Defending Europe in a New Era: Industry and Innovation

Hello, and welcome to Sound Strategic. I'm Maya Nouns, Senior Fellow for Chinese Security and Defense Policy and host of the IISS Sound Strategic podcast. Today's episode focuses on the latest IISS strategic dossier, the defense of Europe in a new era. European allies are under pressure to take greater responsibility for their own defense as U.S. priorities shift and the Russian threat persists. This is driving a fundamental transformation in how Europe spends on defense, as well as how it builds and develops its military capabilities. Today we examine what that means in practice. We'll look at the defense industrial base that is emerging across Central and Eastern Europe, and we'll discuss the development of technologies that will shape how Europe fights in the future, such as AI, advanced sensing, and robotics. Joining me today are three colleagues from the IISS, Jan Giedesch, Senior Advisor for Defense and Military Analysis, Hugh Williams. Jan Giedesch, Senior Fellow for Defense and Military Analysis and Editor of the IISS Military Balance, and Dong-Yeon Cho, Senior Fellow for Advanced Technologies, National Security and Defense. Jan, Hugh, and Dong-Yeon, welcome onto the show. Jan, starting with you, Poland's defense industry is largely state-owned and focused on domestic supply, whilst the Czech Republic's is almost entirely private and export-driven. Does that diversity across the region make defense industrial collaboration across Central and Eastern Europe stronger or harder to coordinate? The Central European defense industries are very different from each other. The Polish defense industry, as you said, is predominantly state-owned. The Czech defense industry is predominantly privately owned. The Polish defense industry is focused on supplying Polish armed forces. Whereas about 90 percent of what the Czech defense industry produces is exported. So the models are very different, and the same goes for some other European countries as well. Slovak defense industry is to a great extent integrated with the Czech defense industry, and the Hungarian defense industry is still differently structured, mostly focused on localizing production by major international defense firms. The models are very different, and in my opinion, it's actually an advantage of the region. It means that the defense industries of Central European nations don't really compete with each other. Specifically, Polish and Czech defense industries don't compete against each other because the purpose of these two national defense industries is very different. This means that actually they don't fight for the same export market. Central European national defense industries are complementary in Maltinian. There is a possibility of coordination. It is actually happening already, even though not really at the governmental level, but at the level of the businesses themselves. Now, Baltic states and Poland have ramped up defense spending significantly since 2022, yet Central and Eastern Europe's share of the total NATO-Europe defense expenditure has actually fallen. What explains that paradox? This indeed seems like a paradox because it's a sort of counterintuitive finding, but it's true. One reason is that some Western European nations, especially Germany, have been increasing their defense investment really significantly and rapidly. So, if you actually dive into Western European figures, you find out that the German defense spending is actually making a bulk of the overall Western European increase in defense spending and defense investment. So, it's true that the German defense spending is actually making a bulk of the overall Western European increase in defense spending and defense investment. So, that's one factor that essentially the biggest spender in NATO-Europe over the past couple of years has been Germany, a nation and not obviously in Central and Eastern Europe. And the second reason is that the approach of Central and Eastern European nations to defense spending and investment has been very uneven. So, there again has been huge differences between individual Central and Eastern European nations when it comes to meeting their NATO commitments and obligations when it comes to defense spending and defense investment. So, there is a group of Central and Eastern European nations led by Poland, apparently, that has taken this very seriously and has been increasing defense spending enormously. And this includes not just Poland, but especially the Baltic nations as well. So, it's essentially the northern flank of Central and Eastern Europe, which has been rapidly increasing its defense spending. But when you look at the rest of the region, starting with the Czech Republic and Slovakia and Hungary, but going all the way down to Bulgaria, all these nations on the, so to speak, southern flank of the region has been way more reluctant, compared to countries such as Poland, to truly and rapidly increase its defense spending. So, both these factors actually contribute to this very interesting finding that, actually, the total share of Central and Eastern European defense spending compared to Western Europe has been actually decreasing. Ammunition production has rapidly expanded, with some cross-border supply chains now emerging. How much has that genuinely changed Europe's security of supply? If really there is one sector of defense production that has been based in Central Europe and has been truly important Europe-wide and can make a difference when it comes to defense material supplies, it's definitely ammunition. There are a number of large producers around Central Europe, especially focus on the Czech Republic, that has been able to rapidly increase their production over the past couple of years, build new production capacities, and actually even expand abroad. So, a major Czech defense manufacturer, the CSG Group, has just been awarded a large contract by the United States to start producing large volumes of artillery ammunition in the United States. So, this actually shows that parts of Central European defense industry is becoming competitive internationally and is truly contributing to the overall defense capacities of not just the Czech Republic, but also the rest of the region, but NATO as a whole, including the United States. These days, Czech and more broadly, Central European defense industry is capable of producing larger volumes of artillery ammunition than the entire U.S. defense industry. So, it's clear that in this specific area or sector, Central European companies and Central European defense industry can make a difference. Hugh, moving to you. Europe has competitive AI applications for targeting and decision support, but the U.S. defense industry is not. How do you see that? The U.S. has a broader range of systems that are actually operationally ready. How big is that gap, and is it closing? I think it's a gap that's definitely closing. The U.S. military and intelligence services and the industry that supports them has a lot more experience in that sector, but it's a gap that Europe is addressing through largely the startup sector, and we're seeing a pushback a little bit against some of the U.S. systems, notably the Palantir Maven software and its derivatives, which are in widespread use in Europe and have been for a while. But we're seeing France now rolling back on its use of Maven and shifting to a sovereign capability from a company called Chaps Vision, which Germany is also now taking on board. So, there's a pushback and a look for kind of sovereign capabilities in that application of AI for decision support and intelligence processing. Some of that's for political reasons. Some of it is for the general trend for looking for sovereignty in defense capabilities across Europe. It's difficult to judge how close the kind of systems are in terms of capability because it's not too much public disclosure on performance, but there's investment into that sector in Europe. So, it's surprising if there are more countries taking on board European systems for those applications. You see Command AI in France, Systematic in Denmark are both introducing AI in C2 or command and control support functions. There's a challenge for Europe. NATO is now taking on board Maven as a project, a task force Maven setup, creating a wider software ecosystem to bring Maven as a kind of a central hub for a lot of applications. So, those countries pushing back against US software, namely Maven, are going to struggle a little bit there. I think there needs to be some software integration and policy issues to overcome. But, you know, Europe's making a lot of progress in this area, but still some way to go, I think. Now, one of the chapters in the dossier flags the slow transition from laboratory to in-service systems as one of Europe's principal risks. What is actually causing that bottleneck? There are a few reasons. One that I will pinpoint from conversations that I've had in pulling together this chapter, you know, more broadly. I think one of the challenges is for the innovators of the startups in accessing a lot of the trials and exercises that militaries run and that more established defense companies know how to navigate and become part of. I think it's a challenge that they have is that they need this fast feedback from the military to keep their innovation going and to iterate their products. But they're not going to get that unless they're involved in these trials and your established primes know how to work with the military and even the medium-sized enterprises are embedded in the fabric of the innovation and funding cycles in the startup community don't necessarily match the speed of that traditionally takes place within procurement and development within the military. I think a lot of work has been done to open up trials and you see the battle lab in the UK, for example, and various other initiatives across Europe. But if you're a startup and you've got a two-year funding horizon where you need to be looking for your next round of funding to keep going, that is a pace that isn't typical within the military for procurement. That said, it's not kind of a uniform across Europe. Countries that have been frontrunners in innovation, I think I always think about Estonia as being quite forward thinking on how they support their domestic smaller companies. But I think that's a broad, broad problem across Europe is how do you get these smaller companies involved in the trials? And I think part of it is going to be maybe some of the funders of these companies need to understand perhaps that defence moves not as fast as some parts of the commercial sector. So they maybe they need to understand that as well. Efforts are underway. It is a challenge for startups to show this progress without getting their equipment in the hands of users. A startup I spoke to for this chapter did say that they, in the UK, they are seeing progress. It's probably going to be more the case across Europe as well. And on humanoid robotics, Europe is described as technically capable, but held back by weak commercial momentum. Does defence have to wait for the commercial market to mature or can it get ahead of it i think it really depends on how defense wants its capability delivered there are u.s options for example if european armed forces want to explore humanoid and other ambulatory systems the walking robots like you know robot dogs for example they could go to the u.s for some more developed systems if europe wants to have a sovereign capability in these areas of robotics i think there needs to be some investment that's a demand signal i think you know the european armed forces need to say to the european robotics industry that they are going to seriously invest in this capability at the moment there's i think helsing for example back in in june unveiled a new quadruped robot that they basically developed out of a spanish acquisition they made at the start of the year there's been very little use of humanoid robots or other bio-inspired robots within the european armed forces if you look at two of the big defense robotics initiatives in europe imugs and elrob very limited use of those types of robots so it's not that europe doesn't have the technical capability there's some very advanced robotics labs eth zurich technical university of delft very advanced capabilities and have been involved in some of the big trials in the u.s for example it's just the demand signal's not there to pull that through to industry for military applications of robotics does europe want to explore these with sovereign capabilities therefore there needs to be investment into that in europe and pull things through or just go off the shelf from the u.s or elsewhere for the chapter i did a few conversations with the european robotics manufacturers in the commercial sector and that the further challenge for this kind of european sovereignty is that there's not necessarily an appetite for working with defense in some of these companies several of them said we're not going to get into defense we're going to focus on the commercial sector so there's a further challenge for a sovereign european humanoid and other robotics capabilities there are challenges but technical know-how is there but it needs to be pulled through but i think europe's probably got some more pressing concerns for defense procurement than than these robots at the moment moving to other actors that are present in these technologies dong yun china is narrowing the western lead in magnetic anomaly detection how seriously should european navies be taking that i think they should take it seriously but it helps to be precise about what is actually changing the underlying principle is straightforward a submarine is a large steel object and still slightly distorts the earth's magnetic field around it magnetic anomaly detection means picking up the magnetic field around it that small distortion from an aircraft or a drone navies have used it since the second world war and quantum sensors improve the sensitivity and potentially reduce the cost what china has demonstrated is not a scientific breakthrough in april last year a chinese state aerospace group tested a drone mounted quantum magnetometer of its coast and the system was explicitly presented as one full detector it is not a scientific breakthrough in april last year a chinese state aerospace group tested a drone mounted quantum magnetometer of its coast and the system was explicitly presented as one full detector so there is now more published the chinese research and more documented demonstrations in this area than from europe or the us but how much of that has actually been fielded is unclear and that applies to all three china included in our assessment western programs still hold the technical lead but the gap is narrowing and the reasons are institutional rather than scientific and china has taken over the technical lead but it's still they directed coordination between research and defense industry europe has strong work in the same area but it is spread across many small actors and lacks the concentrated procurement demand that turns research into a fielded system and that is the more relevant question for european navies i think your chapter argues that europe needs leverage rather than parity with the u.s and china from a pure military analysis standpoint is that a realistic strategy or a way of making peace with the capability deficit my reading is that it is realistic and i do not think it amounts to accepting a deficit so parity would mean matching the u.s and china in scale program by program leverage means holding a limited number of things others depend on and applying europe's own capabilities where they have the most effect europe is not going to achieve parity with the u.s and china in this technologies and the chapter's view is that it does not need to what matters is whether leverage is a managed as a strategy the chapter identifies three requirements first is consolidated demand second secure supply chains and lastly targeted application of capabilities and the supply chain part is where the numbers are stark for example nato's own transatlantic quantum community reported last year that over 90 percent of high purity processing for critical quantum components takes place outside the alliance and against that europe does hold a few genuine choke points for example the cryogenic systems that call quantum sensors and processors are produced by a small group of european firms another example would be isotope enrichment for the most demanding architectures runs through friends and a uk that over 90 percent of high purity processing for critical quantum systems that call quantum sensors and processors are produced by a small group of european firms another example would be isotope enrichment for the most demanding architectures runs through friends and a uk enablers. No individual European nation is capable of developing and funding these strategic enablers on a sufficiently large scale so let's leave the usual military stuff at the level of the nations and let's develop high-end strategic enablers in europe in a coordinated and integrated fashion you i think to support some of the kind of startups and other defense innovators i'd like to see a bit more of an appetite for risk maybe in procurement and that could help things in defense procurement roles there's potentially too much of an emphasis on going with the sure thing and not risking wasting money perhaps on solutions that don't pan out remove that fear of failure from procurement to go back to kind of an old tech development phrase of you know fail fast and and learn from that i think there needs to be more of that in defense learn from the failures be willing to spend some money where i potentially lose that but understand that in doing so you will find some successes and get those learning points to help develop systems so change procurement practices a little bit to align perhaps more with the commercial sector and take risk and if i had to pick one i think it would be a policy change yan briefly mentioned it about it bringing the enabling layer into the frameworks europe already has most of the debates is about platforms drones and ai models and much less attention goes to what those depend on for example the sensors the cryogenic systems the materials and the demand signals that move a laboratory result into service so for example if critical materials instruments track to the input that quantum sensing actually relies on and procurement consolidate to demand behind them several of the problems in our chapter would become more manageable and the chapter's assessment is that the time windows for doing this are still open but of course they will not stay open indefinitely that's all we have time for today so thank you yan heo and dong yen for sharing your insights and thank you all for listening we hope you enjoyed the episode you can find more information on the topics discussed in today's episode in our show notes for further analysis visit the double i double s website at double i double s dot org please do follow rate and subscribe to sound strategic wherever you listen to your favorite podcasts to keep up to date with all the latest episodes thank you and see you next time you