The EU is radically changing the funding rules for the defense industry

The European Union wants a radical change in the financing rules for companies in the defense industry in the 27 member states, according to a material published by the website Euractiv.com, based on a document currently in the works at the European Commission. According to the cited source, discussions within the European Union (EU) focused on regulating the criteria for the allocation of funds for foreign companies and states, with the aim of supporting the continent's defense industry. The quoted document shows that the member states did not limit themselves to the introduction of strict rules, but also included exemptions that offer more flexibility regarding the granting of European funds. These measures appear to be designed to balance the need for a strong European defense industry, but also to allow foreign companies access under well-defined conditions.

Thus, the European Commission and the representatives of the member states debated the following eligibility criteria for companies in the defense industry that wish to receive European funds:

- The respective companies must be based in an EU member state or in Norway, at least at the level of the executive management structures. However, overseas assets and resources cannot benefit from funding. This suggests that the funds may go to companies based in Europe but controlled by third countries such as the United States. For example, a US company that has factories in Europe could be eligible, provided certain additional criteria are met.

- In the case of joint purchases of products by the member states, at least 65% of the value of the components used must come from the European Union or Norway. This requirement is intended to protect European industry and reduce dependence on external suppliers. However, certain foreign components may be used in final products, but must be compatible with use, sale and transfer requirements. The restrictions imposed can have a significant impact on the freedom of use of equipment, especially from a military perspective, as the war in Ukraine demonstrated.

• Exceptions and waivers in emergency situations

The cited document also establishes exceptions in case of "urgent needs" regarding the purchase of military products with the support of EU funds. For example, products already in use before the entry into force of the regulation in 2025 will still be able to benefit from funding. Moreover, the Member States have agreed that, in certain cases, the EU can support the replacement of restricted components with others originating from the Union. This derogation, which stipulates a maximum percentage of 20% for restricted components, can bring additional financing of 5-10 percentage points for companies that comply with these conditions.

Eligibility criteria and flexible rules have been the subject of intense negotiations between EU member states. The Hungarian presidency of the Council wants to complete the talks by the end of the year, but an agreement is unlikely to be reached within the proposed deadline, as France opposes the possibility of EU funds being used to purchase products manufactured by foreign companies. However, most Member States supported the flexible approach, stressing the importance of adapting to urgent needs or exceptional situations in the future.

An important aspect of the discussions is that although the EDIP program focuses on EU security and defence, it is built on internal market rules, which require a qualified majority vote. This may lead to a marginalization of the French opposition, which underlines the existing tensions between member states regarding the balance between national sovereignty and the need for European collaboration.

One of the main obstacles in finalizing the regulation is finding a balance between three major objectives: strengthening the European defense industry, increasing production capabilities and reducing dependence on external suppliers. The document originally prepared by the Belgian presidency points out that the nuances of the various sub-objectives continue to be a source of divergence between member states. The quoted text mentions that so far almost 30 European companies, excluding French ones, have worked to develop a common concept on the defense industry. However, with many aspects of the text still requiring further discussion, a definitive agreement is unlikely to be reached anytime soon. France continues to oppose the current definitions of the criteria, and until the entire text is revised, there can be no talk of a finalization of the regulation.

In conclusion, the current regulations regarding the allocation of European funds for defense are marked by flexibility, but also by controversies between member states. The urgent need to boost the European defense industry and reduce external dependencies is clear, but the process of achieving this goal is hindered by the diverging interests of member states. Discussions will continue and the final outcome will depend on the EU's ability to find a balance between national sovereignty and European cooperation in the face of global security challenges.