EDF can help alleviate impact for defence industry

Even though the COVID-19 crisis is not over yet, projections of its likely economic impact surpass those of the 2008 financial crisis. The defence industry will certainly feel it as well. How does DG DEFIS plan to support the sector?

The COVID-19 crisis will have unprecedented consequences on jobs, skills and supply chains. We should strive to help the industries overcome its impact in the short-term. We should also ensure their global competitiveness while third countries are massively supporting their industry. The COVID-19 crisis has showed the importance of reducing dependencies on non-EU sources in strategic areas. This definitively applies to defence. We should develop critical technologies in Europe, optimising our industrial competencies and skills, thus safeguarding our crucial industrial and technological sovereignty.

The Commission, with DG DEFIS in lead for the defence sector, is doing everything in its competence to support - also in the short term - the defence industry in the aftermath of the COVID-19 crisis. In June, the Commission hopes to be in a position to unlock more than €200 million to fund the first batch of projects under the two-year European Defence Industrial Development Programme (EDIDP). Pre-financing margins will be used to in the full. DG DEFIS is delivering according to plan in spite of the crisis.

President von der Leyen presented on 27 May a historical package. The reinforced proposal for next multi-annual financial framework, including a massive recovery instrument called Next Generation EU worth €750 billion, offer many tools to alleviate the consequences of the COVID-19 crisis. A new Strategic Investment Facility, built into InvestEU, has a €15 billion budget to generate investments of up to €150 billion to boost the resilience of strategic sectors. We should encourage the EU defence industry – that generates many positive externalities and civilian applications - to profit fully from the possibilities that will be offered by the revamped EU budget.

For the future resilience and viability of the defence industry, it is vital that European countries keep investing in the development of future defence capabilities. We should learn lessons from the consequences of the 2008 crisis. Uncoordinated efforts had led to major cuts in R&D that impacted the global competitiveness of the European industry; to renationalisation of defence investment that generated many duplications and redundancies; and to a massive sub-investment in defence. The European Defence Fund (EDF) with an updated budget amount of EUR 9 billion (current prices) is a major tool to maintain public and private investment in R&D, foster industrial cooperation and solidify long-term planning in the development of technologies and equipment. We should use it to its full potential.

The EDF can also help alleviate the consequences of the COVID-19 crisis for defence industry. It is spread over 7 years (2021-2027) but the priorities and budgetary envelops will be set annually, so that proposals can also be submitted for topical issues allowing flexibility and agility. This allows the Fund to cover topics like bio-defence capabilities or other categories linked to medical support and critical components, creating a great potential for a European-wide SME participation. Due to the high-tech nature of the defence industry, positive spillover effects on the civil sector (e.g. creation of highly skilled jobs, territorial development) are expected.

In preparing the funding priorities of the EDF for 2021, we will also propose to focus on supporting the development of defence medical capacities of Member States, as the defence industry was largely mobilised in response to the crisis, mass-producing masks, ventilators and respirators.

Commission President Ursula von der Leyen has called the upcoming EU multiannual budget “the mothership of recovery” after COVID-19. Could this crisis also encompass opportunities for the defence industry?

Beyond its huge economic impact, the COVID-19 crisis has also highlighted the risks of being too dependent on third states for critical materials: global shocks have major disruption on international supply chains. We should therefore strengthen European security of supply.

In this regard, the idea that Europe needs more strategic autonomy in key sectors such as defence gains legitimacy. The new Strategic Investment Facility is also set-up with this idea in mind. The Commission’s Industrial and SME strategies adopted recently urge to protect our defence supply chains and prevent losing technologies or companies critical for our security and defence. An important deliverable for DG DEFIS announced in the Industrial Strategy will be an Action Plan on synergies between space and defence eco-systems. Reinforcing our screening of foreign acquisitions will also be key. The Foreign Direct Investment Screening Regulation is a main tool to assist in such screening.

We have also seen that, in a context of humanitarian emergencies such as the current coronavirus crisis, having a good Trans-European network infrastructure can be critical to the Union’s ability to respond to humanitarian emergencies. In the fight against the coronavirus, national defence ministries have been mobilised, notably by providing hospital facilities. It highlights the importance of the military mobility initiative: we are assessing where current infrastructure needs further upgrading, carried out in close collaboration with the EEAS, and funding such infrastructure to make it suitable for both dual civil-military purposes under the Connecting Europe Facility (CEF).

How do you see the defence industry developing in the coming years, and what impact could the defence initiatives, especially the EDF, have on its future?

I expect that the European defence industry will strive towards more technological autonomy and become more resilient and agile. It has become increasingly clear that the European defence industry needs transformation: greater opening-up of the supply chains to create a better functioning defence internal market, greater cross-border involvement of SMEs, harvesting civil technologies (artificial intelligence, digital, space). We also need to protect our critical technologies and actors, and create new industrial dynamics, where there is a place for both big countries and small countries, and for big companies and small companies.

True to its original purpose, the EDF will further help Member States achieve more efficient spending in joint defence capabilities, strengthen security for European citizens and foster a competitive and innovative industrial base. It supports cooperative defence research and development projects and includes a range of mechanisms to stimulate the opening up of cross-border supply chains. At the core of our interest is to open the cross-border supply chain to new entrants. SMEs’ participation will be a key indication of success.
I am convinced that the EDF will help Member States to advance in developing those defence technologies and products that European countries need and where cooperative development can bring real added value. Its aim is to make a radical shift from the present situation where cooperative programmes between EU Member States hardly represent 20% for procurements and only 10% for research and technology development.

The EDF will be one of the pillar of the European Defence Union called upon by President von der Leyen. The results of R&D projects supported by the Fund should increase the ability of the Union to conduct operations and missions and better contribute to wider international efforts. And such European Defence Union will go hand in hand with a strong EU-NATO Alliance, allowing much more substantial and quicker progress on a number of important priorities, such as military mobility, countering hybrid threats, cyber-security or medical capability building to support preparations for future military medical challenges.

What priorities have you set for DG DEFIS in the coming months and years?

DG DEFIS was created in January 2020. Under the authority of Commissioner Breton, our mission is to support the competitiveness and innovation potential of EU industry in the field of space, defence and aeronautics. To achieve this, we are in charge of implementing the EU space and defence programmes, fostering European value chains and facilitating cross-border cooperation

In the field of defence, DG DEFIS is responsible for supporting the competitiveness of the defence industry and stimulating the defence internal market, making use of both EU budget and enforcement of defence procurement rules. There are huge challenges ahead of us. My priority in the coming months, is to work hard to try and safeguard a robust budget for our defence programme, on the basis of the updated proposal tabled by the Commission, to make it attractive and achieve real added value. Obviously, EU Leaders will have to make arbitrage.

Equally important will be to implement the current running test programmes of the EDF, the EDIDP and the PADR, so that the projects funded by these programmes can kick-off and provide employment and business for the companies participating in these projects.

But 2021, when the EDF starts, is just around the corner. Another important task for DG DEFIS in the coming months will be to prepare the funding priorities for the year 2021.

In doing so, DEFIS ties up very closely with Member States since they are the end-users of capabilities. In this context, my priority is as well to continue and future enhance the cooperation with the European Defence Agency – that has a strong expertise. EDA is a natural partner for DG DEFIS. It is my firm believe that DG DEFIS and the EDA should work hand in hand to carry out our respective missions. Let’s not forget that defence is an investment in peace and stability in Europe.