VfB summarises the European Defence Fund

The European Defence Fund provides the EU with its first central defence budget.

About 90% of the fund will be placed into ‘defence capabilities’, i.e. new and existing joint military structures such as the new Permanent Structured Cooperation, EU Battlegroups and the EU INTCEN and SIAC intelligence hubs, under the policy remit of the EU Council and European External Action Service. The fund is deployed as an incentive that harness existing member state budgets.

The fund will also encourage the purchasing of military assets of all kinds including drones and satellites. These assets will be subject to EU Council policy authority but technically ‘jointly-owned’ by participating member states.

About 10% of the fund is allocated to incentivising member states’ joint military research.

European Defence Fund activity has already begun via funding trials and is combined with a “high level of engagement” between the EU Commission and defence companies in the UK and other member states.

EU institutions had until 2016 little leverage over the UK’s defence industrial base either via legislation or procurement.

However, EU institutions gain leverage under these approved plans by using funding and procurement incentives to steer defence industries of the UK and other member states into joint activity and a policy environment that is under EU authority. That leverage would be derived from depicting any deviation from this new landscape as a loss to those participating industries.

The use of European Defence Fund money as a set of incentives to aligning activity and policy means that, like the European Defence Agency, it will control capabilities worth many multiples more than its own budget, proposed at Eur 5.5 billion. The European Defence Fund is one of four financial policy instruments being employed by the EU in a military context. The other three are:

  • Coordinated Annual Review on Defence (CARD)
  • A revised Athena Mechanism, rapidly reimbursing member states for deployment and operational costs
  • The agreed and soon-to-be created Cooperative Financial Mechanism (CFM) which “will strengthen the European Defence Agency” as a central EU defence capabilities tool.

The UK Prime Minister consented to the creation of the European Defence Fund in principle at the EU Council of December 2016.

The European Defence Fund was announced by EU Commission president Juncker as part of the European Defence Action Plan in November 2016. The fund’s money is derived from the European Investment Bank, of which the UK is joint top shareholder with a holding of EUR 39 billion.

European Defence Action Plan – Full Document

European Defence Action Plan – Factsheet

David Banks

Head of Communications