On Wednesday 19 March, the European Commission set out the broad lines of its ‘ReArm Europe’ plan, published at the beginning of the month, and the various tools available to support defence spending by the EU27 (see EUROPE 13592/1).
A number of texts need to be adopted to enable Member States to mobilise the necessary funds for the defence sector over the next four years, starting with one that provides for a joint loan of €150 billion, backed by the European budget.
‘SAFE’. The ‘SAFE’ instrument, the ‘Security Action for Europe’, is intended to provide €150 billion in loans to States so that they can equip themselves militarily in capabilities that the Commission has identified as priorities: air and missile defence, artillery systems, munitions and missiles, drones and anti-drone systems, artificial intelligence, cyber warfare and strategic enablers.
To access this funding, member governments will have to submit funding applications within six months.
“These funds will be paid to interested Member States on request, on the basis of national plans. Disbursements will take the form of long-term loans (...) to be repaid by the beneficiary Member States. The loans will be guaranteed by the margin for manoeuvre in the EU budget”, explains the text of ‘SAFE’.
The aim of this loan is to finance joint purchases by one or more member countries, which may be joined by “Ukraine and the EFTA/EEA countries”, according to the text.
The only new financial option described in the ‘SAFE’ instrument is the possibility for Member States to have a “temporary exemption from VAT on the import and supply of defence products subject to joint procurement”, without however specifying the total amount.
See ‘SAFE’: https://aeur.eu/f/g0v
National escape clause. As already announced, the Commission is proposing to activate the national escape clause in the Stability and Growth Pact, which allows Member States, who wish to do so, to deviate temporarily from the spending path in certain circumstances.
To activate it, the EU27 will have to make a joint request before or during April, which could lead to the process being “concluded and approved before the summer”, according to a senior Commission official.
This additional defence spending will be capped at 1.5% of GDP per year over the four years that the clause is in force, and will cover both current spending and spending planned for the future. According to the Commission, such an increase in spending over a four-year period could free up as much as €650 billion.
There are three other possibilities presented in ReArm Europe that will enable Member States to invest more in their defence: extending the mandate of the European Investment Bank, authorising the use of cohesion funds in defence projects and authorising the use of private savings and financing in the sector.
The third text, on the use of cohesion funds and making them more flexible, will be presented next week.
See the Commission communication on the national escape clause: https://aeur.eu/f/g3h (Original version in French by Isalia Stieffatre)