The budget deal and EU defence cooperation: What are the implications?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

European Council in Brussels, Belgium, 21 July 2020. [EPA-EFE/STEPHANIE LECOCQ]

Most headlines on the EU budget deal will focus on the response to Covid-19. But the new budget will include billions for new EU defence initiatives, writes Niklas Novaky.

Niklas Novaky is a research officer for EU security and defence policy at the Wilfried Martens Centre in Brussels.

On 21 July, after marathon discussions, the European Council reached an agreement on a €1.074 trillion EU budget, the Multiannual Financial Framework (MFF), and a €750 billion recovery fund that will help fix the damage done to Europe’s economies by the coronavirus pandemic. The agreement is historic due to its size, because it’s the EU’s first post-Brexit multiannual budget, and because it allows the Union to borrow jointly from financial markets at an unprecedented scale

The MFF is also noteworthy because, for the first time, it includes money for initiatives related to EU defence cooperation. The agreement gives €7.014bn to the new European Defence Fund (EDF), which will finance joint defence capability development and research projects; €1.5bn to military mobility, which will invest in dual use infrastructure to facilitate the movement of military assets and capabilities within Europe; and €5bn to the new off-budget European Peace Facility (EPF), which will help finance EU operations and support those of its partners.

However, the agreed budgets are significantly lower than what the European Commission initially proposed at the start of the MFF process in 2018. During the negotiations, the proposed size of the EDF shrank by 39%, the EPF’s by 46%, and military mobility’s by 74%. At one point, the European Commission even proposed cutting military mobility entirely from the MFF.

This means that the agreed budgets are not too far away from what the Finnish EU Council Presidency proposed in its December 2019 negotiating box. At the time, the Finnish proposal was widely condemned in Brussels as inadequate and insufficient. European Commission President Ursula von der Leyen, for example, expressed concern at the cuts that Finland proposed in strategic EU policy areas such as security and defence.

However, since December 2019, a lot has happened in the world. The COVID-19 pandemic pushed European countries to shutdown large parts of their economies in March 2020, and they haven’t yet been able to fully reopen them. The cost of the pandemic will be extremely high: according to forecasts by the European Commission, the EU’s economy will to contract by 8.3% in 2020 and grow only by 5.8% in 2021.

Given the dire economic situation, it is understandable that the planned budgets for EU defence initiatives did not move much from the Finnish proposal, despite the efforts of France and Germany. Both Paris and Berlin argued for funding the EU’s defence ambitions at an ambitious level in the run up to the European Council. For Paris in particular, this meant securing a budget for the EDF that would’ve been €10bn or more. In the end, there wasn’t enough appetite for this among other member states.

Yet, the agreement can be seen as a partial victory for EU defence cooperation. The budgets for the EDF, EPF and military mobility could have decreased even further as the member states focus on addressing the immediate socio-economic fallout from the pandemic. The agreement shows that the member states are nevertheless willing to invest in future oriented programmes designed to enhance the Union’s safety and security. This is positive.

The question that now needs to be asked is this: does the agreement give enough fuel to the engine of EU defence cooperation so that the Union could achieve the ambitions that it has laid out for itself for the coming years? There are different ways to answer this.

On one hand, despite the cuts, there is no equivalent to the defence related funding that the new MFF proposes in the previous 2014-2020 MFF. In other words, the money is new, there’s therefore a lot more of it than there used to be, and it shows that the member states are willing to invest into programmes designed to boost the EU’s safety and security.

On the other hand, the current EU leadership has consistently emphasized that security and defence is one of its key strategic priorities, and that the Union needs to invest in it sufficiently to become a geopolitical actor capable of achieving strategic autonomy, its current level of ambition. From this perspective, a €7bn EDF, a €1.5bn military mobility, and a €5bn EPF seem unimpressive from a Union that wants to learn the language of power in an age of growing great power competition.

Assuming that the budgets won’t change during the ratification process of the MFF and the recovery fund, several things should follow. First, the EDF in particular needs to set clear priorities for the types of projects that it will support. Officials expressed in closed door discussions in the run up to the European Council that, even if the EDF would get a €10bn budget, it would still not be able to finance sufficiently all eligible PESCO projects and priorities listed in the Union’s Capability Development Plan. The importance of prioritization will now be even greater.

Second, military mobility needs to focus on projects that will boost NATO’s ability to maintain deterrence in Europe’s eastern flank. Successful projects would give a significant boost to EU-NATO cooperation, and alleviate concerns in Washington that EU defence cooperation is something that undermines NATO and transatlantic unity. It’s worth keeping in mind that military mobility has consistently been the only EU defence initiative that the Alliance has wholeheartedly supported.

Third, the discussions on the specific modalities of the EPF should be concluded. It should become possible for the EU to finance not just the training of its partners’ forces, but also equipping them. The Union’s inability to do this in the past in countries such as the Central African Republic has allowed other actors such as Russia to step in and increase their influence at the EU’s expense. The EPF should also be able to finance a higher share of the common costs of EU operations than the existing Athena mechanism, which will be merged into the former.

Subscribe to our newsletters