More ideas than cash: 5 takeaways from the EU’s defense push

It took a bloody Russian invasion to get the European Union to start thinking seriously about defense.

In a taboo-breaking presentation on Tuesday, top EU officials laid out their plan for a dramatic overhaul of the bloc’s defense industry. The strategy includes getting countries to buy more weapons together and less from the United States; fully including Ukraine; ensuring security of supply; financing "ever-warm facilities" to keep churning our arms even during a slump in demand; and slashing red tape for European Defence Projects of Common Interest. 

“Russia’s brutal war of aggression against Ukraine has brought back high-intensity warfare to Europe. After decades of underspending, we must invest more on defense, but we need to do it better and together,” said Josep Borrell, the EU’s top diplomat, during Tuesday’s announcement.

So far, however, those good intentions have been accompanied by very little cash — only €1.5 billion in the European Defence Investment Programme (EDIP). That’s "not a lot of money," admitted Commission Executive Vice President Margrethe Vestager.

While the Commission can talk a good game, its plans need to be approved by the European Parliament and — crucially — by member countries which have historically been protective of their national sovereignty when it comes to military and weapons spending.

Amid criticism from senior EU diplomats the EU executive was keen to stress the plan is neither a power grab nor a push to change treaties. “These matters are in the hands of member states, not in the Commission’s. We just provide tools,” said Internal Market Commissioner Thierry Breton. 

The ideas have been gestating for months, and it will be years before they are fully enacted — but they do mark a “milestone,” as Vestager put it. Here are five takeaways from the proposals: 

1. It’s not great news for the U.S. arms industry 

One of the strategy’s objectives is to ensure EU governments buy fewer weapons from the Americans (although, in a sign of U.S. defense dominance, the actual presentation included a photo of a McDonnell Douglas F/A-18 Hornet jet fighter).

Back in September, several officials said, French and EU bureaucrats were horrified by a study conducted by French think tank IRIS showing that the overwhelming majority of European defense spending was going to contractors outside the bloc. That study was referenced in most of the Commission’s consultation documents on the strategy. 

Brussels now wants half of national defense procurement budgets to go to local companies by 2030, rising to 60 percent by 2035. Currently, nearly 80 percent of weapons are purchased from foreign companies, including more than 60 percent from the U.S., the Commission said. 

Asked by POLITICO whether the EU strategy was bad news for the U.S. defense industry, Vestager said there would be enough arms deals for everybody: "Europe will be more self-sufficient but obviously not fully self-sufficient.” 

However, Breton, a Frenchman far more critical of relying on Washington, replied that the U.S. defense industry can't meet all of Europe’s needs, especially on ammunition. “In a lot of segments we need to do the job ourselves. This is what is called defense readiness and strategic autonomy. But of course we do this also with our allies,” he said. 

The Commission also wants to make it easier for European arms companies to make sales by copying the U.S. system where weapons stocks are available for faster deliveries to clients. That could create greater competition for U.S. companies.

2. It’s all about the money

The Commission has put €1.5 billion on the table for EDIP until 2027, but EU officials admit it's not enough for what is intended. Eventually, Breton wants a €100 billion defense fund.

The Commission does put forward some money plans, however.

There’s an option for countries to use cohesion funds — money to help poorer countries catch up to richer ones. The Commission also wants the European Investment Bank “to change its lending policy” to allow investments in defense (something not currently permitted). 

Another option is for countries to borrow what they need to beef up their military industries, but that splits the bloc. France, together with Poland and Estonia, back the idea, while Germany and other frugal countries are leery — making eurobonds backed by the whole EU unlikely. 

There’s a “potential case of four or five member states joining ... together for a cooperative program in the fields of armament” an EU official said.

But getting countries with varying credit ratings to issue common debt won’t be easy, two diplomats noted. 

Another avenue for extra cash could be windfall profits from the billions in seized Russian assets. However, Borrell was quick to scotch that option, telling reporters on Tuesday that national governments had reached no agreement on this point. 

3. Unprecedented powers over production

Get ready for an alphabet soup of acronyms.

We've had ASAP for ammunition subsidies and EDIRPA to boost joint procurement; now the Commission wants to get FAST — the Fund to Accelerate Defence Supply Chains Transformation — on track as well.

The cash pool is targeted at smaller and mid-cap firms which, it is hoped, will use the bloc’s heft to expand their supply lines for armament production, but it’s unclear how this will happen in practice.

There is, however, a commitment to figure out how to assist the minnows before the next EU budget is firmed up through a Defence Innovation Scheme (EUDIS), which would help firms find investment and clients for projects that might otherwise not be bankable. 

There is also a plan to figure out how civilian production lines could quickly be switched to churn out military products. Such initiatives will be controversial in national capitals wary of losing control of key industries.

Nevertheless, it will be necessary to find overlaps between consumer and military manufacturing in order to build out the factories needed to keep military manufacturing on standby even if demand slumps — known as “ever-warm” production. 

4. There’s another player in town: NATO

The European Commission is not the only supranational institution to come up with a defense industrial plan. During the alliance's summit in Vilnius last summer, leaders agreed on a Defence Production Action Plan to boost joint procurement and production capacity.

"If this new unveiled strategy is seen as complementary it’s one thing, but if it’s seen as contradictory [with NATO’s], that could be a bit of a political problem," said Robert Pszczel, a former NATO official and senior fellow at Poland’s Centre for Eastern Studies.

A senior NATO official said the EU’s plans for more financing are welcome — but the organization is watching closely to see if the EU will push issues like its own standards for weapons, pointing to the EU document’s mention of the need to “promote the use of agreed civil or defense standards, such as NATO [standardization agreements].”

He added that the EU should focus on NATO standards alone, given that the vast majority of EU countries belong to the alliance . 

“The proliferation of different standards will create risks — and risks to soldiers,” the official said, adding this should remain a “core NATO competence.”

Breton brushed aside concerns the strategy could collide with NATO. “All this is done in close collaboration with NATO. The standards we develop in Europe are NATO standards,” he said.

5. Ukraine treated as a quasi EU member

One of the Commission’s key points is that Ukraine will be treated almost like a member of the bloc, able to participate in EU joint procurement, with Ukrainian companies eligible for EDIP cash.

"Ukraine will be able to benefit from the support of this strategy for their defense industry and increase their production capacity like any European company," Breton said, adding that the goal is to prepare the integration of Ukraine's defense production apparatus with that of Europe.

Vestager added: “It’s a signal of the future of Ukraine as a member of the EU.”

Kyiv was pleased with the plan.

"We welcome the fact that the future security system of a united Europe is being built today, taking into account the future process of Ukraine's accession to the EU," the Ukrainian defense ministry said.

Laura Kayali reported from Paris. Jacopo Barigazzi reported from Brussels. Stuart Lau contributed reporting from Brussels. Veronika Melkozerova contributed reporting from Kyiv.