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A Solution to the Challenges that Greece’s Defense Industry Face

By Guest Blogger

Greece’s defense industry – actually Greece as a whole – faces three major challenges:

  • a small internal market (at least by world standards)
  • a belligerent Turkey; and,
  • a somewhat battered track record of defense companies failing.

The answer to the first challenge – a small internal market – can be solved by arms exports.

Yet this solution must rest on a larger Greek defense industry that is competitive on the world stage.

As to the challenge of a belligerent Turkey – a Greece that can easily replace expended military equipment would serve as a deterrent to logical Turkish leaders.

The biggest question for Greek policy makers is – are decision makers in Ankara logical? (i. e. Are they able to assess Turkey’s best interests in a logical fashion rather than on an emotional level).

Over the past few decades, the answer to that puzzle is that Ankara does respond logically.

Recent events demonstrate that to some extent decision makers in Ankara are concerned with recent Greek diplomatic successes.

The more pertinent question is – will Turkish decision makers continue to operate logically while under the influence of a growing Islamist and neo-Ottoman pressures?

That brings us back to deterrence – the stronger the Greek deterrence is, the greater chance neo-Ottoman and Islamist influences can be held in check in Ankara.

While many challenges benefit from nuanced responses, Occam’s razor espouses that the most simple explanation as the most effective – similarly the most simple solution is often the best.

Greece can turn a page from its checked past if Greek leadership and its electorate embark on a two-pronged approach. Leverage Mitsotakis’ partnerships with other nations into inducing them to locate some of their defense industries on Greek soil.

On to our second prong.

Yet, defense contractors and nations are not in the business of being charities.

So how to do this?

Rely on a solution based on free-market principles.

Offer tax-free holidays for fifteen years to firms locating production facilities to Greece.

Make this same offer to domestic firms that launch or expand. To make the offer more enticing (i. e. more credible), Greece should consider incorporating this tax holiday and the policy behind it into their constitution.

Businesses respond to market forces and they respond quickly.

The catch, as it were, to this solution is that it would take an enormous consensus across party lines to implement such a solution.

Public outcries would be certain.

Politicians would need to educate their public and quickly that this tax holiday is not a hand-out to big business but rather a decisive response to the existential threat that Greece as David faces from the Goliath of the Turkish defense industry.

The watchword is education – the Greek public must be bombarded with the facts of what a threat Turkey’s defense industry poses to them.

And to assure defense contractors that this policy will survive changes in government, enshrining this policy into the Greek constitution would be a fitting initiative.

Threats

According to Stockholm International Peace Research Institute data, Turkey’s arms exports increased by 170 percent in 2014-2018 over 2009-2013 that marks record in the world in terms of arms exporting.

Named after the 100th anniversary of the establishment of the modern republic, 2023 Vision is the moniker for Turkey‘s efforts to developing its military technology and capacity.

Greece’s rival has produced in recent years domestic tanks, fighter jets, defense systems and unmanned aerial vehicles.

Two Turkish companies, ASELSAN and Turkish Aerospace Industries, were also listed in the top 100 world arms producing and military service companies SIPRI’s list in 2017.

Total arms transfers increased 7.8 percent in 2014-2018 over 2009-2013 and 23 percent over 2004-2008.

The Perfect Partner

The perfect partner for defense investments in Greece is Israel – though other partners are surely out there and should be pursued as well.

The Israeli defense industry currently includes about 600 companies, some of them subcontractors taking part in the production chain of Israeli weapons systems.

Over 45,000 workers are employed in this industry, and sales totaled $10.3 billion in 2017.

In 2020, an Israeli-interest consortium of Naska Industries – SK Group Ltd, Plasan Sasa Ltd, and Aristidis Glinis appears to have purchased Thessaloniki-based Hellenic Vehicle Industry (ELVO), Greece’s major vehicle manufacturer.

In January 2021 Greece and Israel were set to ink a $1.68 billion, 20-year security agreement.

Greece would procure 10 M-346 aircraft maintenance of T-6 trainers and other support all part of a flight school to be operated by Elbit Systems.

Elbit Systems Ltd is an Israeli-based firm operating in a broad sphere of military production.

Greece may be more than 5-10 years behind rival Turkey.

Greece needs zero tax on defense industries to encourage more Israeli defense and research firms to relocate to Greece by offering:

  • zero tax on such firms,
  • zero property tax, and,
  • perhaps even zero tax on industry profits.

That would propel the Greek defense industry forward.

A Pattern of Failures

Cautionary Tale #1: Virtually bankrupt when nationalized in the 1980s, Chropei (ΧΡΩΠΕΙ – Χρωματουργία Πειραιώς, Piraeus Dye Works), then changed its name to ELVIPY (ΕΛΒΙΠΥ – Ελληνική Βιομηχανία Προϊόντων Υγείας, Greek Health Products Company).

Though an important contributor to the Greek defense effort during WWII, its efforts to develop guns failed.

After a few more years in a financial mess, it shuttered in 1995.

Cautionary Tale #2: Named EADS 3 Sigma since 2002 (when European EADS Group acquired a majority stake of the Greek 3 Sigma aerospace company), it has designed, produced and exported a variety of Unmanned Aerial Vehicles.

This includes the Iris, Alkyon, Perseas (also available with single- and twin-jet engines), and Nearchos types – as well as various electronics.

Areas of research and development, in partnership with Greek Universities, have included engine and remote control technologies.

In November 2012, EADS 3 Sigma announced the company was liquidating as it was no longer financially viable to continue operations.

Cautionary Tale #3: Founded in 1950, ECON (not to be confused with companies in other countries with the same name) was a Greek conglomerate that by 1995 had speedily developed into a major defense group with four facilities.

This involved high-tech production, including mechanical engineering, optics, electronics, digital imaging equipment, explosives etc.

Only a few years later, this growth was followed by a rapid collapse. Parts of this company were reorganized into what became Theon sensors.

Cautionary Tale #4: Founded in 1960, Elviemek has been known internationally, for grenades and mines.

In 1995, it was acquired by the ECON group, founded in 1950 and specializing in high-tech products such as electronics, optics, sensors and defense equipment.

Following the ECON group collapse, by 1999, Ellinobalkaniki acquired it as it lay in financial ruin.

By 2005 it had diversified into other arenas – its explosives production had stopped – but a number of loss-making endeavors led to new economic difficulties for the company.

Success Stories To Build On

While not an exhaustive list, the following firms demonstrate that indigenous defense firms can succeed in Greece.

Success Story #1: Besides being a Greek shipbuilding company, Elefsis Shipyards is also involved in other industrial arenas.

Founded in 1968, it has built many ship types, including military ships and the largest bulk carriers built in Greece.

Military ships have included Jason-class Tank Landing Ships (LST) developed by Elefsis Shipyards (first launched in 1987); a series of Fast Attack Craft; and the Greek Navy’s largest ship (Italian-designed Support Ship Prometheus).

Success Story #2: Founded by the Greek State in 1975, by the Karamanlis government, Hellenic Aerospace Industry (HAI) (Ελληνική Αεροπορική Βιομηχανία – ΕΑΒ), Greece’s leading aerospace company is headquartered in Tanagra, 65 kilometers north-west of Athens.

It has an industrial complex covering 200,000 square meters.

In 1996 it had entered into a co-production program with Lockheed Martin for the F-16 Fighting Falcon. It original designs include unmanned aerial vehicle (the Pegasus and Pegasus II UAVs).

Success Story #3: Established in 1982, BSK Defense, successor to Velos O.E., produces a series of aerial target and aerial observation products used by foreign companies and armed forces.

Founded in the Cretan city of Chania, it focuses on design, development and production of defense systems, including UAVs (Phaeton, Ideon, Kyon, Erevos), USVs (Seirios 65 and 95), target drones (Nemesis, (H)Yperion, Panas), electronics, and UAV engines.

In 2010, it started development of a cruise missile type HSC-1 Makedon in cooperation with other Greek companies, including Axon Engineering (which undertook parts of the engine development).

The missile is designed to be 4.5 meters (15 ft) long, weigh 1050 kg and reach a maximum speed of 1100 km/h. This project’s future is uncertain, though, due to Greece’s drastically reduced defense budgets.

Time is of the essence, Greek policy makers have no cushion in time to consider the tax holiday policy offered by your author.

Nicholas Kalis, Master of International Affairs, is President of Kalis Development Corporation.

The views of the author do not necessarily reflect those of Greek City Times.

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