The Greek defense industry can no longer stand on its own in today’s competitive world; it will either modernize and seek orders from abroad – even outside the military sector proper – in partnership with corresponding European concerns, or perish, reports prepared by the defense and economy ministries suggest, according to sources. Such considerations are only a small part of a broad search in Europe for the formation of strong defense groups that will be able to meet American competition; 40 percent of European defense supplies are procured in the USA, while the Americans only buy 15 percent of their armaments from Europe. The issue will come up at the Greek EU presidency’s summit meeting in Thessaloniki next year. According to sources, the possibility of an EU directive for introducing competition into defense procurements (direct assignments are allowed today) will create a serious problem for the Greek defense industry, which survives on state orders. The general situation in the Greek defense industry today is as follows: 1. The shipbuilding sector, consisting mainly of the Skaramangas and Elefsina shipyards, is seen as having reasonable prospects until 2008, thanks to big orders from the Greek armed forces. Skaramangas, recently purchased by the German consortium HDW-Ferrostaal, and Elefsis, in collaboration with Vosper, will build submarines and frigates for the Greek Navy respectively. But officials hold the view that the two concerns cannot rely solely on such orders in today’s fast-changing conditions and must speedily expand to other activities, such as participation in processes for incorporating and integrating electronic systems. 2. The traditional defense industry, mainly consisting of the Hellenic Arms Industry (EBO) and PYRKAL, which also largely rely on state orders, has entered a restructuring phase through streamlining and administrative integration. But merging overlapping competitive activities is considered only a beginning and the search for foreign partners certain, with a view to achieving greater specialization. 3. Hellenic Aerospace (EAB), the aircraft repair concern, and the Hellenic Vehicles Industry (ELBO) are felt to be in urgent need of alliances. There were hopes that EAB, in particular, which was nearly privatized in 1999, would participate in the production of the Eurofighter jet as part of a Greek Air Force order for 60 of these planes, worth about 6 billion euros. The scheme, however, did not materialize and, even though the order was officially postponed until after 2004, is unlikely to do so given the pressure on Greece to reduce high debt, besides the government’s own battling with the age-old dilemma of «guns or butter.» Developments in relations with Turkey will obviously be a crucial factor in arms spending. Experts say that the balance of power in the air, as projected after the delivery to Greece of F-16s and Mirage fighter jets in 2005, will be in favor of Greece until 2010. EAB’s participation in a European consortium is considered by Defense Ministry officials as more than necessary, and capable of creating jobs besides having the advantage of the acquisition of know-how. ELBO, which is now majority controlled by the Mytilineos group, is also seen as depending on seeking orders beyond the Greek army. The subcontracting job which the company will undertake as part of the purchase of 160 tanks is also considered crucial to its prospects. Beyond any possible alliances, the intrinsic weaknesses of the Greek defense industry are considered difficult to tackle without a change in mentality. Several defense-oriented firms today are only a step ahead of bankruptcy, having for years survived only on state orders and state-guaranteed loans. The only thing Economy Minister Nikos Christodoulakis has been able to do is indicate he will withdraw such guarantees in 2003. But it is doubtful that he will be able to keep his declared ceiling on spending. Such a stand is likely to lead him to clash with the party; it is an open secret that state-controlled firms have a large number of surplus personnel who have not been transferred to other departments because of political favoritism.