Look out for the new European Defence Fund!

As the new European Commission takes office and starts working on its new priorities, strengthening Europe’s capacity to act as a credible security actor appears high on the political agenda. In a context of falling defence spending, unnecessary duplications and lack of synergies, the Commission has taken the lead in strengthening Europe’s defence industry through an ambitions 13 billion Euro programme aimed at research actions in the field of disruptive future technologies and joint capability development: the European Defence Fund (EDF).  

According to the European Commission, ‘in 2015, only 16% of defence equipment was procured through European collaborative procurement, far away from the collective benchmark of 35% agreed in the framework of the European Defence Agency (EDA). The estimated share of European collaboration in the earlier stage of defence research was of only 7.2% against a benchmark of 20%’. Applicants will have to team up with at least two other entities from 3 Member-States or more to be granted funding.

While including ‘European Commission’ and ‘defence’ in one only sentence may seem counterintuitive, the Fund should be understood as an industrial policy instrument above all else in a context where the EU is seeking to up its game on the geopolitical stage. At the same time, the Commission has insisted it will particularly encourage cross-border participation by small and medium-sized enterprises ‘to ensure that the Fund remains open to recipients from all Member-States, regardless of their size and location in the Union’. The legal basis for the Commission’s ambitious plan are articles 173 and 182 Treaty on the Functioning of the European Union (TFEU) to liberalise what it considers to be a very protectionist market leading to inefficiencies and higher prices for the end consumer –the taxpayer. 

While the link between the more tangible and obvious aspects of defence on the one hand, and defence industry on the other, may seem remote, the two are profoundly intertwined. A strong defence industrial basis acts as the industrial enabler in securing Europe’s strategic autonomy (i.e. the capacity for Europe to act autonomously). A good illustration of this is the US International Traffic in Arms regulation which allows the US to forbid the export of military equipment containing US parts, effectively impinging on Europe’s autonomy. The EDF is part of an effort to develop a strong European industrial base which would limit dependency and ensure greater freedom of action for Europeans in the long term. 

The money (forecast at 13 billion though this is conditional on the final MFF agreement) is not insignificant. The European Defence Fund amount to the third largest defence investor in the EU post-Brexit after France and Germany. If used wisely, the Fund could have a non-negligible impact on the current industrial landscape, investing in disruptive capabilities and encouraging smaller and medium companies to design, test, prototype and market their products thanks to EU funding. Even more so when we know that while the majority of funding for disruptive technologies in defence in the US come from private funding, European SMEs are highly reliant on public funding at the early stages. Through the Fund’s precursor programmes (European Defence Industrial Development Plan and Preparatory Action Plan for Defence Research), the Commission has already invested 500 Million in capabilities such as CBRN, cyber and maritime surveillance, and ground-based precision strike. 25 Million have also been invested for research in Electromagnetic Spectrum Dominance and Future Disruptive Defence Technologies. Investing today in future capabilities aims to bring Europe at the forefront of the new defence technologies in 10-30 years’ time. This logic is in line with Christensen’s famous analysis: ‘Whereas sustaining technology is the gradual development of existing technology, disruptive technology revolutionises its field of action, with all the potential gains and risks associated with it’ (Christensen 1997).

As the new Commission gears up for the management of this powerful EU instrument, a number of points are there to look out for.

The EU regulation 2018/0254(COD) pertaining to the European Dense Fund is clear: the European Commission will be in charge of overseeing the Fund’s implementation and for choosing the projects to be financed according to predefined eligibility criteria set out in articles 11 and 13. It will set out the priorities to be financed through implementation acts and will also be assisted by a Committee of Experts from member states, academia, institutions and industry who will advise on monitoring and implementation. 

While the European Defence Fund takes place outside the realm of the Common Security and Defence Policy, and is defined by rules of governance and execution proper to the ordinary legislative procedure, questions arise as to its successful articulation with other priorities: CSDP, PESCO, CARD, the Capability Development Plan, regional and international priorities, as well as NATO. In other words, to what extent will the Fund be put to the service of existing defence policy priorities determined in a purely intergovernmental fashion in other fora? 

The regulation stresses that CSDP and NATO priorities ‘should serve as an award criterion’ and ‘where appropriate, regional and international priorities, including those in the North Atlantic Treaty Organisation context, may also be taken into account if they are in line with Union priorities and do not prevent any Member-State or an associated country from participating, while also taking into account that unnecessary duplication should be avoided.’ One political hint could be that it is the European Commission - rather than the European External Action Service - running it that points towards a desire to de-governmentalise and streamline EU defence initiatives according to the European new agenda. 

At the same time, the European Commission will have to prove itself in a domain it has little expertise in: the conditions for EU funding must be enticing enough to incentivise future big-ticket projects to take place under the EU umbrella.

Another important element concerns third-state entities’ participation access to funding under the Fund. While the regulation is clear on the fact that third-country controlled entities will not be eligible to funding, the reality is more complex. Measuring the strategic impact of such control and the real influence of a third-country over a company or consortium may be difficult. At the same time, the regulation leaves enough room for interpretation and thus flexibility in how strictly these rules will be applied. Recent US concerns about third-country participation could be read as a lobbying act for access to funding. So far, the Commission has reminded the US that the Fund is merely reciprocating on the rules governing access to defence funding for European companies in the US. The bottom-line is simple: the Commission will have direct control over the awarding of funds and as such will be able to make use of the ambiguity of interpretation as it considers appropriate.

So far the European Defence Fund has given birth to a plethora of articles portraying (some more meticulously than others) the EU and its powerful executive arm as seeking to become the prime defence actor in Europe. Some articles have even suggested this be detrimental to existing security arrangements and to the transatlantic bond in particular. 

Far from being a matter of ‘institutional competition’, this is first and foremost an industrial issue: with the Fund, the EU is for the first time financing European defence industry. While in the long run this could lead to positive tangible results for Europe’s identity as a defence actor it should be clear that this means the EU will be a worse client for the US defence industry. For if Europeans are to accept greater defence efforts towards evening their fair share with the US, a key political incentive for European leaders will be strengthening their own industry. At the same time, they must convince their American partners that their efforts will pay off: the issue at heart being that they will only do so in the very long term. Convincing may require the EU to show it is willing to invest in the capability shortfalls already identified in the NATO Defence Planning Process alongside its own existing tools: CARD, PESCO, CDP.

In the long term, the question remains for one does not aim for strategic autonomy if it is conditional on subordination to another entity. While NATO-EU complementarity is and should be a given, denying the EU (that is, its member states) its ability to act independently of whatever other actors may choose to do (be it the US today or China tomorrow), would effectively subordinate European defence efforts to priorities imposed elsewhere. This seems to be the US preference: a European Defence Fund (and other EU defence tools), which should aim to bridge the gap of chronic underinvestment in the context of what is essentially an unbalanced geostrategic Alliance between Europe and the US. 

The European Defence Fund has much potential: the amounts of money are significant and real success can be achieved in achieving Europe’s strategic autonomy if money is invested in the right future-oriented capabilities, directed according to an effective and efficient governance model without any external constraints, be they internal or external to the EU.