Thierry Breton: we need to consolidate an internal defence market [KEYNOTE SPEECH]

Source: European Commission, Defence Industry Europe

Keynote speech by European Commissioner for Internal Market Thierry Breton - “A Europe that protects its citizens, transforms its economy, and projects itself as a global power” at the European Policy Centre.

 

“Check against delivery”

Good afternoon,

I am delighted to kickstart this new year with you, and I wish to warmly thank the European Policy Centre for organising this conference. It comes at a crucial time: we are only a few months away from the European elections.

And while this is always a landmark moment for our democratic continent, this time the stakes are certainly particularly high. So, if you allow me, I would like to start my intervention with a few reflections on these elections.

 

 

[The past four years have taught us is that we need more, not less, Europe]

Our fellow citizens will go to the polls after several years marked by a continuum of crises.

And in these disruptive times – pandemics, climate change, migration, war, geopolitical instability, cost of living – some political movements are exploiting citizens’ discontent with easy anti-establishment catch phrases.

In the face of citizens’ legitimate concerns, there are basically two possible paths. Fear or courage.

Fear is the extremists. It’s a reflex that’s been with us for decades. Fear of the economy: get out of the euro! Fear of immigration: exit Schengen! Fear of unemployment: close the borders…

Courage means working on solutions and a common position among the 27, which strengthens each Member State, enabling us to carry weight collectively as a global bloc. Because the succession of crises has shown that no major problem can be handled by a Member State on its own. Including European competitiveness and economic security, the issue we are debating today.

Of course, it is one thing to say we need European solutions. Designing and implementing them in practice is another matter.

So allow me to outline three key areas in which we have developed Europe’s resilience and competitiveness, before turning to some thoughts on what still lies ahead of us.

 

 

[European solutions: a three-pronged approach to competitiveness and economic security]

  1. New tools for investments in the markets and technologies of the future

Over the past few years, we have worked on the policy framework and investments needed for a strong European industrial base in the markets of the future. This is our first pillar.

Or, put in simpler terms, we wanted a more competitive Europe that exports its products, not its jobs.

Europe is a scientific powerhouse that produces one fifth of the top 10% most cited scientific publications. And Europe is leading in key technologies, such as advanced manufacturing for instance. But we needed to do more to respond to the ambition of leading not only on research but also on commercial uptake, and not only on the markets of today but on the markets of tomorrow.

That is why we have, upstream, the Critical Raw Materials Act, to ensure a secured and abundant access to the raw materials for our green and digital transition but also our space and defence industry; and downstream, the Chips Act – already in full motion – and the Net-Zero Industry Act, to help Europe build its industrial leadership in digital and clean tech.

Together, these three innovative pieces of legislation will help ramp up Europe’s manufacturing capacities like no other EU instrument has done before: via a simplification shock, such as short permitting deadlines, one-stop shop and regulatory sandboxes; or by facilitating access to finance for strategic projects.

Not to mention our work to unlock the potential of industrial data in Europe, to build an AI powerhouse, and to ensure that our industry can draw on cloud and quantum excellence and supercomputing power.

Or how we have mobilised entire value chains or “industrial ecosystems” for the emergence of European projects in key technologies through industrial alliances in areas such as chips, cloud, batteries, solar, and soon small modular reactors.

 

 

  1.  Securing our supply chains and economic security

Needless to say, Europe does not operate in a vacuum. Which requires a second pillar in our approach.

New risks are emerging as a result of increasing geopolitical tensions, uneven global economic integration, and profound technological shifts. We have learned that we are heavily dependent on critical raw materials imports from China, and until recently on fossil fuels from Russia.

We have also learned that our supply chains are vulnerable to actions by even our closest allies. Remember when in 2021, in the name of the America First principle, the Biden administration started to block access to some of the most crucial ingredients for producing vaccines: we had to weigh in with our export control mechanism to rebalance our relation and restore the vaccine supply chain across the Atlantic.

Europe is and will remain an open continent and a major destination of foreign investment, including from China.

But we need to rebalance our international relationships so they are balanced, reciprocal and mutually beneficial. De-risking our economy is a precondition to any competitiveness agenda.

It is about the resilience of our supply chains, with specific attention to risks of price surges and shortages of critical products and inputs.

It is about the physical and cyber-security of critical infrastructure such as pipelines, undersea cables, or electronic communication networks.

It is about preventing risks to technological security and leakages – through espionage, for example – that could undermine Europe’s competitive edge, but also peace and security, especially through dual-use technologies.

And it is about protecting ourselves against the now well-known risk of weaponisation of economic dependencies or economic coercion by third countries.

In short, economic security is the antonym of naivety.

To make this strategy operational, we have already identified ten areas of technologies that are critical for our economic security, especially due to their risk of civil-military fusion. Out of those ten, we considered that four were most likely to present the most sensitive and immediate risks: advanced semiconductors, artificial intelligence, quantum, biotechnologies. We are now finalising a detailed collective assessment with the Member States of the level and nature of the risks to these for technologies, in order to inform any potential measures to “promote, partner or protect” on any of these technology areas.

We need to continuously monitor our critical technologies, assess our risk exposure and – as and when necessary – take measures to preserve our strategic interests and our security. To do so, we need to strengthen our existing toolbox, and reflect on the need for additional economic security instruments. We are reflecting on ways to improve the functioning of our foreign direct investment screening and export control systems, mitigate technology leakage and increase research security, as well as whether it is time to consider any scrutiny of investments that flow out of the EU to third countries. We will present our proposals in the coming weeks.

But let me be very clear: this is not the protectionist pillar of our competitiveness agenda. On the contrary: we also need to enhance cooperation with our partners. Building economic security should be a joint project. We must engage with international partners, for example through the G7 and the Global Gateway initiative, and stakeholders, in particular with the private sector.

In this respect, I am personally particularly pleased with the progress we have made via partnerships. We already concluded nine partnerships on raw materials that will allow us to diversify supply chains, and we have concluded digital partnerships with Japan, South Korea, Singapore and Canada.

 

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  1. Modernising the Single Market

Ladies and gentlemen,

Let me now turn to the third pillar of our competitiveness agenda, which might as well have been the first or central one: our Single Market.

Because a competitive and economically secure European Union requires a strong Single Market. These are two sides of the same coin.

These past few years, we have made great progress in adapting the Single Market to the digital age to simplify its day-to-day functioning to the benefit of our citizens and businesses. For example, with the Single Digital Gateway, our citizens and SMEs no longer need to resubmit documents in different countries.

With the Digital Services Act and the Digital Markets Act, we have – at last – organised our single digital market to protect our citizens from illegal content and products and to ensure that consumers and businesses benefit from greater online competition. We have organised the single market in data for the benefit of our businesses and start-ups, and we are creating a single market in cybersecurity and AI.

And we are in the final stretch of crisis-proofing it with the Single Market Emergency Instrument.

 

[European solutions: what comes next]

Ladies and gentlemen,

As this Commission’s political mandate draws to a close, we need to reflect on our future.

While we all look forward to the report on the future of the Single Market by Enrico Letta and the Report on Competitiveness by Mario Draghi, allow me to share my personal thoughts on what I see as the major tasks ahead – which will require vision and political courage.

 

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First, we need to further improve our Single Market in key areas of European competitiveness.

I’m thinking, for example, of the telecoms market, where we need to carry out a major reform to build the digital infrastructures of tomorrow that will be needed to support the digital transition and economic competitiveness. I have launched work on this and we will be presenting a white paper by March outlining the way forward.

We also need to consolidate the internal energy market. As we saw during the energy crisis, only a European response can ensure security of supply, the necessary solidarity between Member States and, above all, moderate costs for businesses and citizens.

We have made progress with the “electricity market design” reform, but we need to go further. Further to better integrate renewable and nuclear energy, to bring them from the new centres of decarbonised production to the new centres of consumption. And by developing the necessary new infrastructure to go with it.

We have enormous progress to make in speeding up the Capital Markets Union. This has now become the main obstacle to our competitiveness. We need to enable more private investment, to facilitate access to markets for start-ups, SMEs and very small businesses, and finance the immense ambitions and transitions facing Europe. I believe we should explore the idea of providing counter-guarantees at EU level to de-risk private investments in key green and digital technologies.

Our Single Market also needs to help Europe bring its excellence from lab to fab. Because today, being a research and innovation powerhouse does not always translate into commercial leadership. What we have done with the Chips Act is a good example of how to address this problem. We managed to ensure true research and innovation coordination, in order to anticipate and prepare future technologies and innovation at a large scale in areas of European excellence. There are lessons to be drawn here on how our broader European research agenda could build on this approach and expand it to other essential sectors or technologies.

And of course, we also need to consolidate an internal defence market that is a prerequisite for our security. We have started with munitions for Ukraine. We now need to broaden this approach to include a large-scale European defence industrial programme capable of supporting the expansion of the European industrial base and developing the infrastructure needed to protect contested areas. Here again, we need to invest together to be able to act together.

 

Second, we need to continue to promote Europe as a third bloc, a balancing force between the US and China.

Of course, we will remain an open continent, but on our terms, more assertive than ever. This, I believe, requires an important reflection on key policies such as trade policy. It has to become compatible with our economic security approach, aware of and active in the geopolitics of value chains and capable of safeguarding the Union’s interests (speed will be of the essence). This is a real revolution, including in the type of trade agreements we conclude.

 

Defence

 

Third, if we want all these efforts to succeed, we must be serious about Europe’s unity and its financial firepower.

With the challenges we are facing to our competitiveness, economic security and political stability, the prospect of Ukraine’s accession and, in the medium term, a Europe of 30 or even 35, Europe cannot continue to move forward with the current budget.

Of course the first priority needs to remain fiscal discipline. Everyone needs to put their public finances in order. But we also need investments in European public goods, be it in defence or in climate protection.

But without additional common resources at European level, Member States will do it alone, resorting to State aid, which fragments the single market.

You know where I stand on this (well, I hope you do, but sometimes I doubt it): I have always maintained that if we defend the single market and fair conditions of competition, we cannot support national state aid as an alternative to common financing solutions at European level (common borrowing and European financial instruments).

Without the capacity to establish common budgetary instruments, our only alternative is fragmentation. We cannot be both frugal and a friend of the single market.

That is why we must have the courage to say whether or not we need a European Sovereignty Fund for all our critical technologies; whether or not we need to fight for a stronger European budget that goes beyond the mere 1% of our GDP as is currently the case; whether or not we should consolidate our common borrowing capacities in the long run, as we did with NextGenerationEU.

You know my answer to these questions, and I know many of us today share the same view, and that is: we need more Europe, more than ever.

 

Defence

 

[Conclusion]

Ladies and gentlemen,

I can be very brief in my conclusions.

I am interested in solutions, not slogans. I see it as our collective duty to continue working for a Europe that protects its citizens, transforms its economy, and projects itself as a global power.

Thank you.

 

Source: European Commission.

 

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