THERE is a downside to peace - unemployment. About 600,000 jobs have been lost in European defence related industries since 1984 as the industry faces up to the global fall in demand brought about by the end of the Cold War.
Defence industry sources say the slump may have bottomed out and that there are even signs of an upturn in demand from the Middle East and the Pacific rim. But is Europe in a fit state to take advantage of an upswing or will its industry continue to decline?
For Ireland, without its own industry and with a traditional suspicion of the "merchants of death", the question may be "So what?" But our EU partners have a lot at stake, not least of them neutral Sweden, one of the Union's biggest arms exporters. Ireland also buys weapons and, some will say, has an interest in an industry of strategic importance to the EU's defence.
The Commission's response - a communication that will be considered this week titled The Challenges Facing The European Defence Industry: A Contribution For Action at The European Level - breaks new ground for an industry that, as one major supplier's spokesman puts it, "has not dared to speak its name".
However, the combination of the jobs crisis and the Maastricht Treaty commitment to a common defence policy has made the initiative more likely to run than previous failed attempts.
Fundamental differences of approach, however, still make the issue very difficult.
Traditional protectionism of this sensitive area, propped up by the jealously guarded Article 223 of the 1957 Treaty of Rome, allows a member state "to take such measures as it considers necessary for the essential interests of its security which are connected with the production of or trade in arms, munitions and war material".
Much of the industry has been heavily subsidised and preserved within the state sector 80 per cent in France.
And even the most economically liberal have no qualms about allowing domestic, political and jobs considerations to determine procurement policies.
On Friday a bitterly disappointed Austrian manufacturer wrote to the Financial Times to complain that Britain had awarded a £35 million battlefield ambulance contract to LandRover against the recommendation of its own procurement department.
EU procurement and competition rules in other areas of the economy are designed precisely to prevent this, but Article 223 has sheltered the defence industry, at enormous cost to the EU taxpayer.
A 1992 unpublished report for the Commission puts the European costs of protectionism, duplication of research and industrial capacity, of short production runs, and of national monopolistic pricing at up to one sixth of total defence budgets.
The report cites the helicopter industry as a example, arguing that standardisation and centralised purchasing of bulk orders could lead to price cuts of 30 to 40 per cent.
It argued that a liberalised EU defence market could produce annual savings of between £4.4 billion and £5.5 billion, while full blown common procurement by a centralised agency would produce savings of between £7 billion and £9 billion on the annual procurement budget of £53 billion.
Europe's total military expenditure fell by 5.3 per cent in real terms between 1987 and 1992 and procurement by 28 per cent. Declining demand from developing countries has also practicallyhalved the global arms market over the last decade.
The EU continues to share a fifth of that market, but its share has been halved in absolute terms while the US has been significantly less affected.
With 75 per cent of major conventional arms imports by EU states coming from the US there is a 10 to 1 trade imbalance in this area in favour of the US.
"The structural advantage of the US industry increases with reductions in overall demand and with technological advances" the Commission's report warns.
The decline in the industry and the US restructuring which is leaving Europe behind make cooperation all the more urgent, it argues.
European mergers have been on a far smaller scare than in the US and largely nationally based with governments unwilling to jeopardise what they see as strategic interests.
BAe and France's Matra have discussed sharing their missiles divisions for three years, but the French government is unwilling to back a deal because of British procurement policies; most notably its decision last summer to give a £235 million helicopter contract to the US Apache rather than the Franco German Tigre.
France and Germany have committed themselves to creating a common purchasing agency, but while EU governments have facilitated such strategic alliances as the Eurofighter, the Tigre, and the Eurofrigate, and the Commission is willing to act as a broker in such deals, it argues that they do little top enhance the long term competitiveness of the companies involved.
To do that, the communication says, it will be necessary to create a genuine European defence market freed of protectionist constraints. The problem is Article 223 and the unwillingness of member states to touch it.
However, as a first step, the Commission's communication argues that member states could agree to a strict interpretation of the clause, limiting it to cases of absolute necessity.
This would allow EU market procedures and state aid polices to be brought to bear on substantial areas, such as the military ambulance market, from which they have been firmly excluded.
The report also urges states to give a commitment to co operate with restructuring and mergers. Industry sources suggest that even the protectionist French may now believe that the old ways will not work any more.
The report also looks at EU structural funds and research funding.
The Union is already committed to a £400 million Konver programme to support regions affected by the industry's decline by assisting in the conversion of military plants to civilian use.
Far more significant, however, is the research programme. Although stressing that the programme must retain its civil orientation, the communication argues that there is a great deal of scope for greater co ordination with Nato and the Western European Armaments Group of fast expanding "dual use" research, areas where civil research may have military uses.
The report estimates that "the technological areas of potential dual use interest account for as much as one third (i.e. about £800 miilion a year) of the overall Community research budget".
The report also urges further convergence of civil and military us9 of standardisation to minimise waste of resources and argues for a common approach to import duties on armaments.
