The European Commission’s ReArm Europe proposal aims to see member states unleash up to €800 billion in defence spending over the next four years.
The European Commission’s highly-anticipated White Paper on Defence plans for member states to start pouring hundreds of billions of euros into the sector before the end of the year but largely fails to outline innovative and common financing opportunities.
The White Paper, released on Wednesday, broadly rehashes the Commission’s ReArm Europe proposal unveiled two weeks ago that could see member states mobilise up to €800 billion for defence over the next four years by notably, pooling orders and procuring equipment together.
Kaja Kallas, the EU’s top diplomat, described it as “a pivotal moment” for the bloc.
“The value we add by working together is priceless. It gives us a competitive advantage that is unrivalled anywhere in the world,” she told reporters during a press conference to present the White Paper.
The main financial firepower for member states comes from the activation of the national escape clause in the Stability and Growth Pact, which would allow them to deviate from stringent EU fiscal rules that limit debt and deficit levels to 3% and 60% of GDP respectively.
An EU Commission official, speaking on condition of anonymity, said on Wednesday morning that they hope all 27 member states will request to activate the escape clause before, or in, April. The Commission will then have to assess the request, but “we hope the process can be concluded before the summer break”, the official said.
Commission chief Ursula von der Leyen previously said that by allowing member states to pour in an additional 1.5% of GDP on defence over the next four years, member states should be able to invest some €650 billion into defence.
Another EU official, also speaking on condition of anonymity, however said that “the final outcome, we hope, will be even higher”.
Accessing the other main financing option, the so-called SAFE instrument the Commission hopes to urgently set up to raise money on the capital markets to then loan up to €150 billion to member states, will require governments to submit requests for funding within six months.
Capabilities the Commission has identified as priority areas include air and missile defence, artillery systems, ammunition and missiles, drones and counter-drone systems, AI, Quantum, cyber and electronic warfare and strategic enablers.
One of the officials quoted above said negotiations between member states and the Commission on the basis of these plans should be relatively fast as the money will be given as loans member states will have to repay and not as grants.
The other three main proposals outlined in ReArm Europe to allow member states to invest more in defence over the next four years include expanding the mandate of the European Investment Bank, allowing the use of cohesion funds into defence projects, and enabling the use of savings and private financing into the sector.
The only new financial option outlined in the White Paper is the possibility for member states to waive VAT for purchases they make jointly with other member states through the SAFE instrument. It is unclear however how much money this will save member states.
One of the Commission officials defended the lack of new financing options, saying ReArm “is already a considerable answer to the question of how we can help member states” and that what is included “doesn’t necessarily exhaust the scope of this debate.”
EU leaders should return to the issue at a summit in June. Some, like France’s Emmanuel Macron, have for instance called for the use of so-called Eurobonds as well as the deployment of own resources, such as a digital tax.
ADVERTISEMENTMacron however seemingly secured a big win with the Commission including a European preference to secure money through SAFE, which would require the equipment purchased to have 65% of its content emanating from the EU and for the EU manufacturer to have design authority over the remaining 35%. This is to ensure that no third country can block the use of the equipment going forward.
The other flagship proposals in the White Paper include a European Military Sales Mechanism proposal to allow member states to aggregate demand and jointly procure equipment, already outlined by von der Leyen on Tuesday, as well as a European Armament Technological Roadmap, to boost investment in disruptive technologies for military purposes including AI and Quantum.
Finally, the Commission proposes to create strategic stockpiles and defence industrial readiness pools. This will be facilitated through the long-awaited European Defence Industry Programme (EDIP) regulation that is set to include a possibility to financially support stockpiling, according to one of the EU officials who spoke on condition of anonymity.
The European Parliament said last week that it would aim to fast-track the regulation.
ADVERTISEMENTThe aim of stockpiling military capabilities, an EU Commission official said, is that “we want to be more agile and responsive to any crises”.
Defence Commissioner Andrius Kubilius, speaking alongside Kallas, told reporters that the White Paper is “the beginning of the road and not an easy one” and that the priority for the EU’s executive is now “implementation, implementation, implementation”.
“Putin will not be deterred if we shall read the White Paper to him. He will be deterred if we shall turn the White Paper into action and if we shall use it to build real drones, tanks and artillery for our defence,” he said.
