PARIS: Increasing takeover of European military industry by US companies is raising new concerns in France and Germany. The US investment fund KKR (Kohlberg Kravis Roberts & Co) bought the German aeronautics firm Motoren and Turbinen Union (MTU) last month for an estimated 1.8 billion dollars.

The firm produces engines for the Eurofighter aircraft. The company is also a leading supplier to the German federal army (Bundeswehr). MTU was acquired just days before the German government passed a new law giving it the right to veto sale of strategic industries to foreign companies. The law sets a 25 per cent limit on foreign investment in defence companies.

The right-wing opposition party Christian Democratic Union called the law "hostile" to the North Atlantic Treaty Organization (NATO), but Finance minister Wolfgang Clement said it "corresponds to similar laws covering strategic sectors in France, the United States and Britain."

The law was introduced after the US investment fund One Equity Partner bought the manufacturing facilities at HDW, the world's leading submarine manufacturer in 2002. The US military firm Northrop Grumman was involved in the takeover, German military specialists say.

The new legislation is due to be tested soon. The high-tech manufacturing firm Siemens is planning to sell its military division Krauss-Maffei Wegmann which manufactures tanks and armoured vehicles. Several US firms are reported to have shown interest in the proposed sale.

US firms are stepping in all over Europe. General Dynamics has over the past five years bought military companies from Styers in Austria, Mowag in Switzerland and Santa Barbara Blindados in Spain. All three were placed under a single management in October last year.

The US firm tried also to take over Alvis, the British manufacturer of armoured cars. The move was blocked by the British firm BAE Systems. "But as a result of the European acquisitions, General Dynamics now has considerable influence over production of engines for the Leopard armoured car," a French industry manager told IPS.

"The US military industry has been trying to get into this European sector for years," he said. "They are now establishing a cordon around us." The next US step could be into SNECMA, the engines manufacturer at the heart of French military industry. The French government is considering privatization of the firm.

Jeffrey Inmelt, chief executive of the US giant General Electric (GE) told the French newspaper Les Echos that he is "very interested" in a share in SNECMA.

"The French company is of central strategic importance in the construction of aircraft engines," he said.European industry is fragmented and therefore prone to acquisition by big companies, says Dominique Gallois, defence expert with the newspaper Le Monde.

"One possibility is to set up a conglomerate like the European Aeronautics Defence and Space (EADS) company," Gallois says. The company supported by the French, German, Spanish and British governments manufactures the Airbus. EADS itself could bring together several European defence firms under its wing, Gallois says.

Pascal Boniface, director of the French Institute for Strategic Studies says European companies must enter into alliances to maintain their independence.."After the second war against Iraq, the US government and its allies in the military industry don't want to see an independent and powerful European counterpart," Boniface told IPS. "That itself shows that this industry is of strategic importance."-Dawn/The InterPress News Service.