Funds

How to make sense of the EU’s defence funds and programmes – Euractiv


The EU’s defence programmes and funds have multiplied after Russia launched its war in Ukraine to boost collaboration in different steps of an equipment’s life cycle: research, development, production, acquisition, and transfer to third countries. 

The past two European Commissions have entirely changed the way the EU saw its role in defence industrial policy, with the bloc starting investment into research and development – a big step for the EU at the time – followed by schemes set up to answer the EU countries and Kyiv’s military needs.

Former Republican US President Donald Trump’s administration openly pushed Europeans to take security into their own hands instead of counting on unconditional US support, prompting the bloc to look into investment and coordination to jointly produce military equipment and technology and reduce their third-country dependencies.

After Russia’s aggression against Ukraine in February 2022, the urgency accelerated the steps to boost the European defence technological and industrial base (EDTIB) and set up programmes to motivate the member states to team up further in capability development, production and exportation.

EU member states decided collaboration would benefit Ukraine’s defence capabilities, with EU funds as an incentive for the capitals and national industries.

Since the EU’s budget cannot fund defence purchases, the scheme had to work towards consolidating the single market.

EU member states, however, remain reluctant to cooperate on national security-related matters such as defence and to put the bloc’s industry first when they can also procure from out of the continent faster and cheaper.

However, the programmes set up since 2022 remained small and ill-funded, partly due to the previous EU budget not having foreseen a full-fledged war on the continent.

Step #1 Research and capability development

The EU started funding defence research and development in 2017 with two EU-funded ‘pilot programmes’ to boost innovation, put EU-made options on the market, and provide an alternative to non-EU-made products.

The Preparatory Action on Defence Research (PADR) was allocated €90 million between 2017-19 to fund research projects and technologies.

It was followed and complemented by the European Defence Industrial Development Programme (EDIDP), with a financial envelope of €500 million for 2019-2020 to fund the joint development of defence products and technologies.

Based on the experience of those two funds and programmes, the European lawmakers created the €8 billion European Defence Fund (EDF) to fund collaborative research and development, including at least three companies based in three different countries. The EDF regulation finishes at the end of the EU budget’s current cycle (2021-2027). 

It was initially proposed at €13 billion but was halved in summit negotiations of 2020. 

The EDF is to get a €1,5 billion top-up under the new Strategic Technologies For Europe Platform (STEP), according to the bloc’s budget review enacted by the EU leaders in February 2024.

In 2024, the Commission launched a consultation ahead of the planned review of the fund, which may change the planning.

Last year, the Commission was accused of not guaranteeing the independence of experts invested in the grants selection process and will have to answer the EU Ombudsman.

  • The financial institutions’ risks

In addition to the well-known EDF, the European Investment Bank (EIB) is also investing in dual-use research and development projects (for both civilian and military use) via the Strategic European Security Initiative (SESI) – despite the perception that it does not get involved in defence funding at all.

The newest kid on the block is the Defence Equity Facility (DEF). Under this scheme, the European Investment Fund, with the Commission’s EDF, will also invest €175 million into small companies and start-ups, taking up the financial risks of innovation, they announced in January 2024.

  • PESCO: research and development to produce and procure

The EU provides the table for member countries to decide to develop military equipment together past the research phase of the capability’s life cycle. The goal is then to manufacture and purchase the same pieces of equipment together.

Created in 2017 following French President Emmanuel Macron’s push, the Permanent European Structured Cooperation (PESCO) was initially supposed to be for a small group of EU member states – those that are ‘willing’ and ‘capable’. It, however, currently includes 26 out of 27 countries, minus Malta.

The EU member states are currently in charge of managing 68 projects under the Council’s oversight. Some programmes were abandoned for lack of results.

The programme is expected to be reviewed this year and concluded by the end of 2025. Member states are invited to re-think their commitments and ambitions and adapt them all to the current geopolitics. It is yet unclear what will come out from the reflection.

PESCO projects may benefit from EU funding for research and development under the European Defence Fund programme (EDF).

Step #2 Production

After Russia invaded Ukraine, EU countries started donating large amounts from their weapons and defence equipment stocks to Kyiv to help its armed forces fight.

To encourage the industries to step up production pace to sustain ammunition and missile deliveries from Europe to Kyiv, first and foremost, the European Commission proposed the Act in Support of Ammunition Production (ASAP) in May 2023. 

Since the scheme is funded with EU money, it also aims to motivate the EU industries to work together to consolidate the European industrial base by identifying potential supply chain bottlenecks and taking advantage of available production lines.

The proposed act initially included a wide range of regulatory measures to boost production, the Commission argued. They were, however, rejected by the EU countries. They postponed the discussion and decision on three sensitive issues: waivers for intra-EU transfers, priority-rated orders, and supply chain mapping.

Internal Market Commissioner Thierry Breton, in charge of defence, said the European industry could produce 1.4 million rounds of ammunition annually at the end of 2024, thanks to this plan.

The €500 million fund was adopted two months after its presentation in July 2023 via a fast-track procedure. The results of the call for projects will be published in April 2024, with retroactive payment.

ASAP is the ‘third track’ of the EU’s ammunition plan, a scheme set up to deliver one million rounds of artillery shells and missiles to Ukraine by March – a goal unlikely to be met on time – and increase industry output.

Step #3 Procurement

The EU started work to motivate joint procurement of weapons via the European defence industry reinforcement through the Common Procurement Act (EDIRPA) after the start of the Ukraine war.

The Act, adopted with a €300 million fund from the EU budget, was initially billed in May 2022 as an urgent solution to replenish the EU countries’ stockpiles after they donated large amounts to Kyiv to fight Russia and give them more leeway to continue the transfer of military aid.

According to the proposal, billed at €500 million, EU countries would jointly buy weapons, and the EU budget would pay for the extra expenses related to the administrative costs of collaboration.

However, internal debates in the European Parliament over each committee’s rights and say on the text delayed the swift adoption the EU executive had hoped for.

A push from certain lawmakers to allow the joint procurement from third countries’ industries, which the Commission refused since the text’s legal base was the boost of the EU industry, also compromised the urgency of the programme.

EDIRPA was late and missed its first objective – to answer the member states’ urgent needs and ensure deliveries to Ukraine.

The EU institutions thus proposed a three-track ammunition plan to deliver one million rounds of ammunition to Kyiv in under one yearand boost ammunition and missile production across the continent. The plan is based on an idea from Estonian Prime Minister Kaja Kallas in February 2023.

EDIRPA’s ‘emergency’ instrument was finally adopted in the summer of 2023, more than a year after it was tabled.

Because of the delays in negotiations, the lawmakers, therefore, also reallocated part of EDIRPA’s proposed budget of €500 million to the Act in support of ammunition production (ASAP), the ‘third track’ of the ammunition plan to boost production.

In the meantime, the ‘second track’ of the ammunition plan was established, whose goal is to motivate European joint procurement directly for Kyiv this time. It serves the same purpose as EDIRPA, only with an extra focus on ammunition and missiles. It is dedicated to the war-torn country and is funded by €1 billion from the European Peace Facility (EPF).

Negotiations around the scheme largely revolved around the origin of the funded equipment. France pushed for the EU money to only benefit EU-made (and Norway) equipment and industries – which eventually won – while other countries saw it as inefficient given the urgency of the Ukraine war.

Contracts are passed either via the European Defence Agency (EDA) or by so-called lead-nations.

Step #4 Deliveries to third countries

The EU budget does not play a role in exporting the EU member states’ weapons. 

However, the EU does provide the framework of the European Peace Facility (EPF), an off-budget fund which allows EU countries to pay for lethal and non-lethal military support and transfer it to third countries. Decisions regarding the EPF take place in the intergovernmental forum of the Council.

In a move to support Ukraine’s fight against Russia, EU countries also decided to use the EPF  to reimburse themselves for donated military aid to the country, accounting for around €3,5 billion. 

The emergency and unexpected use of the EPF to help Ukraine had EU countries topping up the pot with another €5.5 billion.

It includes a €2 billion increase for the three-track ammunition plan to incentivise the de-stocking in March 2023 under the so-called ‘first track’ of the ammunition plan. The plan was set up to send Kyiv one million rounds of ammunition in one year – a goal the EU will unlikely meet in April 2024.

Since the Europeans’ stockpiles are running low, their military support to Kyiv is shifting from donations to procurement. 

EU member states will need to decide the future of the EPF after the bloc’s leaders postponed an agreement to top up the fund for Ukraine, as some countries (especially France and Germany) wish to change the reimbursement modalities. Leaders asked their envoys to find an agreement on both matters before March 2024.

More generally and outside the EPF’s framework, the EU provides guidelines for exporting defence material owned by the member states, for instance, for human rights protection.

However, there is no European framework for export rights of jointly-owned equipment. Countries that develop or buy capabilities together are to find an agreement on that matter together.

Step #5 Coordinated planning of armed forces’ capabilities  

Each country develops its armed forces according to its needs and interests and decides on which military equipment it will invest in.

The Europeans decided it was best to streamline their efforts and goals to fill the gaps around the continent and focus investment on strategic capabilities for which they now depend on other countries (i.e. technology research, capability development, etc.). That goal also works hand in hand with investing in EU-based companies to consolidate the industrial base.

At the EU level, member states communicate their armed forces’ plans and needs to create a long-term planning strategy for all. That work is channelled into different documents.

The Capability Development Priorities (CDP) is a document that drives all EU defence-related initiatives. It wants to give member states a list of priorities to adapt their warfare and identify defence equipment to purchase, develop or research to fill in any gaps.

The EU defence ministers set a new CDP in the autumn of 2023 to reflect the need for more conventional defence equipment and counter-drone tactics in their armed forces’ ranks, learning lessons from Russia’s war in Ukraine. The last version of the document was issued in 2018.

The European Defence Agency (EDA) identifies collaborative opportunities to facilitate cooperation in its Coordinated Annual Review on Defence (CARD). 

“Over time, this will lead to a gradual synchronisation and mutual adaptation of national defence planning cycles and capability development practices,” the EDA states on its website.

For now, “defence planning continues to be done mostly in isolation, and (…) member states remain unconvinced by European cooperation projects,” the last report stated in 2022.

The European Defence Fund (EDF) for research and development, for instance, works based on a multi-annual programme, reflecting the member states’ priorities.

The European Union’s work on defence was in the spring of 2022 also brought in line with the Strategic Compass, the bloc’s first defence strategy, and threat assessment.

Step #7 An over-arching strategy?

The European Commission is looking to present two new programmes in February 2024 to increase the bloc’s industrial capacity: the European Defence Investment Programme (EDIP) and the European Defence Industry Strategy (EDIS).

Brussels is looking to propose a programme (EDIP) that would follow up on EDIRPA and ASAP and an over-arching strategy (EDIS) that would fill the gaps in the current schemes, which were mainly set up for short-term emergency reasons.

All programmes end in 2027 at the latest, which is the end of the EU’s current seven-year budget, and will, therefore, have to be re-discussed and approved by lawmakers in the next mandate.

After the EU elections in June, the new Commission will have to decide how the bloc can consolidate its defence industry and technological base across the continent.

Any upcoming long-term scheme would give the EU executive a larger role in a domain traditionally reserved for member states, considering the sensitive nature of national security-related investment and strategies.

While their exact scope is still to be revealed, the EDIS papers proposed establishing an EU-wide defence single market scheme that would cover the entire life cycle of equipment, from the time of its conception and technology research to joint ownership. 

This could turn the EU’s current scattered efforts into a full-fledged defence industrial policy.

[Edited by Alexandra Brzozowski/Zoran Radosavljevic]

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