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Tough political talks lie ahead between European Parliament and Council over rules and financing of EU’s future defence fund


BRUSSELS – The European Commission’s June 2017 proposal to create a European Defence Fund splits into two parts: a defence research “window” and one for capability development known as the European Defence Industrial Development Programme, or EDIDP. The latter would enable the EU to co-finance with national governments the pre-acquisition costs of testing, prototyping and demonstration for developing defence and dual-use capabilities.

While few policymakers contest the research window’s rules and proposed budget of EUR 500 million per year starting in 2021, there are growing concerns within the European Parliament about the fairness of the EDIDP’s tentative structure and, moreover, how to fund its preliminary two-year budget of 500 million euros for 2019-2020.

At issue are the proposed rules of participation to qualify for EDIDP co-financing.  The Commission will fund up to 20 percent of the costs of collaborative development of defence capabilities, rising to 30 percent for a project developed within the framework of permanent structured cooperation (PESCO), with the relevant national governments contributing to the balance of a project’s development costs.

As currently drafted, an EDIDP consortium must consist of at least three undertakings from two or more member states. In other words, as long as they have a cross-border mixture of three undertakings, it would only take two member states to benefit from EDIDP financing. The Council reached its common position on these rules on 17 December.

That is a problem for a growing number of members of the European Parliament, who will co-approve the legislation with Council. They want wider multi-nation participation rules for capability projects – a position Council opposes.

Reflecting this view, the EP’s Industry Committee, which has the lead on amending the proposal, is leaning toward a change in the criteria to require at least three member states and three undertakings.

“Trialogue sparks lie ahead,” an EU policy official recently confided to SECURITY EUROPE, referring to the final-stage negotiations that take place among the EP, Council and Commission when there are sharp differences over a legislative proposal.

“There’s a strong perception that the two-member-state rule would simply reinforce existing [defence industrial] cooperation between Germany and France, letting them to scoop up most of the money,” the official said.

Political groups on the left and far right of the EP’s political spectrum agree on that interpretation.

German Green MEP Reinhard Bütikofer said the EDIDP’s current proposed bar for participation “is very low. I know of no any other EU subsidy programme for industry participants that is lower than three [countries].  Why should we make an exception here?” he told reporters on 1 February.

The Committee votes on its proposed EDIDP changes on 21 February, after which it goes to the wider EP for plenary approval in the spring. The Commission hopes to get the European Defence Fund’s final approval by mid-2018.

But there is another issue too: how to finance the EDIDP’s preliminary two-year launch phase for 2019-2020.

The Commission’s EDF proposal came far too late to gain a politically agreed place in the EU’s current seven-year budget, whose priorities and funding were nailed down in 2014. Under normal circumstances, the EU could re-deploy the general budget’s “money in the margins”, or EU funding unspent by national governments and returned to Brussels, in order to finance any new initiatives.

However, most of the margin money was shipped back to the member states to deal with Europe’s migration crisis during 2015-2017. As a result, there is only about EUR 125 million in margin money left over for the EDIDP. The other EUR 375m will have to come from existing programmes within the general budget.

The Commission, supported by the Council, has proposed to cut EUR 225 million from the EU’s infrastructure and science spending, and another EUR 130 million from the EU’s Galileo and EGNOS satellite navigation programmes – all things dear to the EP.

“I find it more than ironic that the Council wants to deprive 135 million from a satellite programme [Galileo] that has a clear security-defence dimension for the public in order to finance defence subsidies for industry,” said Bütikofer.

     THE UPSHOT: It will be quite difficult for the EP to undercut the proposed European Defence Fund in any substantial way since it was approved at the highest level by EU leaders during their December 2017 summit.
     However, MEPs will surely demand a price for accepting cuts to Galileo or the other programmes, namely: a widening of the EDIDP’s minimum participation rules from two to three EU countries.
     This would carry obvious benefits for Europe’s smaller member states or those with weak or underdeveloped defence and security sectors. In addition, the wider rules of participation could help kick-start – finally – more joint cross-border procurement and industrial standards in defence, two crucial developments needed if the EU has any hope of seeing a single defence market unfold.
     On the other hand, the more countries involved in multi-nation acquisition programmes, the higher the risk that mandatory industrial share-out will lead to inefficient production, duplication of capabilities, subsidies to uncompetitive players and other ills that have plagued Europe’s defence sector for decades and prevented its rationalisation. ENDIT


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