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  An unpredictable autumn: Changes across Europe could spell delays for industry deals

  By: Tom Kington ROME — Just as Europe begins serious discussions about joint defense programs, Italy is scrambling to forge a new government, putting decision-making in Rome on hold amid Britain's exit from the European Union and a change of guard at the organization. Following the collapse of the Italian government last month, Rome is expected to have a new coalition majority in place this week, but the hiccup may further delay decisions about Italy's role in Britain's Tempest fighter program, European partnerships and purchasing of F-35 aircraft. The uncertainty in southern Italy matches the threat of chaos further north if British Prime Minister Boris Johnson carries out threats to leave the EU on Oct. 31 without a trade deal, just as the European Commission awaits a new crop of leaders following the EU election in May. “Defense programs are always prone to delays and cost overruns, but when they are joint programs, that risk increases — and now is a case in point,” said Aude Fleurant, the director of arms and military expenditure at the Stockholm International Peace Research Institute, a Swedish think tank. Origins and options Italy's government upheaval began in early August when one of the members of Italy's populist coalition government, the League party, walked away from the administration after too many policy rows with its partner, the Five Star party — ending the government's parliamentary majority. League party leader Matteo Salvini, whose anti-migrant policies have spurred his popularity after 14 months of government, hoped he could take sole command of the government through new elections. But his plan suffered a setback when Five Star entered talks with its sworn rival, the center-left Democratic Party, to build a new majority and carry on governing without the League. As a sign of open hostilities between the former coalition partners, Italian Defence Minister Elisabetta Trenta — who is backed by Five Star — sent Navy ships to escort vessels carrying rescued migrants in the Mediterranean Sea, much to the anger of League leader Salvini. With the likelihood that ministers for the new Five Star-Democratic Party coalition will be sworn in this week, it's unclear if Trenta will keep her post. Nevertheless, a new government will likely add further delay to Italy's decision on whether to join the U.K. Tempest program. That potential time frame adds to the months during which Trenta failed to decide on the program following its launch by the U.K. in 2018, despite pressure from Italian defense company Leonardo and behind-the-scenes talks between Italian and British military officials. In the meantime, Sweden has signed up, raising fears Italy will miss out on technological work. Trenta's hesitancy may have stemmed from the fact that the party that put her in office, Five Star, has mixed feelings about Italy's ongoing purchase of F-35 jets. During her time in office, the government prevaricated over fulfilling its planned order of 90 aircraft. Someone in Rome is needed to arbitrate in the row between the Navy and Air Force over who should manage the basing of the F-35B, which both forces are ordering. Analysts warned that Italy could miss its chance to snatch F-35 contracts that Turkey is losing as it's forced out of the program. One analyst said tension could escalate over the F-35 if and when a Five Star-Democratic Party coalition emerges. “Let's see who the minister is — that will make a difference,” said Alessandro Marrone, a senior fellow at the IAI think tank in Rome. A second analyst said that by divorcing from the right-wing League and teaming with the center-left Democrats, Five Star's skepticism toward the F-35 could become more pronounced. “I could imagine Five Star agreeing to pro-EU policies favored by the Democrats in return for blocking the F-35 program, or even agreeing to enter the Tempest program in return for blocking the F-35,” said the analyst, who spoke on condition of anonymity. A source with knowledge of the inner workings of the Italian government said the Democrats might also sacrifice the F-35 to win an agreement to build a rail line in northern Italy that Five Star opposed. Gabriele Iacovino, an analyst at the International Study Center in Rome, said: “Defense is always the last issue to be considered when a new government is formed, and the defense minister is always the last to be appointed.” Five Star did make one reference to defense in an Aug. 30 list of 20 policies it wants to pursue in a new coalition with the Democrats. “Put an end to the sale of armaments to war-waging countries, and incentive the process of converting industry,” the Five Star party stated, suggesting that parts of the Italian defense industry would be turned over to the production of civilian technology. But in a successive draft list of policies issued Sept. 3, the policy was missing, apparently dropped. Looking west At the other end of Europe, Brexit is creating uncertainty of a different kind for the continent, said Douglas Barrie, a senior fellow for military aerospace at the IISS think thank in London. “There are two kinds of challenge for the British defense community when it comes to Brexit: one is relationship management, the other about bureaucratic,” he said. “Relationship management is in part how ugly the U.K.'s departure is, and for how long the atmosphere is soured between London and its erstwhile partners in Brussels,” he added. “The bureaucratic issues include problems regarding the movement of goods and personnel within defense companies operating in or across Europe, and the ability to access, or not, European research and development funding.” That spells trouble for U.K. firms, but also for Italy's Leonardo, which has 7,000 staff in the U.K. after buying up large parts of the defense electronics industry there. If anything, Leonardo's challenge is twofold: It must keep channels open between its U.K. facilities and European markets, but also with its sister operations in Italy. “In the case of a no-deal [Brexit], how will Leonardo transfer parts and staff from its U.K. to its Italian operators?” said the source knowledgeable of the Italian government's inner workings. Speaking to Defense News in March, Leonardo CEO Alessandro Profumo said it would be crucial to know where the intellectual property for a product must be registered so it can secure development funding from the EU. “There is also an upside since having a base in the U.K. could help Leonardo when it comes to deals with the U.S. and help counterbalance the hegemony of France and Germany in Europe,” said Iacovino, the analyst in Rome. Furthermore, if political crises and Brexit are bumps in the road for Italy and the U.K., defense cooperation between France and Germany is certainly not going smoothly, said Aude Fleurant at SIPRI. “The French-German plans for a sixth-generation fighter, FCAS, are being held up by significant differences over exports to the Middle East,” she said. “France is very unhappy over Germany's opposition, and Germany is refusing to budge.” https://www.defensenews.com/digital-show-dailies/dsei/2019/09/08/an-unpredictable-autumn-changes-across-europe-could-spell-delays-for-industry-deals