In a study commissioned by the Polish Presidency of the EU Council with a view to the informal meeting of major European finance ministers in Warsaw, on Friday 11 and Saturday 12 April, the Bruegel think tank recommends the creation of an intergovernmental structure open to European countries that are not members of the European Union, as one of two options being studied for the establishment of a European defence financing mechanism.
Called the ‘European Defence Mechanism’ (EDM), this intergovernmental structure would be made up of voluntary Member States and non-EU countries (the United Kingdom, Norway and even Ukraine after a transition period), which would undertake to contribute to its capital with the aim of directly and jointly acquiring military equipment (air defence systems, missiles, drones, munitions, satellite systems, etc.). The EU could also be a shareholder and would be represented by the European Commission.
These acquisitions would then be redistributed to member countries according to distribution keys to be defined. So-called ‘frontline’ countries facing threats from Russia and Belarus could receive more equipment than their share of the capital of the EDM mechanism.
The EDM would borrow on the capital markets to finance joint purchases and also provide loans to members. It would be able to own and retain ownership of defence equipment until it is used by a member country’s army. In the latter case, the structure imagined by Bruegel would retain the bulk of the budgetary burden of these acquisitions, thus relieving the public finances of the participating countries until such time as they use the equipment purchased jointly.
Through these acquisitions, the ‘EDM’ mechanism would stimulate the establishment of a defence industry single market by putting an end to all discrimination based on nationality, currently authorised by the TFEU (Article 346), and by prohibiting State aid to companies in the sector. Participating countries would also decide to limit direct procurement of military equipment that the intergovernmental structure would be able to acquire.
The second option analysed by the think tank suggests broadening the powers of the ‘European Defence Agency’ (EDA) by combining this measure with the creation of a pan-European instrument for granting loans to Member States, along the lines of the ‘SURE’ instrument, which supported national unemployment insurance schemes to combat the Covid-19 pandemic.
In his letter of invitation to the informal meeting in Warsaw that he sent to his European counterparts, Polish minister Andrzej Domański takes the view that “as defence spending remains a national prerogative, this intergovernmental model may offer a more effective response”. “Nonetheless, we must ensure a coherent approach, involving the Commission and other EU institutions, especially as our countries deliver on their NATO commitments”, he adds.
See the Bruegel note: https://aeur.eu/f/gba
See Mr Domański’s letter of invitation: https://aeur.eu/f/gbc (Original version in French by Mathieu Bion)