In the wake of the Russia-Ukraine conflict, EU countries are aiming at military modernization and a multi-fold increase in defense allocations.
The world was shocked on February 24 when Russia attacked Ukraine, spurring a wave of severe consequences across Europe, including energy crisis, and high inflation.
The Russo-Ukrainian war forced Europe to increase its defense spending. Some countries, such as Germany, have already taken critical new measures in this area, with €100 billion in additional spending in 2022 and an increase of the budget to above 2% of GDP from 2024. Europe needs to spend more but above all to spend better, i.e., jointly.
The European Commission Directorate-General for Defence Industry & Space (DG DEFIS) is in charge of EU policy on the defense industry, and space and leads the European Commission’s activities in these two sectors. DEFIS is in charge of upholding the competitiveness and innovation of the European defense industry.
The establishment of DG DEFIS indicates that defense policy is becoming an increasingly important field of activity for both the European Commission and the entire EU. Since 2019, the EU has been intensively developing instruments to increase cooperation between the EU member states in the defense industry, military capabilities, EU civilian crisis management, military mobility, and EU activity in its neighborhood.
European Defense Funding
Under the DG DEFIS, the European Defence Fund (EDF) contributes to the continent’s strategic autonomy, protecting and defending its citizens. The EDF supports competitive and collaborative projects throughout the entire research and development cycle for a more significant impact on the European defense capability and industrial landscape. It strongly encourages the participation of small and medium-sized enterprises (SMEs) in collaborative projects and fosters innovative breakthrough solutions.
A budget of close to €8 billion for 2021-2027 is dedicated to the EDF. €2.7 billion is earmarked for funding collaborative defense research to address emerging and future security threats. Additional €5.3 billion is to co-finance collaborative capability development projects complementing national contributions. It should be noted that the EU’s budget was €590 million for 2017-2020.
On July 20, 2022, the European Commission announced plans to grant a total EU funding of almost €1.2 billion supporting 61 collaborative R&D projects selected following the first-ever calls for proposals under the EDF.
As per the press release by the Commission, with the proposals selected for funding, the fund will support high-end defense capability projects such as the next generation of fighter aircraft, tanks, and ships, as well as critical defense technologies such as military cloud, Artificial Intelligence, semiconductors, space, cyber or medical counter-measures. It will also spearhead disruptive technologies, notably quantum technologies and new materials, and tap into promising SMEs and start-ups.
Welcoming this significant step for European defense cooperation, Executive Vice-President Margrethe Vestager said: “The highquality projects selected have shown that defense industrial cooperation in Europe can be truly achieved, and even on a wide scale. The almost 700 companies researching and developing the next generation of innovative defense technologies through EU funds will put into motion a resilient and competitive industrial base”.
Not So Pleased Industry
Of the €1.2 billion, €322 million (30%) will go to 31 research projects and €845 million (about 70%) to 30 large-scale projects. Though the EDF supports SMEs, they seem unsatisfied with the funding distribution. “Funds allocated for SMEs are relatively limited, and this results in a limited number of projects, as the majority of funds go to the big companies,” told Roberto Senatore, Chief Technology Officer at Civitanavi Systems to Science Business.
SMEs represent 40% of all the organizations awarded EDF funds; they will only receive around 20% of the total funding. Calling for a broader involvement, the SMEs would like EDF to help them to develop their stand-alone products instead of just supplying components to big companies.
On the other hand, Jan Pie, Secretary General of the Aerospace, Security, and Defence Industries Association of Europe, feels that the EDF should go to the €13 billion budget that was initially planned and be prepared to raise it further in the face of the grim reality of war in Ukraine. “€13 billion was something we saw as a minimum investment for the EDF in peacetime, but now we are looking at wartime,” said Pie at the launch of the Economic Impact Report of the European Aerospace and Defence Industry.
“We need further bold steps in the next five years towards a genuine European Defence Union… I intend to strengthen the European Defence Fund to support research and capability development. In doing so, we will open up major new opportunities for our hightech industries and other parts of our economy.” Ursula von der Leyen President of the European Commission.
In its annual Defence Data Report for 2020-2021, the European Defence Agency (EDA) detailed spending by the 26 EDA Member States. In 2021, total European defense spending stood at a new high of €214 billion, marking a further 6% increase in 2020 and the seventh year of consecutive growth.
EDA’s report finds that Member States are investing more than ever in the procurement of defense equipment and research and development, with a 16% rise compared to 2020, totaling a record €52 billion.
The report finds that the sustained increase in overall spending is also reflected in national numbers. In 2021, of the 18 Member States who increased spending, six raised it by 10% or more. The highest increases amounted to more than €4 billion by Italy in absolute terms and a 42%, 33%, and 27% increase in relative terms by Finland, Greece, and Slovenia, respectively. However, eight Member States reduced spending, with the most significant national cut standing at 15% in relative terms.
Russia’s war of aggression against Ukraine signals that the expenditure increase will likely continue in the years ahead. However, the increase in defense spending has also translated into an appreciable rise in collaborative European expenditures, but still well below agreed collective benchmarks. In most of the awarded funding and Research and Technology (R&T), spending countries like Germany, France, and Italy play a significant role.
Increased European defense spending may lead to competition between European and US defense companies. Though a US company may want to team up with European ones for expanding its footprint in the local market. However, undoubtedly there is going to be interested in promoting American products.
On the flip side, the US would be making $2.219 billion in Foreign Military Financing (FMF) available to Ukraine and 18 other European nations to help modernize the militaries in the region. $1 billion of that will be allotted just to Ukraine, with the other countries — Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Greece, Kosovo, Latvia, Lithuania, Moldova, Montenegro, North Macedonia, Poland, Romania, Slovakia, and Slovenia — sharing the remaining dollars.
FMF is, basically, the money the US government gives to other nations for the purchase of US-made military equipment. Supposedly, this creates a closer bond with the partner nation. Still, it also pumps the money back into the US thus, giving competition to the European defense industry.