EU defence industrial policies: moving from words to deeds with European defence bonds.

…and a possible breakthrough

But, most significantly, the foundations of a legitimate EU defence industry rest on adequate funding. This means that the conversation on European defence bonds must move forward.

European Commissioner Thierry Breton, the outgoing head of the EU’s defence industry, has stated that the EDIP requires €100 billion for effective implementation. This figure contrasts sharply with the €8 billion currently allocated under the EDF, from which the €1.5 billion EDIP portfolio has been extracted and repackaged.

EDIP funding should not come at the expense of the EDF and the valuable role it has played in funding joint research and development, which should continue under the next EU multiannual financial framework (MFF). Considering that capacity building and production require a different order of magnitude of resources, €1.5 billion is merely negligible and the EDIP 2.0 budget should be revised to at least €42 billion.

Spread over the MFF 2028-2035, this would amount to approximately €6 billion/year to cover part of the costs of joint production and procurement of four to six high-end capability development programmes. This would allow the EU to co-finance at least one European flagship project in each physical operational domain (land, naval, air and space) and joint efforts such as integrated air and missile defence.

In this context, the real ‘Hamiltonian moment‘The EU’s first defence policy would be a decision to issue joint debt to adequately finance the ambitions set out in its Defence Industrial Strategy.

Based on Art. 122 TFEU and implemented in accordance with Articles 173-174 TFEU, such bonds – possible under the EU Financial Regulation – could provide support for grants to Member States to strengthen the Union’s defence production capacity if combined with existing incentives for joint research, development, production and acquisition of capabilities. This would avoid the two-speed logic and weaker conditions of the proposals for using the European Stability Mechanism (excluding key countries such as Poland, Sweden and Denmark) to issue loans to EU member states for defence spending.

Just as the Covid-induced Recovery and Resilience Fund stabilised European markets and sustained demand during and after the pandemic, European defence bonds have the potential to be a game-changer for EU defence ambitions due to the potential speed and scale of resource mobilisation, and the potential impact on market defragmentation. And, fortunately, this time the German Constitutional Court has ruled against this. should have no objections.

Under our proposal, major defense manufacturers in typically frugal countries like the Netherlands, Sweden, Denmark, Germany and Finland would surely benefit from the joint acquisition objectives Europe’s defence industrial base. The $50 billion loan secured by interest on frozen Russian assets could also be freed up to allow the European Instrument for Peace to focus on the immediate needs of the battlefield in Ukraine.

Above all, the strategic imperative could not be more evident. Russia’s full-scale invasion of Ukraine is a clear threat to European security and the EU must explore all avenues to fund its ability to deter Russia from expanding and escalating the conflict in order to fully meet its obligations. Joint security commitments with UkraineWith great ambitions comes great responsibility to deliver ambitious solutions, and the funding that goes with them.

Article translated from the website of CEPS.

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