EU: Trading Bailouts For Weapons

As EU officials are packing their holiday suitcases in Brussels, prosecutors in Germany, Portugal and Greece are on to a hot summer, tracing the complex trails of bribes and side-contracts on German submarines that each of the southern European countries have signed at a price of over €1 billion.

“It makes no sense at all to urge austerity and at the same time encourage them to buy weapons.”

Nick Witney

European MPs and defense experts are calling on the EU commission to go after market-distorting and corrupt side-deals to big weapon deals between member states, such as the ones greasing Germany’s submarine sales to Portugal and Greece.

The EU hypocrisy of allowing Greek and Portuguese governments allocate huge parts of their budget for questionable defence purchases, while they are being pressed for austerity measures to cap their deficit, already made headlines such as “The submarine deals that helped sink Greece” in the Wall Street Journal earlier this month.

Striking Inappropriateness

“What’s striking about Greece and Portugal is the inappropriateness of these purchases,” says Nick Witney, a defense expert with the European Council on Foreign Relations, a London-based think tank, according to the EUobserver.

“It makes no sense at all to urge austerity and at the same time encourage them to buy weapons. But where there’s a nexus of security, secrecy and lack of competition, there is always an open field for corruption,” he notes.

Organizing Bribery Payments

In March Munich-based investigators opened a case against the German engineering group Ferrostaal, suspected of paying bribes to secure defense contracts in Portugal and Greece and of organizing bribery payments on behalf of other firms for a fee.

The investigation has meanwhile spread to Portugal and Greece, and touches on former party colleagues of EU commission president Jose Manuel Barroso, who was prime minister at the time the contract was signed.

Mr Barroso has denied any involvement in the alleged bribery scheme and says he had nothing to do with the negotiation of the contract, which was the responsibility of the defense minister.

Along with the acquisition per se there’s also “offset contracts” of more than €1 billion – in reality direct foreign investments from Germany and business opportunities to Portuguese companies on the German market.

Under EU law, offsets are forbidden, except for the defense sector, where member states invoke a “national security” exemption.

As it turns out, a lot of these offsets were actually existing investments. Seven Portuguese executives and three Ferrostaal representatives have already been indicted.

Violating EU Rules

According to the public prosecutor’s office, the Portuguese state was mislead in these deals and suffered damages of at least €34 million.

According to estimates by the European Defense Agency, 25% of the offsets in Europe are non-military and have no direct connection with the purchase.

“These contracts totally violate the EU’s internal market competition rules,” Portuguese Socialist MP, Ana Gomes, says.

“They are contracts negotiated among companies with government favoring and in total disregard of the competition rules. There are plenty of reasons why the European Commission should investigate, and make it an exemplary case to deter such behavior from now on from any member state.”

So far, the commission has turned a blind eye to the non-military contracts occurring alongside large defense procurements.

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