Armed for innovation: How to drive German-Italian defence industrial cooperation

European defence is a team game. Following Germany’s decision on 27 February to massively increase its military budget in response to Russia’s all-out war on Ukraine, other European countries need to catch up – by adapting their own defence planning and spending accordingly. Italy was one of several EU member states that, soon after Berlin announced this huge shift in policy, called for a hike in defence spending to 2 per cent of GDP in line with its commitments as a NATO member. Yet, despite the initial fanfare over the move, the Italian government is now vacillating. The leader of the Five Star Movement, Giuseppe Conte, recently expressed reservations about the increase in military spending, explaining that “the priority must be to protect families and businesses from the crisis”.

Conte’s statement is questionable not only because he participated in NATO summits at which Italy committed to more military spending but also because it suggests that increases in the defence budget and support for people’s livelihoods are mutually exclusive. As research by the RAND Corporation shows, the defence industry has a value that goes beyond the protection of a country and its population from adversaries – it also creates economic opportunities. Therefore, Italy should follow in Germany’s footsteps by increasing defence spending and developing a closer alliance with Berlin on military matters. Indeed, joint defence investment could substantially contribute to industrial development and integration in Europe.

Defence industrial cooperation between Italy and Germany has two promising fronts, both of them in the air domain. The first is fighter jets. During his dramatic announcement of Germany’s new strategy, Chancellor Olaf Scholz indicated that his government would likely acquire the F-35 Lightning II instead of the F/A-18 Super Hornet as previously planned. From an Italian perspective, this is good news for two reasons. Firstly, it means more work for the FACO industrial plant in Cameri, where Lockheed Martin assembles F-35s. Secondly, and most importantly for Italy, Germany now seems more open to procuring the designated successor to the F-35, the Tempest. British firm BAE Systems and Italian company Leonardo lead the Tempest project, while France, Germany, and Spain are cooperating on the comparable Future Combat Air System programme. Germany’s new approach could encourage Paris to support a merger between the two initiatives – a move that Italy and Germany have long advocated. 

Political support for defence industrial cooperation

European defence companies are already exploring potential opportunities for such cooperation. In a recent interview with Italian newspaper Il Sole 24 Ore, Rheinmetall CEO Armin Papperger indicated his firm’s willingness to expand its industrial networks in Italy by increasing investments and strengthening cooperation with Oto Melara, a subsidiary of Leonardo. Papperger explained that, “to underline the long-term nature of our commitment, we are also prepared to make a financial commitment by acquiring shares in Oto Melara.” In this way, the firm could become a springboard for a new role for the German defence industry in Italy.

Rheinmetall wants to be involved in the modernisation of the Italian Army, including through the supply of new armoured fighting vehicles such as its Lynx models. The company would like to be the medium through which Italy participates in the Main Ground Combat System programme – which is designed to develop a European-made, next-generation heavy tank. Accordingly, there is considerable potential for Germany and Italy to begin a new era of defence industry collaboration – one characterised by what Italian ambassador to Berlin Armando Varricchio calls a “much more integrated dimension”.

However, such a defence marriage can only take place with the blessing of the government in Rome. The government controls both Leonardo and Fincantieri. And it will have a say in the planned sale of Oto Melara and Wass, another Leonardo subsidiary. German defence companies are keenly aware of the need for Rome’s backing. “I am open to creating a partnership in Italy”, Papperger remarked in the interview with Il Sole 24 Ore, “but, of course, we need the agreement of the government, to which we have explained our position”.

Italian leaders should recognise the political benefits of closer security and defence cooperation with Germany. In recent years, Italy and Germany have been at odds in areas ranging from migration to structural economic reform. Although Mario Draghi’s election as Italian prime minister has eased the tension between the sides, he and Scholz disagree on key policy issues such as the reform of EU debt rules. Determined to overcome these differences, Italy and Germany have pledged to sign an action plan for cooperation by mid-2022. By including defence industrial cooperation in this pact, they could match France’s leadership in the area and sustainably promote European strategic autonomy – an issue that is important to policymakers in Rome and Berlin.

A bilateral foundation for pan-European cooperation

German-Italian cooperation of this kind will need to be outward-looking if it is to avoid being perceived as a threat to other European defence industries, particularly that of France. Historically sceptical of German rearmament, France could regard such cooperation as a challenge to its leadership of EU defence policy. Germany and Italy should be open to expanding their joint defence industrial projects to include France. To this end, their efforts in the area should aim to promote complementarity between European defence industries, value chains, and technologies.

As such, initially bilateral cooperation could drive broader European security and defence integration. Indeed, any ambitious defence initiative within the European Union will require the support of multiple member states. Undertakings such as the European Intervention Initiative and Permanent Structured Cooperation are valuable formats in which Italy and Germany can engage with other European countries on operational and industrial issues. As part of the effort, they should try to spur the development of European defence consortia – which would create a promising avenue through which to strengthen European strategic autonomy. While much technological innovation has traditionally started in the military realm before entering the civilian sector, it is now increasingly common for such innovation to begin with private and non-state actors before reaching the military domain. This trend calls for closer, more sustained cooperation between the civilian and military sectors across Europe, covering both government-owned and private companies. This is one of the key ways in which European governments can address the challenges of decreased state control of emerging technologies.

By backing pan-European defence industrial cooperation, the EU can boost both economic innovation and its credibility as a geopolitical actor. There is no strategic autonomy without a strong defence industry. And cooperation between Italy and Germany can breathe new life into long-running attempts to integrate European defence industries. Italian leaders are right to consider how defence spending affects society as a whole, but they should not forget its benefits beyond the security realm. They have much to gain from becoming credible leaders in this increasingly important policy area.