27 July 2021
The launch of the €7.9 billion European Defence Fund (EDF) materialises years of talks and debates over the emergence of a European defence industrial and technological cooperation. The EDF is set to finance defence capability and critical technologies projects such as the next generation of aircraft fighters, tanks, semiconductors, cybersecurity, or communication systems.
The main objective behind the European Commission-supported EDF is to contribute to the reinforcement of the interoperability of fragmented defence and security industries, and saving costs by investing in projects involving at least three entities from three member states (MS), co-funding common prototypes, and promoting cross-border cooperation of small and medium-sized enterprises (SMEs).
In the context of hybrid threats and geopolitical tensions arising from sanitary and environmental crises, introducing an innovative defence fund could enhance cooperation between European industrialists. The EDF can potentially prevent further backlogs and duplication of investments and Research and Development (R&D).
The present article will therefore introduce the main dilemmas and potentials of the EDF following its adoption by EU lawmakers, with a focus on the importance to reach a consensus between MS in regard to the specific dispositions of their defence and security industries to support the emergence of a solid European defence industrial and technological cooperation.
The lack of cross-border collaboration in defence industry supply chain and fragmented defence R&D have led to the deterioration of the competitiveness of European defence industry, mainly because it is not subjected to EU common market rules. Consequently, today most European armed forces use different equipment, a major issue to the development of military mobility. Furthermore, it restrains the possibility of economies of scale if procurement and maintenance costs were not shared.
Taking into consideration poor cooperation and insufficient investment in defence R&D, the EDF was thought to be a stimulation tool to encourage defence research and innovation by financing industry synergies and therefore allowing the creation of multinational consortiums of technology institutes and defence industries (Zandee, 2021). To get access to the EDF and thus multiply cross-border cooperation, there has to be at least three participants from three different MS. Besides large industries, SMEs and projects launched under Permanent Structured Cooperation (PESCO) are also set to receive additional funding from the EDF in an effort to ensure that participants from all MS can engage in the process regardless of their size and location (Zandee, 2021).
With a budget of almost €8 billion under the Multiannual Financial Framework for 2021-2027, the EDF will be managed by a new Directorate-General – DG DEFIS – and under the supervision of the Commissioner for the Internal Market, Thierry Breton. The EDF will then be strictly considered as an industrial policy instrument seeking to liberalise the protectionist and fragmented defence market and consequently protect the consumer – in this case, the EU taxpayers – from inefficiencies and higher prices (Weissenberg, 2020). In this sense, the EDF could achieve inclusive progress and maximise its potential through investment in disruptive technologies and the involvement of SMEs in the design, testing, and marketing processes of their products through EU funding (Weissenberg, 2020). Not to mention, disruptive technologies are essential for the superiority of armed forces. However, in a context of inadequate funding at the national level, R&D budgets essentially prioritise the expansion of capability research rather than disruptive research, which can have positive fallouts in civilian-driven innovation and research programmes (Ianakiev, 2019).
Besides the lack of cooperation, the EDF also seeks to prevent a lack of synchronisation and coordination of the budgetary procedures between EU MS. As a matter of fact, demand is mainly driven by public-owned structures subjected to regulations, and controls over sales and technology transfers by the host state. Because self-funded and private investments are not enough, R&D is set to be essentially driven by public spending. Therefore, to make place in shrinking national defence budgets, the EDF serves as a fighting chance to resurrect the European defence industry’s competitiveness and stimulate innovation. EU MS will then have to overcome national divergences to secure EU funding every year during the call of proposals, and work towards preventing the lack of synchronisation and coordination of capability procurement policies (Ianakiev, 2019).
However, despite the general agreement between MS to support defence coordination and cooperation, the EDF has received its first backlash from the United States. This new European financial tool is considered a possible threat to its arms exports to Europe. This comes after it was made clear that only participants from the European Economic Area can engage in the EDF, leaving third-party states trailing behind. Further, there is the risk that the reduced EDF budget – with an initial €13 billion as announced by the European Commission – could prompt an uneven distribution of projects between large-scale companies and SMEs, resulting in less industrial cooperation and more competition between the different entities (Brichet et al., 2021). In addition, the almost €8 billion EDF is considered, by some observers from left-wing and far-left eurosceptic parties, – an imminent danger that could set fire to a potential ‘militarisation of the European Union’.Even if EDF is a relatively small fund compared to Horizon Europe (worth €95.5 billion), it was not designed to guide the European defence and security policies, but rather as an incentive tool to enhance cooperation and develop good practices and coordination between large and small industries all over Europe. For the most part, the proper running of the EDF will essentially result in the financial contribution from EU MS and the specific disposition of their defence industries (Zandee, 2021).
Ultimately, the EDF can shake the defence industry by leading cross-border cooperative funding and supporting the deployment of a solid defence cooperation between industrialists. However, in the years to come, its functioning will need to be frequently assessed and adjusted to reach its full potential and monitored regarding any risk of legal embroilment regarding the development of lethal autonomous weapons prohibited by European and international law.
Written by Ikram ABOUTAOUS, Researcher at Finabel – European Army Interoperability Centre
Sources
Brichet, Chouarbi, Dénoue, Frossard, Laurent, Libert, Magnuszewski, Maillard, Rolin. (2021). “The governance of the European Defence Fund”, Fondation Robert Schuman. https://www.robert-schuman.eu/en/european-issues/0592-the-governance-of-the-european-defence-fund
Ianakiev, Gueorgui. (2019). “The European Defence Fund. A Game Changer for European Defence Industrial Collaboration”, IRIS.
Weissenberg, Paul-Kimon. (2020). “Look Out For The New European Defence Fund!”. Institut Open Diplomacy.
https://www.open-diplomacy.eu/blog/european-defence-fund-weissenberg
Zandee, Dick. (2021). “European Defence Fund: The Real Test Is Yet To Come”. Clingendael – The Netherlands Institute Of International Relations. https://www.clingendael.org/sites/default/files/2021-02/Alert_European_Defence_Fund_February_2021.pdf
