The European Union (EU) institutions have announced the allocation of additional funding to their defence funds – the European Defence Fund (EDF) and the European Peace Facility (EPF). Despite claims that the EU is predominantly an economic bloc of Member States and that the North Atlantic Treaty Organisation (NATO) serves for security and defence policy issues, it is the 27-nation grouping that has a long track record of coordinating, planning and funding large-scale activities that fit within the EU’s Common Security and Defence Policy (CSDP) framework. Among the financial instruments of the EU’s defence structures that play a key role in the application of Member States’ decisions in the new geopolitical context following Russia’s attack on Ukraine are the EDF and the EPF. What are these instruments for, how do they work, what are their differences, and why does the EU need to top up their budgets?
European Defence Fund
The EDF is an instrument for financial support for cooperation in research and development defence projects between the Member States of the Union. It was established in 2017 as an initiative of the European Commission (EC) and, as part of the new instruments following the introduction of the EU Global Strategy, focuses on two key areas or ‘windows’ – research and capability. The research window covers research on new technologies across companies, research centres or universities in member states. The EDF budget can fully fund the research phase of a particular project. The capability window covers the development phase of new equipment and technologies, for example, the development of prototypes, which is financially rigorous. This window operates on the principle of co-financing and encourages joint efforts by several Member States to develop innovative technologies, which is a condition for allocating EDF resources. It is important to note that, unlike the second instrument, the EPF, the EDF is funded directly from the European budget. This means that the Member States contribute to it through their contributions to the European budget, but the EC distributes the money when planning the multiannual financial frameworks. The EDF is, therefore, a genuinely European instrument. The fund’s budget for 2021-2027 is approximately 8 billion EUR, split between the two windows mentioned above. Each year, the EDF publishes calls for proposals for projects seeking funding. The condition to apply for funding is the cooperation between several companies, research centres or universities from at least three Member States. There are not many projects in Slovakia that bid for EDF money. In 2022, the Ministry of Defence became part of the 17-country project “Enhanced Opportunities for All“, which aims to improve communication and support to Member States in future calls for funding from the EDF. The EDF thus strengthens the Union’s research capacity, focuses on developing technologies, products and services, and complements Member States’ initiatives.
The most recent example of what EDF can finance and how it helps to develop European capabilities is the Act in Support of Ammunition Production (ASAP). Under the EC’s responsibility, this temporary and emergency instrument intends to support the production of weapons, machinery and, in particular, ammunition in European munitions factories. Through this instrument, worth 500 million EUR, the EU has the objective, in addition to supporting the European defence industry, of sending one million artillery rounds to Ukraine within one year, which, however, it cannot provide in its current state. The shortage of ammunition is a critical problem for Ukraine in the current phase of the war. The ASAP funding is split between the EDF, the European Defence Industry Reinforcement through Common Procurement Act (EDIRPA) and investments by Member States and companies. The EDF is to contribute €260 million. This initiative also represents an opportunity for Slovakia, as the author of ASAP, European Commissioner Thierry Breton, visited it. After a meeting with the Minister of Defence Jaroslav Naď, they stated that the arms factory in Dubnica nad Váhom could increase its capacities, which would also be co-financed by the EDF.
European Peace Facility
The EPF is one of the newest additions to the family of European defence structures. It serves to support the EU’s ability to contribute to strengthening international security, peace-building and conflict prevention. Established in 2021 was mainly intended to finance EU CSDP missions and operations, such as the EUTM military missions in Mali and Mozambique. It operates as an “off-budget” instrument, i.e. member states send their money to it from national budgets and its activities are not covered by the joint European money. It consists of two pillars – an operations pillar and an assistance pillar. Currently, it mainly pays for military assistance (arms and ammunition supplies) to Ukraine, and the existence of the EPF has made it easier for Member States to decide how to pay for arms supplies. Due to the financing of arms and military equipment, the name ‘peace facility’ is sometimes considered a joke. At the beginning of the fund’s existence, member countries agreed on a budget of 5 billion EUR, but due to a lack of funds, the size of the fund has been renegotiated several times.
Slovakia has received over 80 million EUR from this instrument as reimbursement for its assistance to Ukraine, totalling more than 167 million EUR. Slovakia sent Ukraine the S-300 air defence system, ammunition, small arms and 30 BVP-1 infantry fighting vehicles. The Czech Republic, for example, provided Ukraine with military aid amounting to 420 million EUR, including howitzers and tanks, but received reimbursements of 6.5 million EUR from the EPF. Some other countries are more cunned – Estonia managed to reimburse 134 million EUR of the 161 million EUR sent to Ukraine as military aid. This is so because Estonia has requested reimbursement for assistance worth the new weapons it will buy, although it is sending (also) old equipment to Ukraine. The EPF thus allows indirect military support to Ukraine even for those member states that, for various reasons, are unwilling or unable to support Kyiv militarily directly. The practice has shown that certain member states prefer to pay other countries for their military aid supplies instead of sending their weapons and equipment. One of the reasons is that the post-Soviet states, in particular, had equipment in their armies that the Ukrainians could use immediately and did not need to be trained to use Western tanks, vehicles or anti-missile systems. However, the example of Germany shows that this may also be due to a consensus within the state and a policy of not supplying weapons to war zones. In Germany’s case, this is mainly related to its role as the aggressor in the Second World War.
Increasing budgets
Increasing the budgets of these funds has become a highly topical issue, especially after Russia’s attack on Ukraine in February 2022. EU leaders regularly discuss budget increases because the amounts initially set are insufficient to cover the costs of delivering humanitarian and military aid. For example, the size of the off-budget EPF has already been increased several times. The last time this happened was in June 2023, when Member States agreed on an additional allocation of 3.5 billion EUR, which will increase the size of the fund to 12 billion EUR. Compared to the original 5 billion, this is a significant injection of funds. Indeed, politicians are aware that the fund finances not only aid to Ukraine but also the CSDP operations in African countries. In the context of the unceasing threat of terrorism and threats to the civilian population, the Member States have recently decided to reinforce the military capabilities of the Niger army in the framework of the EUMPM Niger mission and have financed equipment worth EUR 40 million. The Commission, responsible for managing the EDF fund, mainly dedicated to research and development of new military technologies, recently proposed an increase of 1.5 billion EUR in its budget. It argues by the transformation of the geopolitical situation and the necessary development of military capabilities among the Member States. The amount of funding for the EDF would thus increase from €8 to €9.5 billion. The EC has also presented a new complementary instrument, STEP – Strategic Technologies for Europe Platform, which will be used to improve innovation capabilities such as digital technologies for the military industry and military capabilities.
A brief overview of the EU’s two financial instruments shows that the bloc has its means to finance defence and security-related activities. After the start of the Russian aggression in Ukraine, for example, the EPF has become so depleted that the Member States regularly discuss increasing its budget. This raises the question of how long Member States will be able and willing to contribute to its increase and whether they have the financial capacity to do so. What is certain, however, is that there is a fundamental difference between structures such as the EDF and the EPF, and it is essential to distinguish between their roles and funding.
Photo credit: Flickr.com/ NATO North Atlantic Treaty Organization
This brief is supported by
NATO’s Public Diplomacy Division