The Political Economy of European Defense: Markets, Missiles, and the Pursuit of Autonomy

Abstract

This thesis examines European defense acquisition in the transatlantic context, analyzing the variation in European states’ decisions to choose either European or US defense goods. The central research questions are: Why do European states sometimes opt for domestic development and production or European cooperation, and in other cases, for purchasing US defense goods? What factors influence these strategic decisions? Procuring domestically or through European cooperation promises a higher degree of autonomy in defense policy, while opting for US products offers greater procurement efficiency due to market advantages but at the expense of autonomy. This creates a trade-off between autonomy and efficiency in European defense procurement. The thesis theoretically argues and empirically demonstrates that the expectation of international demand increases the likelihood of European states choosing the more autonomous option. The dissertation begins by describing the structural market conditions, referred to as the “US hegemony dilemma,” faced by European states in their defense acquisition deliberations. This situation is explained causally, detailing how it emerged in European defense policy. The conflict between autonomy and efficiency stems from the decades-long higher defense spending by the US, which has created a market advantage over Europe. Meanwhile, European states failed to restructure and better integrate their defense industries during the post-Cold War period of reduced defense spending. Based on these market conditions, this thesis develops a theory of European defense procurement, initially postulating that higher costs correlate with a higher likelihood of a US preference. Subsequently, two variables from existing literature are identified that counteract this market pressure: a state’s industrial capacities and the structure of state-industry relations. The research suggests that states with larger industrial capacities and close state-industry ties (e.g., state-owned defense firms) are more likely to pursue national or European defense procurement. Both approaches are critically examined, particularly regarding the neglect of the comparatively disadvantageous market position of European states relative to the US. The thesis argues that this disadvantageous market position, characterized by small and insufficiently integrated European markets, leads European states to base their acquisition decisions on the expectation of demand beyond their domestic markets. If decision-makers expect international demand, they are more inclined toward a higher degree of autonomy in defense acquisition. However, this expectation is based on a fictional expectations, as, at the time of deciding on domestic development, it is not guaranteed that this demand will materialize. This demand-side theory of European defense procurement is tested using a mixed-methods approach. First, a dataset created specifically for the dissertation on European procurement in the missile and torpedo sectors is quantitatively analyzed. Statistical evaluation through multinomial logistic regression analyses shows that only states with high industrial capacities can opt for national defense production. While the decision for autonomy becomes more likely with increased industrial capacity, it remains contingent. As theoretically anticipated, the structure of state-industry relations plays a minor role in these decisions. Based on these findings, two cases of European procurement decisions are examined as case studies: the German decision to opt for the short-range air-to-air missile IRIS-T instead of a US product and the French decision against a European product in favor of the US Hellfire missile. In both cases, it is demonstrated that the expectation of international demand or its absence was the decisive factor in the decision-making process. The findings of this thesis are of both academic and political significance. They reveal that the European defense sector is more demand-driven in its production decisions than previously assumed. The thesis offers a substantive critique of the supply-side focus on state-industry relations developed in the Varieties of Capitalism literature. Politically, the thesis highlights that the pursuit of autonomy in European states’ defense production rests on the paradox of dependence on foreign, often non-European, demand.