Spurred by Trump and Brexit, EU plans five-billion-euro defense fund
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A technician works on a German Tornado jet at the air base in Incirlik, Turkey, January 21, 2016. REUTERS/Tobias Schwarz
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By Robin Emmott
BRUSSELS (Reuters) - The European Union unveiled its biggest defense funding and research plan in more than a decade on Wednesday to reverse billions in cuts and send a message to U.S. President-elect Donald Trump that it wants to pay for its own security.
Part of a broader push to revitalize defense cooperation, the European Commission proposed a 5 billion-euro ($5.3 billion) fund to let governments club together to buy new helicopters and planes to lower costs.
Another plan to let the EU's common budget and its development bank invest in military research would open the door to new drones, cyber warfare systems and other hi-tech gear, EU officials said.
"This is not about an EU army, this is not about spending on the military instead of social security," European Commission Vice President Jyrki Katainen said. "We face multiplying threats and we must act," the former Finnish premier said, stressing that all assets developed would belong to national governments.
The main proposal is an investment fund for defense, which could allow EU governments that pay in to also borrow from it.
There were no immediate details on how the bloc planned to persuade member states to move away from the current system, where many pursue their own defense projects, favoring local manufacturers and duplicating efforts.
"Only new common armaments' programs will guarantee the survival of our defense industry," said German center-right EU lawmaker Michael Gahler. "What is missing are cooperative programs," he said.
The bloc has 19 types of armored infantry fighting vehicle, compared with one in the United States. Wasted funds amount to 25 billion euros a year, according to Commission data.
However, big EU countries such as Germany, which has one of the world's largest defense industries, stand to gain most from the Commission's proposals, with smaller nations at greater risk of losing business, some EU officials concede.
One proposal is for the fund, which would require an intergovernmental treaty to be set up, to raise capital on financial markets by issuing bonds, with the Commission offering to run the fund but taking no ownership of it.
In a gesture to indebted France and Italy, government capital in the fund that is not spent directly on purchasing equipment could be excluded from national budget deficits that EU rules require to be less than 3 percent of economic output.
The Commission said it was also time to lift restrictions on using its budget for military research - proposing 500 million euros a year could be spent on innovation from 2021.
A 90-million-euro pilot plan is set to get under way next year and the Commission could potentially allocate 3.5 billion euros from the budget between 2021 and 2027.
"It won't be easy but we need to spend better by spending together," said EU Industry Commissioner Elzbieta Bienkowska, adding that money would be for agreed projects, not an open invitation for broad research.
To help smaller companies, the European Investment Bank could also finance innovation if a majority of governments agree to remove the ban on backing military projects, possibly as early as next year.
Defense research spending by EU governments has fallen by a third since 2006, leaving the EU reliant on the United States for advanced warfighting equipment.
During the U.S. election campaign, Trump questioned whether the United States should protect allies seen as spending too little on their defense, raising fears that he could weaken support for NATO at a time of heightened tensions with Russia.
A report by the German military seen by Reuters showed its Tornado jets were ready for use just 44 percent of the time and its newer Eurofighters had a readiness rate of 52 percent.
An earlier Commission plan in 2003 failed to win over governments; Britain, especially, has argued that deeper EU defense integration could undermine NATO. This time around, France, Germany and Italy are hoping that Britain's decision to quit the bloc will remove a barrier to deeper cooperation.
Britain's pending departure removes one of the biggest contributors to the EU budget, but a British diplomat said that London may seek to collaborate on defense research from outside the bloc because it sees the need for European capabilities.
"We have made clear that we are likely to want a close relationship on foreign and security policy, so it is possible," the diplomat said.
In what could be a precedent, nations outside the European Union can take part in the bloc's non-military research program, called Horizon 2020.
Involvement in the proposed defense fund was less likely, the diplomat said. But Geoffrey Van Orden, a former British army brigadier who is now a Conservative Party lawmaker in the European Parliament, said Britain would not want to lose access to EU markets as a major weapons manufacturer.
"We wouldn't want to see a major market being closed."
($1 = 0.9438 euros)
(Additional reporting by Andrea Shalal in Berlin and Tim Hepher in Paris; Editing by Alastair Macdonald and Alison Williams)
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