One day ahead of the next European Council summit, the European Commission unveiled the details of its ambitious rearmament plan on Wednesday, March 19th, including proposals on what type of equipment member states will be able to buy with EU-backed loans and which countries’ defense industries can benefit from the scheme.
In total, ReArm Europe is aiming to mobilize over €800 billion to boost the EU’s defense infrastructure, the majority (€650 billion) of which would come from raising individual defense spending after the Commission triggers an emergency escape clause to allow member states to increase their budget deficits by 1.5% solely for defense over the next four years.
The remaining €150 billion is planned to be raised through a new financial instrument, called Security Action for Europe (SAFE), which would allow member states to request specific amounts from a cash pot acquired through joint loans and backed by the common EU budget.
Member states wishing to receive funding from SAFE will have to submit detailed plans for their future expenditures, including the specific activities, measures, and defense products they want to acquire. These can include air defense and artillery systems, missiles and ammunition, drones, military vehicles, as well as strategic and cyber equipment.
Some member states have called for a clause to make it mandatory for a portion of each procurement to be donated to Ukraine, but the Commission’s proposal doesn’t go that far, and instead it only states that these plans should include “where relevant, the foreseen involvement of Ukraine.”
The Commission will then assess and approve the requested funds, as well as the immediate pre-financing, which could be as much as 15% of the total volume of the individual loans. While member states submit their requests individually, they will be obliged to implement them through joint arms procurement, including at least two member states “as a rule,” in order to get better prices while buying weapons in bulk.
Furthermore, the proposal states that member states may only use the instrument to buy products from companies “established and headquartered” in the EU, the EEA/EFTA countries (Norway, Switzerland, Iceland), and Ukraine. What’s more,
member states will have to ensure that components representing 65% of the costs of the end product originate from [Europe].
The inclusion of this ‘Buy European’ clause is an obvious nod to the group of member states with robust defense industries, led by France, who had been strongly arguing against propping up foreign manufacturers with joint EU money.
To appease the opposing camp, who want the fastest available deliveries, led by Poland and the Baltics, the proposal includes the possibility of buying from third countries—such as the U.S., the UK, or Turkey—provided that they are willing to enter a bilateral “Defense and Security Partnership” with the EU beforehand, as laid down in the 2022 ‘Strategic Compass.’
To date, only six countries have signed such a security agreement with Brussels, including Norway, Moldova, South Korea, Japan, Albania, and North Macedonia. Such ‘partnerships’ involve commitments to gradually deepen defense cooperation in matters of regional or global importance.
In other words, unless Washington agrees to at least partially align its approach to Ukraine with Brussels in order to become an official security ‘partner’ of the bloc, U.S. arms manufacturers will likely be excluded from SAFE and ReArm Europe.
If triggered, the national escape clause allowing higher budget deficits will expire in four years, but member states will be able to request new loans for joint procurement under SAFE until the end of 2030.
In addition, the EU Commission is rolling out a revamped version of its capital markets union project, called the Savings and Investment Union, which aims to harmonize and simplify investment rules across the bloc to attract more private capital into Europe’s defense industries.
All these proposals will now have to be discussed by EU leaders in the European Council, but it remains to be seen whether they will be able to hammer out all the details in this upcoming summit.
