Europe’s defence dilemma: Bridging the innovation gap in a changing world – Lionel Laurent

In the face of geopolitical uncertainty and evolving warfare tactics, Europe finds itself at a crossroads. With Putin's continued reign in Russia and Trump's potential return in the US, the need for defence investment is dire. While military spending is on the uptick, Europe grapples with innovation gaps, exemplified by Greek startup Lambda Automata. As the nature of conflict shifts towards technology-driven asymmetry, Europe must embrace innovation to bridge the gap or risk being left behind in an ever-changing world..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Lionel Laurent.With Vladimir Putin set for a fifth term as Russian president and Donald Trump possibly on track for a second win in the US, Europe needs a mindset shift in a dangerous world after 25 years of underinvesting in defense. Military spending is set to rise by $33 billion this year as the primarily soft-power region makes up for lost time: Tourist hotspot Greece, no stranger to geopolitical tension or budget cutbacks, hiked defense spend to almost 4% of gross domestic product in 2022. .___STEADY_PAYWALL___.Yet Greece is also a symbol of another daunting challenge for European defense: innovation. Greek startup Lambda Automata, set up by former Apple Inc. roboticist Dimitrios Kottas, raised €6 million ($6.5 million) last year as part of a nascent wave of European defense-tech newcomers hoping to emulate the success of Elon Musk's SpaceX or Palantir Technologies Inc. Lambda's flagship product, autonomous surveillance towers, is an example of startups' ability to "make more with less," Kottas tells me, in a world where relatively inexpensive hardware can pose big risks to European security. .Silicon Valley-style tech experiments may seem out of step with the current focus on the production needs of high-intensity warfare, as old-school factories kick into higher gear to get shells in sufficient quantity to the Ukrainian frontline. But the fact is, the nature of war is changing and risks leaving Europe behind..Swarms of drone attacks in the Red Sea are a lesson in asymmetric warfare, pitting $2,000 drones against million-dollar missiles. For all of its expertise in the latter, Europe's defense industry has failed to pioneer the former, with drone projects coming in late and over budget, if at all. A report by the French Senate pointed to deeper issues than spending cutbacks or changing military requirements, flagging internal resistance, rivalry between big defense suppliers and a lack of strategic planning. The result is more dependence on non-European suppliers..Artificial intelligence, too, is changing the speed of what Christian Brose, chief strategy officer of Anduril Industries Inc., calls the "kill chain" — understanding a situation, making a decision and executing it. Yet even as European Union member states lift their purchases of military equipment, they spent less on defense research and technology in 2022 than in 2021. Meanwhile, the EU's recently proposed €1.5 billion ($1.6 billion) fund to boost its defense industry is equivalent to one Series E funding round for Anduril, which last December unveiled an autonomous drone-killer. The US Pentagon has a senior official in charge of algorithmic warfare and asked for more than $3 billion for AI-related activities in its 2024 budget submission..Read more: 🔒 FT: Trump-driven GOP blockade threatens Ukraine's security, raises stakes for European stability.Europe is way behind the US in these areas — and faces a "huge challenge" if the dominance of Big Tech and its surrounding startup ecosystem end up setting the standards for Europeans to follow, says Alessandro Marrone, of think tank IAI. Promoting more homegrown innovation could help lessen their dependency on the world's biggest military spender, a more urgent need ahead of a possible Trump presidency. The EU has set up a hub for defense innovation, while France has pledged to spend €2 billion through 2030 on a military AI plan..But pots of this money are small, while the barriers to competing for big defense contracts are high. Procurement is a world of maze-like rules and requirements — for good reason — and favors large suppliers and industry insiders. Development cycles are long and risk-averse. Air Street Capital, an investor in Lambda Automata, says the value of UK Ministry of Defense contracts awarded to small-to-medium-sized companies in the 2021-2022 period was 1/25th of that awarded to bigger rivals. Continental Europe is fragmented across dozens of military-industrial complexes, subsidizing local industry and employment in ways that don't always prioritize efficiency and competitiveness..Innovation should be encouraged as defense budgets grow. "Money is only a part of it," says Universal Hydrogen Co.'s Paul Eremenko, an ex-Googler who once served as Airbus SE's chief technology officer. Countries should cultivate pools of talented engineers, a favorable legal and regulatory climate and an entrepreneurial mindset, he says. Separately, Europe could imitate the US's Defense Innovation Unit, which speeds up the prototyping and adoption of commercial tech in the military, and also encourage the creation of new funds investing in defense, such as Weinberg Capital Partners' buyout fund Eirene. With the EU aiming to buy at least half of its equipment from EU-based companies by 2030, fostering a native ecosystem seems like a no-brainer..The venture capital industrial complex brings its own risks, of course. The model of cash-burning, winner-takes-all tech platforms doesn't translate well to defense: Apple's profit margins of 25% bear no relation to that of Thales SA (around 5%). The spread of off-the-shelf "dual use" technology, utilized for both civilian and military purposes, also has the potential to become pretty dystopian if surveillance towers offered by Anduril or Lambda Automata crop up in domestic contexts. .But these risks call for closer cooperation between the traditional suppliers and their nimbler, smaller offshoots — like Saab AB's partnership with AI software specialist Helsing GmbH. Europe certainly needs to make up for past mistakes in defense, from a lack of investment to a deficit of integration across EU industry. But it can't ignore the future either. .Read also:.🔒 Europe on edge: The ominous spectre of a Trump comeback and its stakes for Western security🔒 Putin's power play: Emboldened leader flexes muscles ahead of re-electionMK party: Kremlin's Spear; Ramaphosa's "unlawful" Putin deal freed Zuma – André Pienaar.© 2024 Bloomberg L.P.

Europe’s defence dilemma: Bridging the innovation gap in a changing world – Lionel Laurent

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