Cuts in the European Defence Fund’s budget: at what cost?

Cuts in the European Defence Fund’s budget: at what cost?

The European Defence Fund (EDF) was originally intended as a key measure for achieving European strategic autonomy. Its downsizing is putting future EU military and industrial capabilities into question, while highlighting the permanent lack of defence cooperation between EU member states.

The EDF as an essential tool for strengthening European defence

Proposed in 2017 by the European Commission, the European Defence Fund (EDF) aims at promoting defence cooperation among European countries by fostering innovation and developing cutting-edge defence technologies. As such, the fund’s main goal is to create a common defence industry market, thus triggering economies of scale, via the coordination, supplementation and amplification of national investment in defence.

The EDF has two strands. First, under the research strand, its budget provides funding for collaborative defence research projects. Second, on a capability level, it creates incentives for companies and EU countries to collaborate on the joint development of defence products and technologies. As a consequence, the EDF benefits both large-scale companies and SMEs in the defence sector, ensuring inclusiveness in terms of member states and industry. Cross-border cooperation is thus strengthened, increasing the competitiveness of the whole European defence sector.

Initially, in June 2018, the EDF was allocated €13 billion by the Commission under the Multiannual Financial Framework 2021-2027.  However, with the COVID-19 pandemic, this budget has been revised strongly downwards. Indeed, after five days of intense negotiations, EU leaders agreed on 21 July 2020 on a new €1.074 trillion EU budget, while also passing a €750 billion recovery fund to support EU member states in their fight against COVID-19.

In this budget plan, the EDF’s allocation is down by 39%, with MEPs having indicated the need for more investment in a wide range of other areas including public health, research and the fight against climate change. As a consequence, the EDF’s budget is now down to €7 billion, the massive economic and financial costs of COVID-19 prevailing over the strengthening of European defence.

COVID-19 is not the only threat to European security

Nevertheless, as Josep Borrell highlighted, EU countries should not slash their defence spending, as the pandemic could further jeopardize their security environment.  It is important to bear in mind that the EDF was not created out of nowhere but was strongly influenced by several contextual elements.

On the one hand, Europe cannot count only on the US to ensure its security and defence anymore, as its president continues to question the American guarantees provided under Article 5 of the Washington Treaty. On the other hand, the EU is still surrounded by an “arc of instability”, with threats rising on both its eastern and southern fronts, in a general context of weakened multilateralism.

Finally, Brexit is also raising a lot of questions about EU defence, as the UK had the second highest defence budget and was assuming a big part of the continent’s security architecture through its role in the EU’s nuclear deterrence capability . As a consequence, a strengthening of the current European defence mechanism is highly needed in the ongoing context, and this can only be achieved if EU countries benefit from incentives to work together and create the military and defence technologies of tomorrow.

The need to turn the EU into a real global military power

In order for European countries to be able to defend themselves and choose their own course independently, a consolidation of national defence industries is urgently needed. For this, the EU needs to create a real European Defence Technological and Industrial Base (EDTIB), which can only take shape through the incentives and projects conducted within the EDF.

There are two elements that make this consolidation a compelling necessity. First, defence markets have never been so competitive, with the appearance and reinforcement of new stakeholders such as China and Israel. Second, competition can also be fierce around innovations and technological advances in armaments and military equipment. This leads to ever more significant investment, which most EU countries cannot afford.

In order to finance such investments, EU nations must have companies that are capable of reaching a critical size and of bidding on more extensive contracts . Consequently, by fostering industrial cooperation and collaborative defence projects, the EDF aims to create European global leaders, which could then allow EU defence industries to reduce their dependence on American or Chinese technologies. By doing so, member states would avoid losing between €25 billion and €100 billion every year due to their lack of cooperation, and could save 30% of their annual defence expenditure by pooling procurement.

Beyond this economic aspect, a more unified defence and industrial market could be beneficial for Europe’s capabilities. Indeed, dysfunctional cooperation and EU-wide fragmentation in defence contributes to the lack of deployability of different EU armed forces, hampering the EU’s ability to act and protect. Greater cooperation could also prevent military and industrial duplication, thus reinforcing interoperability between EU armed forces. By using the same military equipment and the same doctrines, missions undertaken by the EU could be more effective, thus turning the EU into a real global military player.

European defence still matters

Despite the economic and social impacts of COVID-19, it is imperative that the EU protects its defence systems and industries. Many European defence companies are convinced that if the defence industries of different European countries do not join forces, or worse, if they continue to compete directly for the same contracts, they will all be eliminated relatively soon.

The consequences of this for European defence would be catastrophic, as EU countries would lose important parts of their national defence industries and would be compelled to rely even more on non-EU technologies. These large national groups are essential for some countries‘ economies; their collapse could lead to major injections of money from public authorities, which would increase their public debts and threaten thousands of jobs.

On another level, as public authorities increasingly dedicate their budgets to fighting the consequences of COVID-19, and as GDPs are expected to decrease due to the economic downturn, the priority given by governments to defence projects will naturally be lower. As a consequence, fewer public policies and resources will be dedicated to military procurement and defence research and development (R&D), which could delay some long-term projects, such as the European stealth fighter program. Defence budgets had already been severely impacted by the 2008 crisis, making EU countries more dependent on NATO to ensure their security. As a consequence, safeguarding the investments made in the EU defence and industry sector appears to be a matter of real urgency and a vital issue in terms of the sovereignty of European nations.

Categories: Debate Corner, Europe, Security

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