Why we need to separate defense spending from the Stability Pact. Word of Pontecorvo (Leonardo)
The speech by Stefano Pontecorvo, president of Leonardo, on the occasion of the fifth edition of the General States of Export, entitled this year "Support for the country system, between large and SMEs" held from 29 to 30 September in Alba (Cuneo)
The fifth edition of the General States of Export took place from 29 to 30 September in Alba (Cuneo), this year entitled "Support for the country system, between large and SMEs". Defined as the "Cernobbio of Export" dedicated exclusively to the themes of export and Made in Italy, the event was promoted and organized by the Italian Export Forum with the patronage, among others, of the National Council of Chartered Accountants and of accounting experts. The States General of Export, says a note, "brings together entrepreneurs, sector operators and institutional representatives on the topics of foreign trade, startups and innovation". Among the over 70 speakers present at the 2023 edition there was also Stefano Pontecorvo, president of Leonardo. Here is an excerpt of his speech. ( Startmag editorial team )
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The global economy has been rocked by at least three successive shocks. The first: the blockage of supply chains triggered by the pandemic. The second: the political uncertainty produced globally by Russia's invasion of Ukraine. The third: the economic consequences, first of all the increase in inflation, triggered by geopolitical tensions. The most evident result is before everyone's eyes: the end of globalization as we have known it and the beginning of a process of regionalization of trade and investments by geo-economic areas; a circumstance which further fueled divisions and political tensions. One number above all: 4500 kilometres. It is the length of the border between the West and Russia. A front line that is decidedly more extensive than that which, during the Cold War, divided Western countries from those of the Warsaw Pact.
It wasn't just Ukraine that was hit by the bombs. But also that concept of globalization that has guided political action over the last twenty years. And which has allowed a billion people to escape from conditions of extreme poverty. Now that world no longer exists either. Globalisation, as we had interpreted it, has been replaced by glocalisation: a new phenomenon which leads to an increase in economic and commercial exchanges "between similar people". Or, better said, between " like-minded partners ".
“SEPTEMBER 11” TRIGGERED BY THE WAR IN UKRAINE
Honestly, I believe that these geopolitical factors are influencing the business world with an impact not far from that triggered by "9/11". Nothing will be the same as before.
I believe Italy is responding well to this challenge. Above all because it is triggering positive phenomena: and I say this from direct experience. It has been said and written several times in the past that Italy, unlike France, "did not form a system". Now it's doing it, and I check it daily.
As president of Leonardo I have to deal with numbers. 86 percent of Leonardo's revenues come from abroad. And I must recognize that the government gives considerable support to Leonardo's activities. In international missions I deal with the Ministry of Defence, with that of Economy and – above all – with that of Foreign Affairs; finding maximum collaboration in all three administrations.
Not to mention on the internal front the constant dialogue with the Ministry of Business and Made in Italy.
This, in my opinion, is "building a system". ( They tell me it wasn't so obvious before ). And when a country "creates a system" it becomes stronger and acquires authority. And it favors the business of its international champions. And Leonardo is.
AEROSPACE: A “BRIDGE” BETWEEN COUNTRIES
I firmly believe that technology can shorten the distances between different geopolitical blocs. Or, at least, it can bring closer and consolidate knowledge between "like-minded" blocks. In particular, I believe that aerospace technology can play a fundamental role. In my opinion, it can become a "Bridge" between countries. In the current phase of uncertainty we must aim to strengthen cooperation mechanisms between countries in the fields of science, technology transfer and industrial innovation.
The aerospace sector, by its very nature, can play a leading role in building new partnerships . The “Bridge” I was talking about before. First of all, because it is a sector with a high rate of innovation, and therefore a high capital intensity; as such it requires the investment of resources and engineering know-how that few nations in the world, alone, are able to afford. Collaboration is therefore a necessity.
The second point that makes aerospace central is its transversality: the strategic nature of aerospace technologies today represents the meeting point on which the interest of states for the protection of security and that of companies converge, in search of business opportunities . Critical technologies such as artificial intelligence, robotics and cybersecurity, which are increasingly central to our sector, require the building of public-private partnerships .
AEROSPACE INDUSTRY DRIVER FOR DEVELOPMENT
Let's take the space economy sector for example: it is a market that, according to a PwC report, could reach the value of one and a half trillion dollars in the next decade: a great opportunity. And this is also why, alongside traditional players, large private players have entered the space race, often coming from other sectors, and the new industrialized nations have done the same.
I think of the United Arab Emirates, which two years ago became the fifth country in the world to reach Mars with its Hope probe, or of Saudi Arabia, which put space at the center of its Vision 2030 and, just a few months ago, reached the International Space Station for the first time with two astronauts. In an increasingly polycentric scenario, we must have the ability and courage to make collaboration on new skills systemic and strengthen North-South technological cooperation. Obviously through agreed methods and dedicated industrial programs, capable of protecting the strategic needs of the partners involved.
It is important to establish forms of structured dialogue between " like-minded partners ", and international forums such as the G7 and the G20, in synergy with each other, can offer the ideal framework for building an inclusive multilateralism capable of promoting technological development and putting it at the service of security and collective growth.
Over the past four years, the G20 Presidencies of Saudi Arabia, Italy, Indonesia and India have demonstrated great continuity in promoting post-pandemic global economic recovery, most recently with the launch of the ambitious infrastructure development project that will connect the Indian subcontinent with the Middle East and Europe. This is an action that Italy intends to continue within the G7, of which it will assume the Presidency next year.
The aerospace industry will be one of the most important drivers of this technological and productive interchange, and also one of the main beneficiaries. At Leonardo, the company that I have the honor of presiding over, we are very clear that today the only sustainable business model for aerospace is that of participation in international industrial programs and alliances.
WHY THE SEPARATION OF COSTS FOR SECURITY AND DEFENSE FROM THE STABILITY PACT IS NECESSARY
Europe as a whole can afford to allocate almost 50% of its GDP to social spending because there are others who spend on their own security and defense. Namely, the United States.
According to a report by the International Institute for Strategic Studies, the USA has military expenditure equal to 3.5% of its GDP and covers almost 40% of global spending. France is in sixth place, Italy in twelfth. If we see the same ranking for social spending the ranking is reversed. The country that spends the most in relation to GDP is France. In fourth place is Italy. And the United States comes in 21st place. Preceded by all countries that join NATO. Today this is a "luxury" that is no longer sustainable, at least not in the same terms. Last year alone, Europe spent 320 billion euros on defense, the highest figure since the Cold War. As you can see, Security has direct impacts on the social sphere; and, therefore, economical. I'll give an example to explain myself better. As you well know, Italy adheres to the Useful Money system; and, as such, must comply with a series of budgetary parameters. It also joins NATO, and here too it should respect the "house rules". That is, allocate 2% of GDP to Security and Defense spending.
Like Italy, the other European countries also join NATO, but the budget parameters that Europe has set itself "do not communicate" with those of NATO. Now at a European level, Italy is fighting to ensure that security expenses are removed from the deficit calculation. The opportunity is the right one: next year, the European Commission should discuss the reform of the EU Stability and Growth Pact with the member states.
If the Italian proposal were to be shared, it would be a question of "making the European parameters talk" with those of NATO. So far it's as if the right hand doesn't know what the left hand is doing.
Let's be clear. Today Brussels has gone so far as to issue Eurobonds to finance the Next Generation Eu : a laudable initiative that makes Europe a cutting-edge continent in safeguarding the environment. But it got there 20 years late.
I believe a leap in quality in European policies is also necessary for Defense. For these reasons, we cannot wait twenty years to finance investments by issuing Eurobonds. They are needed immediately. It seems to me that, at a European level, a profound transformation of unitary thought is taking place. A transformation that I appreciate. In my opinion, dogmatism is being abandoned to make room for pragmatism. It will certainly be a slow but inevitable process.
KEEPING UP WITH OTHER COUNTRIES
This is imposed by the process underway in other countries. China spent 292 billion dollars in 2022: 4.2% more than in 2021, but 63% compared to 2013. Russia, in just one year, the last, increased its military spending by 9.2%.
To have a comparison with Europe, in 2022 the continent's military spending increased by 13% compared to 2021 and reached Cold War levels. But the increase compared to 2013 was 30%: half that of China. The European security system needs major investments in the near future: either to rebalance the relationship with the United States or because we don't know where future threats will come from. Security has rapid reaction times, also because threats are multilevel and multilevel responses must be prepared for these threats. And a little more foresight and vision from the European authorities would also be necessary.
I started acting as a diplomatic advisor for the Ministry of Defense with Giampaolo Di Paola, who – as far as I know – also taught here at Luiss in past years. Well, once, when discussing European policies, Di Paola said to me: "Stefano, do you know what the difference is between a vision and a nightmare"? Of course, let him explain it to me. “They are both dreams. Except that the nightmare is a dream disconnected from reality. The vision is a dream linked to reality."
THE NEW FRONTIER OF THE WARS OF THE FUTURE
One thing is certain: we are not fortune tellers. Just as we couldn't imagine 9/11, we couldn't imagine the invasion of Ukraine. The entire West is exposed to such rapid geopolitical changes that the only thing we have is to be prepared: ready to face crises.
For years, Western countries have focused on developing counter-insurgency and anti-terrorism capabilities. Today this is no longer enough. The war in Ukraine is demonstrating that factors such as air defense, artillery, tanks continue to have their weight. A dramatic reality that requires a rethinking of the European and NATO defense doctrine conceived and shared at EU level before the war in Ukraine.
You will therefore understand the need to initiate a rapid transformation not only of policies , but also of the production processes of the defense industry. They will be required to make their systems available more quickly, replenish stocks to a greater extent, and ensure training and maintenance at an increasingly high rate. To make this transition, the support of all the actors involved in the process is necessary from a system perspective: so as to guarantee a long-term vision of the requirements that will be needed ten years from now.
DIGITAL, AI AND HYPERSONIC
A fundamental point concerns the impact of technological evolution on security. Prepare ourselves for the threats of the future: digitalisation, artificial intelligence, robotics and hypersonic technologies will be the new tools to face the risks of the future. Also because the dangers for European security do not only concern the strictly military sphere: on the other hand there are threats to critical infrastructures, attacks of a cyber and hybrid nature, up to phenomena such as the " weaponization " of migratory and energy flows.
Multi-level threats that require multi-level responses. From everybody. On the part of the States, obviously; but also of companies that will have to face different and ever new challenges.
And here we return to industrial collaborations between allied and friendly countries.
Leonardo currently guarantees cyber security to organizations such as NATO, the European Space Agency and the European Parliament. We have specialized centers capable of verifying billions of cyber events a day and identifying where a cyber attack starts from. Obviously, in very close contact with the delegated national authorities.
It is a new frontier because the wars of the future – as Roberto Cingolani often says – will need fewer bullets and more bits .
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-occorre-lo-scorporo-delle-spese-per-la-difesa-dal-patto-di-stabilita-parola-di-pontecorvo-leonardo/ on Mon, 02 Oct 2023 09:19:54 +0000.