The European Union is keen for its member countries to cooperate and spend more on defence. New budgetary rules aim to make arms purchases more streamlined.
Russia’s invasion of Ukraine changed everything, as the saying now goes. Not least in defence, where the EU’s 27 member states have been urged to spend more, to counter the threat posed by the Kremlin.
As part of the bloc’s new ‘ReArm Europe’ plan, which was published in March, governments can apply for additional flexibility for spending rules under the Stability and Growth Pact. This means that countries can spend more without falling foul of the EU’s budget watchdogs.
This week, 12 countries – Belgium, Denmark, Estonia, Finland, Germany, Greece, Hungary, Latvia, Poland, Portugal, Slovakia and Slovenia – requested this perk. More applications are expected in the coming weeks.
Normally, the EU steps in with punitive measures if a country’s deficit reaches more than 3% of GDP. Activating this national escape clause means government’s can increase annual defence spending by 1.5% of GDP for four years without worrying about this.
The European Commission is now assessing this applications but it is likely they will be approved given that defence spending is a strategic priority for the bloc.
More complicated though is what to actually spend the money on. As part of the same ReArm package, the Commission announced a €150 billion loan scheme known as Security Action for Europe (SAFE).
That money will be raised on the capital markets and will come with certain ‘Buy European’ criteria when governments are procuring equipment.
But negotiations are still going on behind the scenes about what counts as ‘European’. Governments generally want flexibility and are pushing for arms deals to count if a certain proportion of components in, for example, a tank are made in Europe.
Third-party providers such as Turkey and the United Kingdom have been suggested as countries that should be eligible under SAFE, so as to widen the pool of manufacturers. The UK's probably signing of a defence pact with the EU in the coming months only increases Britain's appeal in that regard.
However, Europe’s defence industry wants the criteria to be more black and white and for the €150 billion to remain largely within Europe.
Talks are still ongoing and the rules are expected to be adopted in mid-May.
