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   Last year, in response to concern about the impact of changes in  defence
   related expenditure, Bruce Millan, Commissioner responsible for  regional
   policies,  commissioned  a  comprehensive  study  on  the  dependence  of
   Community's  regions  on  defence related  activities  and  their  likely
   vulnerability to cuts in defence spending (1).

   Presenting the study, which has just been completed, Mr Millan said :

   "It  is clear that cuts in defence spending, depending on the  scale  and
   speed  with which they will be implemented, will have adverse effects  in
   those  areas  which  either are highly dependent on  industry  linked  to
   defence or include military bases.

   The study is not an exhaustive list of regions which risk being  affected
   by defence cuts, but provides a valuable compendium of those areas likely
   to be hit the hardest.

   Of  course,  the primary responsibility for tackling these  effects  lies
   with the Member States themselves, but the Community should support their
   efforts where it can.

   Unfortunately,  many  of  the  regions likely  to  be  affected  are  not
   currently  eligible  for structural funding under the objectives  of  the
   Community's  regional policy.  However, the lists of eligible areas  will
   be  reviewed  in  1993 to take account of  recent  developments  and  the
   Commission's  proposals  under  the  Delors  II  package  for  structural
   interventions  after 1993 do also envisage some degree of flexibility  in
   the eligibility of regions for structural funding."

   Mr Millan declared his intention to make this study widely available.  It
   will be transmitted in the first instance to the European Parliament  and
   the Economic and Social Committee as well as to the Member States.

   (1)  "The  economic and social impact of reductions in  defence  spending
        and  military forces on the regions of the Community"  prepared  for
        the  Directorate-General  for Regional Policies  by  the  Economists
        Advisory  Group Limited in conjunction with the Centre  for  Defence
        Economics, University of York.


       The economic and social impact of reductions in defence spending
              and military forces on the regions of the Community

                          Summary of main conclusions

   Since  1987 annual defence expenditure in the Twelve  has  stabilised  at
   about  128  billion  ECU.  The general expectation is for  real  cuts  in
   defence  spending  of up to 10% by 1995 and up to 25% by the  year  2000.
   Currently defence expenditures stand at slightly above 3% of GDP.

   Direct  employment  in defence industries together  with  total  military
   employment is 3 million, or 2.41% of the EC labour force.

   The  study identifies areas dependent on the defence industry and on  the
   military. Out of the 183 Community regions, 19 regions have an employment
   share  in the defence industry exceeding twice the Community  average  of
   0.55  per cent. Another 4 regions were identified as areas with an  above
   average  concentration  of defence industry activities.  The  23  regions
   classified  as  dependent  on defence employ just over one  half  of  all
   workers active in the defence industry.

   Military  bases  are  spread out over a greater number  of  regions  than
   defence  industry plants. Thirty two regions have an employment share  in
   the military exceeding twice the Community average of 1.86 per cent.  The
   32 regions dependent on the location of military bases on their territory
   house  more  than  one  third of all soldiers  active  on  the  Community
   territory (excluding the new German Länder).

   Taking into account that 5 regions depend on both military bases and  the
   defence industry, the total number of defence dependent regions is fifty.
   Other  areas of defence concentration, outside of the dependent  regions,
   were also identified.

   Corporate responses to the forecast cuts in defence expenditures of up to
   25  per  cent by the year 2000 and reductions in export sales  have  been
   similar  across Europe.  Whilst most firms are understandably pursuing  a
   number  of  strategies it seems that in general the  leading  firms  have
   followed  a  "dual-track" course, streamlining their  defence  operations
   through  concentrating  on core military business  whilst  simultaneously
   seeking  to  diversify  into  related,  usually  high-technology,   civil
   markets.  In  general  French  and Italian  contractors  are  seeking  to
   maintain their positions in the defence market, whilst German and British
   firms  have to some degree adjusted already. There is some evidence  that
   German companies are following a more "offensive" strategy through moving
   into related civil markets. UK companies by contrast are pursuing a  more
   "defensive"   strategy   involving  lay-offs,  closures  and   sales   of

                                     - 2 -

   It  is  obvious  that these trends in  defence  expenditure  and  company
   strategies make the dependent regions vulnerable in terms of  employment.
   Whether  employment  cuts  have already been announced  in  a  particular
   region,   or  whether  cuts  are  probable  over  the  short  term,   was
   investigated  via a survey of defence companies.  In practical terms,  it
   is impossible to forecast future factory (and base) closures as decisions
   on  defence  procurement  and  related  company  adjustments  are  highly
   controversial  at the national and regional level. Respondents  indicated
   that  the  regional implications of defence cuts would be  determined  by
   commercial  criteria  and that most adjustment would take at  least  five

   In  addition,  a  number of Community regions will  be  subject  to  both
   closures  and  reductions  in size of military bases.  This  is  true  in
   particular  for  regions containing high proportions of  foreign  forces,
   many  or  most  of whom are due to be withdrawn.  Withdrawal  of  foreign
   forces in Germany will affect both German regions and those regions  into
   which the forces are deployed or disbanded in their home countries.

   The  study  concludes  that any policy response  to  these  changes  will
   require flexibility in terms of area designation and policy  instruments.
   It  stresses the need for a response to address the issues of the use  of
   defence  industries  to  import  new  technology  and  skills,  and  land
   redevelopment which implies the deployment of specific skills in any  new
   policy initiative.

   The executive summary of the report is available as P92/64.

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