At the instigation of the Polish Presidency of the Council of the European Union, Member States’ ambassadors to the European Union (Coreper) are working hard to try and reach an agreement by a qualified majority of EU countries on the proposal for a regulation establishing the ‘SAFE’ budgetary instrument, which will grant loans of up to €150 billion to States that wish to increase their national military spending.
An extraordinary Coreper meeting has been called for Sunday 18 May, at which ambassadors will discuss the ‘SAFE’ instrument and preparations for the EU-UK summit the following day (see other news).
With regard to ‘SAFE’, the fourth Polish compromise version, of which Agence Europe has received a copy, gives an idea of how discussions have progressed since the initial legislative text was presented as part of the ‘ReArm Europe’ initiative, in mid-March (see EUROPE 13603/8).
First of all, it should be noted that the Council has no intention of amending the legal basis (Article 122 TFEU) of the legislative text, which the European Parliament strongly contests (see EUROPE 13635/31).
Eligibility. After a month of negotiations, the Member States have specified the type of military equipment that a legal entity from a Member State benefiting from a loan through the ‘SAFE’ instrument, may purchase jointly with at least one entity established in another participating country, namely another Member State, an EEA/EFTA country, a (potential) candidate country for EU accession or a third country that has entered into a security and defence partnership with the EU.
Third-country entities established in the EU will be able to participate in the mechanism provided they have undergone the necessary security checks (in particular with regard to the Foreign Direct Investment Screening Regulation) and, if necessary, risk mitigation measures or specific guarantees. It will be up to the European Commission to draw up a standard form detailing these guarantees.
There are two categories of expenditure eligible for common procurement:
- category 1: ammunition and missiles, artillery systems (including deep precision strike capabilities), ground combat capabilities and their support systems (including soldier equipment and infantry weapons), small drones (NATO class 1) and related anti-drone systems, critical infrastructure protection, cyber equipment and military mobility;
- category 2: air and missile defence, maritime surface and underwater capabilities, drones (NATO class 2 and 3) and related anti-drone systems; strategic enablers (in particular, strategic airlift, air-to-air refuelling, C4ISTAR systems, space assets and services), space assets protection; artificial intelligence and electronic warfare.
Common procurement may include contracts that only one Member State has already signed or will sign before a period of one year after the entry into force of the future regulation establishing the ‘SAFE’ instrument. This country will then have to take action to extend the benefits of this contract to other participating countries.
In its initial proposal, the Commission suggested that the cost of components from entities established in the EU, an EEA/EFTA country or Ukraine should not be less than 65% of the total cost of the final military equipment.
“It is important to set minimum conditions related to the value generated within the EU”, stress the Polish authorities.
However, they reverse the Commission’s initial approach. Thus, according to the compromise proposal, common public procurement contracts will require that the costs of components originating outside the Union, EEA/EFTA countries or Ukraine should not exceed 35% of the estimated costs of the components of the end product. The Commission could establish specific guidance for calculating this percentage.
Subcontractors. During the negotiations, the Nordic countries asked for a reduction in the administrative burden that could be placed on contractors and subcontractors (i.e. an entity to which at least 15% of the value of the contract is awarded) participating in common procurement.
These subcontractors would comply with the conditions required by the ‘SAFE’ instrument if they met the equivalent conditions for participation in the ‘ASAP’ (ammunition procurement) and ‘EDIRPA’ (common procurement in the defence sector) mechanisms.
National plans. To qualify for loans, Member States wishing to do so will have to submit a request to the Commission, accompanied by an investment plan setting out their military equipment requirements, within a period of six months of the entry into force of the future regulation.
Several countries with less developed military industries would like a one-year period (see EUROPE 13639/4).
The Commission will have to assess the national plans “without undue delay” and submit to the Council a proposal for a decision announcing the granting of financial aid. The Council will then have one month to approve the loan.
Information to the public on these plans will be minimal. The text on the table says nothing about their disclosure and the Member States have struck out the language calling on the Commission to publish an assessment of the plans. Each year, the Commission will report to the Council and Parliament on how the budgetary instrument is being used.
In addition, due to the urgency of the situation and the sensitive nature of the defence sector, Member States will be able to award contracts through negotiated procedures without prior publication of a contract notice.
Loans. In order to distribute the available €150 billion evenly, a provision will be introduced whereby the three main beneficiary countries may not receive more than 60% of the total envelope between them.
With regard to the terms and conditions of the loans, the Member States are of the opinion that the duration of the loans should be sufficiently long, i.e. a maximum of 45 years. Repayments of the loan principal could also be subject to a ten-year moratorium.
Finally, it should be noted that Member States requesting a loan will be able to benefit from pre-financing of up to 15% of the total loan support.
See the Polish Presidency’s compromise proposal: https://aeur.eu/f/GV5 (Original version in French by Mathieu Bion)