aerospace, Daimler-Benz Aerospace, and CASA submitted their concept in
March 1998 that described the future company’s goals, tasks, and
basic structures. In addition, the governments were also asked questions
concerning the framework that would be necessary and the statutory
measures that would need to be introduced by the political establishment.
Satisfactory answers to these questions are required—without them it
will be impossible to set up a European aerospace and defense company. We
have to know what role the governments want to play in the company. We
have to know if the industries in France, Spain, and Italy will be
privatized. How will government R&D funding be organized across
borders? What will the joint export regulations and taxation of such a
company be? Will there be joint classification rules and laws about
intellectual property? We anticipate an initial joint statement by the
governments on these and other matters soon. </FONT></P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>THE
NECESSARY LINK BETWEEN EUROPEAN SOVEREIGNTY AND A EUROPEAN ARMAMENTS
MARKET</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">It is
mandatory that the European armaments industry enjoy European market
conditions that enable it to be competitive in world markets—particularly
against our large American competitors. I should therefore like to set out
the reasons why European sovereignty, the establishment of a real European
armaments base, and the development of a European armaments market are all
indivisibly linked. I should also like to explain the roles that national
and European politics, as well as NATO and WEU, will play in this effort.
</FONT></P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><FONT SIZE="+1">American
Market Volume and Consolidation</FONT> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The American
aerospace and armaments market is the largest domestic market for goods
and services of this kind in the world. Added to this, the U.S.’s
share of armaments exports grew to almost 50% during the last few years.
This has resulted in enormous market volume for American industry that has
effectively compensated for the dramatic fall in defense expenditures.
American industry also has virtually no competition on the U.S. domestic
market. This is in stark contrast to the fragmented national markets in
Europe that are open to American competitors, a fact illustrated most
clearly by the export of F-16s over recent decades as well as by the
export of missiles, helicopters, defense electronics, and large transport
aircraft. These economies of scale enable American industry to develop and
produce cost-effectively and thereby create the market basis to recoup
enormous—and increasing—development costs. And, as most of the
exports are government-to-government sales, the U.S. government always
sells along with the defense products the reasonable hope that there will
be political support if and when these products must be used. This is a
particularly competitive edge for American industry. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Additionally,
over the last few years, the U.S. has seen what is probably a unique
industrial consolidation process. Within the aerospace defense industry,
three massive concerns have been created in only five years—Boeing,
Lockheed, and Raytheon. These companies bring together all areas of
military and civil aerospace and defense technology under a single roof,
representing an optimal technological and economic mix. Boeing, for
example, does as much business with the U.S. government alone as Germany
spends on its total defense. But the result of such consolidation is the
marginalization of the fragmented European industries, whose structures
are essentially still based on the old national principles. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><FONT SIZE="+1">The
Need for a Substantial European Armaments Base </FONT></FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">European
industry—and Europe’s politicians—must respond to the
possibility of market domination. Europe’s states must put in place
the political and legal conditions necessary to create an industrial and
technological base for the European aerospace and armaments industries. If
Europe’s own industrial base collapses, establishing a political
union with a common European foreign and security policy will become
impossible. The vision of achieving European sovereignty in foreign and
security policy will remain forever an illusion. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Without a
substantial European armaments base, the European community will be
rendered impotent on the international stage. The European Union will
develop into a political union with its own foreign and security policy
only if it is able to execute this policy in a European context. This in
turn requires that, at an absolute minimum, the European community of
states be able to decide in a wholly independent manner how it can equip
its own armed forces. I am not talking about self-sufficiency or complete
autonomy, but merely a minimum degree of sovereignty in our armaments
policy. However, this will be achieved only if Europe develops a
sufficiently large, competitive, and powerful industrial and technological
base grounded in the aerospace and armaments industry. And the U.S. will
expect this of Europe when asking for its contribution to joint peace
missions. Additionally, European sovereignty will enable Europe to conduct
such missions should the U.S. be unable or unwilling to do so. </FONT>
</P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>A
STRONG EUROPEAN UNION</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">A European
Union that is truly an economic, financial, and monetary union will not
come about if it is unable to define a common foreign and security policy.
Common postage stamps are not enough. Nor will a common currency be
sufficient in the long run. We will only succeed in achieving true
European integration if our economic and monetary union is augmented by a
European Security and Defense Identity. If we fail to fit this cornerstone
into the foundation upon which the new Europe is to be built, we will be
unable to achieve political union and leave the European Union a fragile
structure, always at the risk of falling apart. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">If we
succeed in defining a common foreign and security policy, however, our
community of European states will have developed a common vision of Europe’s
role in the world. We will also understand the kind of armed forces that
will be needed to enable us to play this role. This in turn will give us a
clear picture of how the armed forces will need to be equipped, and on
that basis we will be able to formulate joint requirements. Only then will
we be ready for making joint procurements. And only when most of the
states of Europe undertake joint procurements, bundling their requirements
and acting as one, will we have something that we can term the European
armaments market. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Such a
situation will eliminate the cost-intensive, duplicated development work
that is currently the order of the day for aircraft, tanks, and ships, and
will release the all-too-scarce funds that are so essential for equipping
the armed forces of the future. At the same time, economies of scale will
be gained, making production more competitive and helping to relieve the
strain on state budgets. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Bundling
demand in this way could be the task of a future European armaments
agency. Such an agency could act as a single buyer on the armaments market
and be responsible for administering and executing a common armament and
procurement policy. However, the decision about what to procure and the
formation of a procurement policy would depend on how we define Europe’s
role in the world. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>CONCLUDING
REMARKS</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To sum up:
</FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">1. A common
armaments market in Europe is essential for ensuring a powerful European
aerospace and defense industry that can be a competitive and reliable
transatlantic partner. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">2. A
European industrial base and a sovereign European Union must be
inseparable. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">3. A strong
European industrial base will provide the foundation for an independent
armaments policy, offering the political freedom of action needed for a
common European foreign and security policy. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">4. A
political union will provide the industrial base needed for a competitive
presence in the European and worldwide defense markets by defining common
military requirements needed for joint procurement. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">5. The
European governments can be sure that if they merge their politically
defined national aerospace and defense markets we will be able to merge
our European companies as fast and as tightly as our American competitors
consolidated theirs into a single political market. Products such as the
Airbus, Eurofighter, and Ariane prove that a European aerospace and
defense industry would be a capable and competitive one because it would
comprise the genius and tradition of Europe. </FONT></P>
<P ALIGN="LEFT"><A HREF="piller98.htm">Go to Top of Page</A></P>
<P ALIGN="LEFT"><A HREF="workshop98.htm">Return to Vienna '98</A></P>
<P ALIGN="LEFT"><A HREF="../index.html">Return to Home Page</A></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Copyright ©
1998 Center for Strategic Decision Research</FONT></P>
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