Calcara and Simon: France, Germany and the future of the European defence industry Study Notes
Introduction to Franco-German Defence-Industrial Cooperation
France and Germany are the primary drivers of European defence-industrial cooperation. Both nations agree that increasing military technology costs and chronically low spending in Europe necessitate collaboration to maintain global competitiveness. Notable projects include joint companies like Airbus and KNDS, specific arms programmes such as the Main Ground Battle System (MGBS) and the Future Combat Air System (FCAS), and EU-wide platforms like the European Defence Fund (EDF). Despite mutual agreement on the necessity of cooperation, the two nations differ radically on the structure and governance of that cooperation. Existing literature attributes this to external geopolitical pressures or differing state-industry relations (state-led vs. private-led), but these explanations fail to account for why preferences shift depending on the specific project context.
The Conceptual Barrier: Efficiency vs. Autonomy
Defence-industrial cooperation is defined by a persistent tension between two competing goals: efficiency and autonomy. Efficiency involves pursuing the most technologically advanced and cost-effective products, which includes utilizing competitive contracting, eliminating national vetoes, avoiding divergent industrial preferences, and leveraging economies of scale and standardisation. In a European Union context, this favors supranational governance through EU institutions and common rules, while in arms programmes, it favors an asymmetric structure where one "prime contractor" or "best athlete" leads the project. On the other hand, autonomy stems from the desire to protect the domestic industrial base to reduce external vulnerabilities and security-of-supply risks. This requires utilizing national quotas or "juste retour" (fair return) mechanisms and protecting domestic subcontractors and specialized designers. In the EU context, this favors intergovernmental governance, while in arms programmes, it leads to a symmetric structure with equal work-shares and shared intellectual property among partners.
The Two Faces of Market Size Theory
This article introduces a distinction between two dimensions of a state's industrial strength, which determines its distributional calculations in cooperation. The first face is defence-specific market size related to the specialized armaments industry, systems integration, and military-specific R&D, which assesses short-term competitiveness. The second face encompasses a broader commercial-industrial base, referring to the commercial technology sector in areas like Artificial Intelligence (AI), cloud computing, quantum computing, robotics, the Internet of Things (IoT), and additive manufacturing. The interpenetration of these two faces manifests in the concepts of spin-off and spin-on. Spin-off refers to the traditional transfer of military technology to civilian markets, while spin-on indicates a modern trend where commercial technology drives military innovation, necessitating traditional defence contractors to increasingly rely on R&D from the commercial sector. The hypothesis suggests that short-term advantages stem from the first face (defence), while long-term dominance is increasingly shaped by the second face (commercial).
Comparative Advantages: France vs. Germany
France excels in the first face (defence) with defence-related R&D amounting to and over defence sector jobs, including total jobs, of which are direct armament jobs. The total revenues from the defence sector are , accounting for more than \text{25\text{%}} of European capabilities, and France holds a global market share in arms exports of \text{11.5\text{%}}. In contrast, Germany is stronger in the second face (commercial), with defence-related R&D of and a defence sector turnover of , employing around directly. Germany commands a global market share in arms exports of \text{4.5\text{%}} and demonstrates advantages in OECD indicators, showing higher gross domestic expenditure on R&D, more patents (with patent applications approved by the European Patent Office in 2020 versus less than half for France), and superior triadic patent families.
Case Study I: The European Defence Fund (EDF)
The EDF is a financial vehicle established by the Commission to co-finance military equipment development, representing the first mode of cooperation (EU-wide market integration) and carrying long-term distributional implications. Germany supports efficiency-led policies through supranational governance and favors the role of the European Commission (DG DEFIS), arguing that a normalized, liberalized European Defence Equipment Market (EDEM) would benefit its superior commercial-technological base over the long term. If market competition revolves around "spin-on" commercial technology, Germany stands to gain an advantage over the state-subsidized French model. Conversely, France, while politically backing the fund, resists full supranationalisation, originally advocating for an Advisory Defence Board comprising national officials to control the work programme via unanimity (intergovernmentalism). France fears that full market liberalization could lead to the domination of its industrial base by Germany and seeks to retain decision-making power in state hands to preserve its industrial hierarchy.
Case Study II: The Future Combat Air System (FCAS)
The FCAS is a sixth-generation fighter project involving France, Germany, and Spain and represents a second mode of cooperation (ad-hoc arms programme) with short-term implications. France promotes efficiency by supporting the "Best Athlete" principle, where the most competent firms lead specific pillars under an asymmetric structure. Given France's experience managing complex aerospace programmes (like the Rafale), this approach ensures that French companies like Dassault Aviation spearhead fighter jet development. Meanwhile, Germany demands symmetry in participation, advocating for equal work-sharing, particularly concerning Intellectual Property Rights (IPRs), as German lawmakers are concerned that French predominance may compromise German technological skills and job security. They are pushing for Airbus to have a larger role to safeguard the domestic industrial base from total dependence on a foreign prime contractor.
Analysis of Preference Logic
The analysis summarizes the dichotomy in preference logic between the two countries: France seeks efficiency in defence and autonomy in the market, while Germany desires autonomy in defence and efficiency in the market. In the context of the EDF (long-term market), France's preference leans towards autonomy and intergovernmental governance to protect its domestic base, whereas Germany favors efficiency and supranational governance to leverage its commercial superiority. In contrast, within the FCAS (short-term project), France pushes for efficiency through an asymmetric structure focused on capitalizing on its current lead, while Germany pursues autonomy through a symmetric structure to prevent any deterioration of its industrial capacity and safeguard its two fronts.
Evaluation of Alternative Explanations
The evaluation addresses alternative explanations regarding Franco-German relations in defence-industrial cooperation. The convergence thesis posits that external pressures (from the USA, Russia, or China) would lead both countries to uniformly favor efficiency, yet this fails to elucidate why France and Germany engage in intense disputes over work-shares and governance models. Furthermore, the state-industry relations thesis suggests that preferences are invariant (France is always protectionist, while Germany is consistently liberal). However, this is disproven by case studies wherein Germany abandons its efficiency preference in FCAS to advocate for symmetry (national protection), while France compromises its autonomy preference in FCAS to push for efficiency based on existing competencies. Finally, the power struggle narrative illustrates that the European defence industry operates as a contested battlefield within Franco-German relations, with Germany holding structural power in finance and monetary affairs while France wields structural power in security and defence. Both nations leverage these advantages in shaping the industry's future.
Broader Implications and Conclusions
The implications of this analysis underscore that technological shifts—from "spin-off" to "spin-on"—favor countries with robust commercial sectors, which may lack a premier defence industry at the moment but gain leverage over time. The strategy of the weaker parties reveals that in a specific project, the entity disadvantaged in the relevant face will advocate for autonomy to evade marginalization, while the more formidable party will push for efficiency to cement its standing. Ultimately, Franco-German preferences are unlikely to undergo transformation, as they are deeply rooted in their respective industrial structures. Cooperation will likely encounter ongoing friction as both nations continue to strive for modes of cooperation that bolster their specific market size advantages.