Berlin's proposal to limit foreign ownership of defence companies is more likely to stifle the nation's industry than strengthen it
The German government's rush to introduce a law limiting foreign ownership of German defence companies is a huge step in the wrong direction. Far from protecting German interests, it will end up stifling the defence industry, and as a piece of gesture politics, it will antagonise allies which the nation sorely needs to mollify.
German industry's response to the proposed bill is clear - it hates it. It has good reason to do so. The bill does nothing to address the defence industry's single biggest problem: continued low procurement spending, especially by Berlin. Despite Germany's growing international role in Afghanistan and elsewhere, defence spending refuses to rise to match it, and important international projects, such as the Airbus Military A400M transport, are delayed by German parsimony.
The supposed protection that the bill would afford for jobs is unnecessary: the nation's industry is not at serious risk from unscrupulous overseas asset-strippers bent on buying German companies to throw their employees out of work. Such villains would in any case find it just as difficult to make any redundancies as do German-owned companies. The reverse has often been true; Fairchild Dornier's US operations were the first to go when the US-German aircraft builder ran into difficulties, and Daimler's merger with Chrysler was followed by thousands of layoffs in North America. If the government wanted to protect German jobs further, it should pass laws that do so, rather than tinkering with what it believes (erroneously) are the root causes.
Far from helping keep German industry strong, the new law would weaken it. This magazine has long called for consolidation in the European aerospace sector, to produce economies of scale and allow the industry to survive not only the current downturn but the long-term market shifts. This law will at best delay and discourage foreign investment, and at worst make the German and European aerospace industries, and the tens of thousands of people that they employ, hostages to the German government's passing likes and dislikes in the playground of international politics. For many companies, the alternative to a foreign buyer may well be the breaker's yard.
The risk of tit-for-tat actions by other governments is also real: already the USA is looking at punishing Astar, formerly DHL Airways, for its perceived German-ness (never mind that it is now fully US-owned). Shutting foreign companies out from the German market would hardly improve matters.
The law will be defended by claiming that German "strategic industry" must remain German. But much of the German defence industry is already in foreign hands -naval shipyard HDW was bought by OEP, a US equity group, last year, and, of course, EADS (registered in the Netherlands) dominates the German aerospace sector. The horse is long gone from this particular stable.
The German economics ministry has already argued that the law would simply bring Germany into line with other countries, such as France, Spain and the UK, which already possess "golden share" arrangements preventing foreign ownership or control of certain defence companies. But golden shares are on the way out. Recent European Commission decisions against Spain and the UK have swept some aside: more will follow. Germany is on the wrong side of history in arguing for more controls on capital movement.
The ministry's other argument is still more disingenuous. The bill would not necessarily interfere with foreign takeovers, it claims; the object is simply "to give the ministry the chance" to block it. In MTU's case, at least, this argument is false: ministers up to cabinet rank have stated their opposition to all the bidders for the company. It is at MTU that this law is aimed: if the law goes through, the MTU sale will be blocked immediately. German industry has flourished for decades without an ownership law, so the need for one does not appear to be pressing. The only possible reason to rush one in now is to block a sale under way.
With no clear industrial or economic rationale, what is driving this bill? From the vagueness of its wording, German manufacturers believe that it is "purely a symbolic policy", aimed, presumably, at the UK and US companies now bidding for MTU, as part of the German government's attempts to maintain a certain distance from the Atlantic powers. There is nothing wrong with political gestures, but in this case the German defence industry will soon wish that its government had picked a less expensive way to send its messages.
Source: Flight International
