On the proposal for a regulation of the European Parliament and of the Council establishing the European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (‘EDIP’)

BUDGETARY ASSESSMENT

for the Committee on Security and Defence and the Committee on Industry, Research and Energy on the proposal for a Regulation of the European Parliament and of the Council establishing the European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (‘EDIP’)

(COM(2024)0150 – C100005/2024 – 2024/0061(COD))

The Committee on Budgets has carried out a budgetary assessment of the proposal under Rule 58 of the Rules of Procedure and has reached the following conclusions:

A. whereas Russia’s unlawful war of aggression against Ukraine poses a fundamental threat not only to Ukraine but to the entire European security architecture; whereas unseen geopolitical changes, including evolving dynamics in transatlantic relations and uncertainty over future US commitments, are further affecting this situation in ways never seen before and demand a decisive and unified response from the European Union and its partners;

B. whereas the Union and its Member States are committed to contributing, together with partners, to future long-term security commitments to Ukraine, which will help Ukraine to defend itself, resist destabilisation efforts and deter acts of aggression in the future; whereas frontline countries have shown great solidarity in the context of the war in Ukraine, providing support and humanitarian and military aid, and have allocated significant resources in this regard;

C. whereas the production capacity of the European Defence Technological and Industrial Base (EDTIB) has been tailored to respond primarily to ‘peacetime’, mostly fragmented along national dividing lines, following decades of severe public underinvestment, and this situation raises the question of European defence readiness and long-term military resilience;

D. whereas Member States are significantly increasing their defence budgets and, in parallel, temporary emergency responses have been put in place through the short-term EU budget instruments EDIRPA and ASAP, with funding until 2025; whereas efforts towards joint procurement have been initiated to enhance interoperability and cost-efficiency, yet three years after the outbreak of Russia’s unjustified war of aggression against Ukraine the challenges for European defence readiness are more pressing than ever;

1. Underlines that investing in defence and the development of the defence industry through the EU budget contributes to defragmenting, optimising and fully leveraging public spending by pooling Member States’ resources to support defence projects that no single Member State could develop or procure alone, given both the complexity and the need to harmonise and enhance interoperability; stresses that it is high time to make progress in further building European added-value in the area of defence and thereby deepen the single market for defence products and services with the particular aim of closing capability and industrial gaps; underlines that this is not only a matter of strategic autonomy, but also of global competitiveness and their direct impact on the Union and the EU budget, as the Union must be able to stand its ground alongside other major players such as the United States and China in the global defence and security landscape;

2. Recalls that a substantial overall increase and enhanced flexibility in the EU’s contribution to defence spending is essential for any meaningful contribution to bridging the existing capability and industrial gaps, as mentioned in the White Paper on the Future of European Defence, through a combination of EU grants, low-interest lending instruments and targeted fiscal incentives to help Member States mobilise the necessary budgetary resources and spend them in the most efficient and targeted way;

3. Supports the objective of the European Defence Industrial Programme (EDIP) to increase the EU defence industry’s readiness by providing financial support for the reinforcement of EDTIB, thus strengthening the competitiveness, responsiveness and resilience of the Union’s defence industry and incentivising cooperation in defence procurement, thereby reducing excessive fragmentation and increasing standardisation and interoperability of defence systems across the Union; welcomes the fact that, by doing so, EDIP bridges the funding gap left by the termination of ASAP and EDIRPA in 2025 until the end of the current multiannual financial framework (MFF) in 2027, thereby ensuring predictable, continuous and timely, albeit limited, support to EDTIB; welcomes the potential synergies between the European Defence Fund (EDF) and EDIP, which supports the production phase of EDF projects, thereby having a multiplier effect on the budget invested in collaborative efforts under the EDF by supporting the future market uptake of the programme’s results;

4. Notes that EDIP’s programme envelope is sharply constrained by the current MFF ceilings and that the Commission proposal amounting to EUR 1.5 billion corresponds to the maximum amount available under heading five; strongly agrees with the Commission with regard to the risk of there being an insufficient budgetary volume compared to actual needs and the current geopolitical situation; underlines, furthermore, the risk that, on the one hand, the limited Union resources will result in insufficient investments, lacking the necessary incentivising effect or not having any measurable impact at Union level and that, on the other hand, Member States will pursue fragmented and individual investments; underlines that the objectives of EDIP need to be pursued in such a way as to ensure balanced industrial development throughout the Union, fostering the participation of a wide range of interested defence companies from all Member States; stresses that the estimated full-time equivalent needs proposed for the implementation of EDIP should be adjusted to its operational needs;

5. Supports the proposal to establish the Ukraine Support Instrument (USI) under EDIP, contributing to the recovery, reconstruction and modernisation of the Ukrainian Defence Technological and Industrial Base (DTIB), taking into account its possible future integration in EDTIB, thereby contributing to mutual stability, security, peace, prosperity and sustainability; insists that this support is complementary to that provided under the Ukraine Facility and the Ukraine Loan Cooperation Mechanism, and to military support provided to Ukraine under the European Peace Facility and through bilateral assistance from Member States;

6. Recalls that the Commission’s proposal initially envisaged funding the USI largely through external assigned revenue resulting from part of the unexpected and extraordinary revenues from Russia’s immobilised sovereign assets; stresses that the proceeds from immobilised Russian assets have in the meantime been earmarked for the repayment of loans provided under the Ukraine Loan Cooperation Mechanism; calls on the Commission to urgently clarify the sources of financing for the USI, in particular the state of play with regard to Russia’s immobilised sovereign assets, and recalls Parliament’s proposal to allocate a specific multibillion euro budget to this instrument;

7. Recalls that Parliament had repeatedly called for higher MFF ceilings to increase, inter alia, defence spending; underlines that higher ceilings could have provided the necessary flexibility to give the EDIP proposal the necessary level of funding; notes that in the absence of sufficient flexibility under the ceilings, proposals such as SAFE are being developed, with the risk of this once again leading to fragmented investments, divergent national priorities in various Member States and a lack of parliamentary oversight and scrutiny; stresses the importance of ensuring coherence, scale and Union added value in future defence initiatives; recalls the decision to use joint borrowing to finance the NGEU recovery instrument for the COVID-19 crisis and that the repayment of the debt would be funded by new own resources; in this respect, and given the extreme needs and challenges, invites the Commission to explore new sources of revenue for European defence industry programmes; recalls the legally binding roadmap on own resources; calls on the Council to adopt the amended Commission proposal on the system of own resources as a matter of urgency and calls on the Commission to continue efforts to identify additional genuine own resources beyond those in the IIA, in order to, inter alia, support the increased needs of EDIP and defence-related programmes;

8. Stresses the urgent need to receive additional financial resources for EDIP, both for its EDTIB component and for the USI, including contributions from the Member States; calls on the Member States to make use of this possibility in order to mitigate the existing budgetary constraints under the current MFF and to significantly increase the firepower of EDIP; calls, in particular, on the Member States to allocate at least EUR 15 billion in additional contributions to the EDTIB component of EDIP, and an additional EUR 5 billion for the USI, thereby increasing the total maximum financial envelope by at least EUR 20 billion; recalls that any additional financial resources should be used in full respect of the EDIP objectives, in particular to incentivise cooperation and joint procurement, ultimately enhancing equipment interoperability;

9. Welcomes the proposal for a Fund to Accelerate defence Supply chains Transformation (FAST), which involves a blending operation to leverage, de-risk and speed up investments needed to increase the defence manufacturing capacities of European SMEs and small mid-caps; highlights that the severe instability of the current geopolitical situation requires strengthening the defence industry’s access to funding, in particular start-ups and scale-ups; stresses the importance of improving the inclusion of SMEs and mid-caps across the defence supply chain, in particular by facilitating their access to funding and participation in cooperative projects; underlines the importance of securing resilient and independent supply chains and reducing strategic dependencies; calls on the Commission to provide more details on the rationale for such a ‘de-risking’ instrument, in particular on how it would contribute to addressing the root causes of the lack of access to private finance identified in the staff working document, including ‘ethical and reputational issues’, ‘environmental, social, and governance (ESG) criteria’, ‘lack of knowledge of the defence sector’ and ‘regulatory risks’; calls on the Commission to clarify what amount would be necessary to ensure a meaningful impact; underlines the requirement to comply with the principles laid down in the financial regulation, in particular with regard to sound financial management;

10. Supports the establishment of the European Defence Projects of Common Interest (EDPCI) as a further incentive to enhance Member States’ cross-border cooperation and joint procurement, and to support the industry by providing it with clear long-term priority projects; points to the added value in channelling Members States’ contributions to EDIP, including SAFE loans to EDPCI in this regard; underlines that, in the event of long-term financial support to EDPCI from the EU budget, Parliament, in its role as a branch of the budgetary authority, should be fully involved in the relevant decision-making process on financial contributions;

11. Acknowledges that, in accordance with Article 196(2) of the Financial Regulation, financial contributions may, where relevant and necessary for the implementation of an action, cover actions started and costs incurred prior to the date of the submission of the proposal for those actions under certain conditions described in the proposal; states that such retroactivity is duly justified by the general urgency of the situation;

12. Agrees with the Commission proposal to finance up to 100 % of the eligible costs in certain cases, where appropriate and in line with sound financial management, in derogation from Article 194 of the Financial Regulation, in order to offset the complexity of cooperation for common procurement specific to the defence sector;

13. Calls for budget line 13.0801 – EDIP programme, as proposed in the Legislative Financial Statement, to be split in order to reflect the equal importance of the programme’s two objectives, ensure transparency and accountability to the budgetary authority and comparability of the support thus far provided under ASAP and EDIRPA, and under EDIP in the future, and preserve Parliament’s prerogatives in the annual budgetary procedure;

As part of its budgetary assessment, the Committee on Budgets also submits the following amendments to the proposal:

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Amendment 1

Proposal for a regulation

Recital 12

Amendment 2

Proposal for a regulation

Recital 70 a (new)

Amendment 3

Proposal for a regulation

Article 5 – paragraph 1 – point a

Amendment 4

Proposal for a regulation

Article 5 – paragraph 1 – point b

Amendment 5

Proposal for a regulation

Article 5 – paragraph 1 – subparagraph 1a (new)

Amendment 6

Proposal for a regulation

Article 6 – paragraph 1 a (new)

Amendment 7

Proposal for a regulation

Article 6 – paragraph 3

Amendment 8

Proposal for a regulation

Article 6 – paragraph 4

Amendment 9

Proposal for a regulation

Article 6 – paragraph 4 a (new)

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR FOR BUDGETARY ASSESSMENT HAS RECEIVED INPUT

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