EU’s new defence programme looks to revamp bloc’s industrial strategy

With its long-awaited defence industry programme, the European Commission looks to use the bloc’s budget to restructure its defence industrial base, showing determination to ramp up sustainable production across the continent and become more independent from other suppliers such as the US.

The strategy and the programme “will look into making the European defence industrial base fit for the current security challenges”, one EU official told Euractiv ahead of the presentation of the European Defence Industry Strategy (EDIS) and its accompanying programme (EDIP) in the coming weeks.

It will also “push the member states to do more and better together as Europeans”, from research to procurement of all types of equipment, the official added.

EDIS and EDIP will look to fund a ramp-up of the production capacity of all defence equipment across the bloc, with subsidies and leverage from the financial markets.

To do so, the Commission is looking at how to consolidate demand, increase the industry’s availability and visibility, organise joint procurement, limit bottlenecks in the supply chain, and ensure the security of supply, following up on its suggestions in consultations with the industry.

The European Union has set up a whole range of instruments and funds in recent years, from research funding to almost doubling ammunition production across the bloc thanks to the mapping of capacities and organisation.

However, those groundbreaking programmes addressed urgent concerns resulting from the war in Ukraine and did not take into account the need for the European defence technological and industrial base to ramp up production capacity sustainably and be prepared for the long haul.

Officials in the EU and NATO have warned that the war in Ukraine is becoming a war of warehouses, where production capacity will be key.

The president of the European Commission, Ursula von der Leyen, showed her interest in the proposal in an interview with the Financial Times, after months of hesitation to green-light the strategy – the president had shied away from announcing the strategy in her state of the union speech in September, only mentioning it in answers to the parliamentarians’ questions.

Her ownership of the sensitive issue is now making a case for an enhanced role of the EU in financially supporting the defence industry in going from a peace-time pace to a war economy while consolidating the defence single market.

Competition with the US

While the European defence industry is still struggling to propose ways to quickly produce equipment that would answer the needs of EU countries and Ukraine, the US has industries working around the clock, with easy-to-buy on-the-shelf options.

Since the war in Ukraine started two years ago, around 70% of European purchases were made in the US.

But European companies have argued against investing massively into new production lines as governments took time to sign contracts, hampering stockpiling and fast delivery of equipment to Ukraine.

“There must be a shift to address the matter of availability of the industry in terms of time and volume – it has become an issue of competitiveness and security,” the EU official said.

A-Z defence industry support scheme

But, according to the official, Europe is turning a page. “We are launching a real defence industry policy.”

The scheme is to be the “extension of the instruments put in place for ammunition production capacity to all defence equipment”, the EU official also said, referencing an expansion of existing joint procurement boosting vehicle EDIRPA and the act in support of ammunition production (ASAP) to help companies ramp up production.

Some of the elements the Commission plans to table are already known, such as a regulatory framework allowing for priority-rated orders and a VAT exemption for member states’ consortia jointly procuring in Europe.

The Commission is also expected to create a whole range of instruments.

Thierry Breton, the EU commissioner in charge of industrial policy, last month mentioned that the Commission could play a role in de-risking investments for the companies into production and ramp-ups to make the production and procurement processes faster.

In a bid to avoid another de-industrialisation of Europe as it happened after the Cold War, other key instruments highlighted by industry sources involved in the consultation with the Commission included ways to keep “ever warm” factories and a European military sales mechanism based on the US foreign military model and the systems around joint ownership.

Ukraine’s industry could also be closely linked to the European project, as suggested by von der Leyen in the autumn, while EU defence programmes are usually reserved for EU countries and Norway.

Cooperation between the bloc’s and Ukraine’s industry has been billed as an important aspect of a security commitment to the war-torn country, according to an internal memo from the EU diplomatic service seen by Euractiv.

Last month, Breton said the EU needs €100 billion for defence and EDIP €3 billion, but the bloc’s budget does not have those resources.

This is therefore also likely to add pressure on the European Investment Bank (EIB), the bloc’s lending arm, to become much more active in financing defence projects, taking advantage of its AAA investment rating to secure preferential rates on financial markets, which it has until now refused.

EU finance ministers meeting in Ghent, Belgium, next week will discuss changing the EIB’s lending policy, after the EU leaders called on the bank to be more involved in defence in December.

[Edited by Zoran Radosavljevic]


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