* EU seeks bigger role in tackling crises
* Defence cuts undermine militaries and industry
By Adrian Croft
BRUSSELS, Dec 14 (Reuters) - European Union leaders pledged on Friday to plug the gaps in Europe's military capabilities and strengthen its arms industry as austerity budgets threaten to damage both the continent's military capabilities and its weapons makers.
The leaders also pledged at a Brussels summit to try to boost the EU's role in tackling international crises now that the U.S. military focus is shifting to Asia, creating demand for a bigger EU security presence in Africa and the Mediterranean.
"Current financial constraints highlight the urgent necessity to strengthen European cooperation in order to develop military capabilities and fill the critical gaps, including those identified in recent operations," they said in the conclusions of the summit.
Security and the defence industry are scheduled to be a major item on the bloc's December 2013 summit, which will look at ways to strengthen the EU common security policy and to provide more resources for missions in conflict zones.
Many Western European countries have cut their defence budgets in response to the financial crisis, leading the EU's outgoing top military officer to warn in September that some EU states may be forced to scrap their air forces in a few years.
Europe's military deficiencies were exposed during last year's Libya campaign, when European states relied heavily on the United States for air-to-air refuelling, intelligence and surveillance.
ARMS MAKERS HIT
The reduction in government contracts has hit Europe's arms manufacturers hard, forcing them to diversify into civilian business or to consider merging.
A lack of funds has also eaten into investment, fuelling fears Europe could lose the technological edge that has made it a leading arms exporter.
For both the EU and NATO, the solution is for groups of countries to work together to develop and use key defence capabilities that single states can no longer afford themselves.
The collapse of the proposed defence mega-merger between Franco-German dominated EADS and Britain's BAE Systems in October privately disappointed many EU officials who believe Europe's defence industry is wastefully fragmented.
The EU leaders promised to encourage "more systematic and longer term European defence cooperation" and to develop "a more integrated, sustainable, innovative and competitive European defence technological and industrial base."
European Commission President Jose Manuel Barroso said the EU executive would present next spring a strategy for making the region's defence industry more efficient.
However, greater cooperation is hampered by national fears of losing independent defence capabilities.
The EU has become a more active security player in recent years, sending a joint naval force to combat pirates off Somalia and a police training mission to Afghanistan.
But European attempts to project itself as a major military power have been thwarted by disagreements. Britain, in particular, is one of the bloc's more enthusiastic military powers, but opposes greater EU defence integration as it wants NATO to remain the leading regional security force.
Europe's common security policy is "stuck between the strategic realities of declining defence budgets, waning European power in the world and a lack of will and ability to project strategic force outward", said Hugo Brady, a senior research fellow at the Centre for European Reform thinktank.
"And on the other side, political inertia to do serious stuff in defence."