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 has also drastically and structurally modified the security environment in Europe ; and unseen geopolitical changes are further affecting this situation in ways never seen before;

B. whereas the European Union and Member States are committed to contribute, together with partners, to future security commitments to Ukraine, which will help Ukraine to defend itself, resist destabilisation efforts and deter acts of aggression in the future;

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

D. whereas EU Member States are significantly increasing their defence budgets and, in parallel, punctual emergency responses have been put in place through EU budget short-term instruments EDIRPA and ASAP with funding until 2025; yet three years after the outbreak of Russia’s unjustified war in Ukraine, the challenges on European defence readiness are more pressing than ever.

1. Underlines that investing in defence through the EU budget contributes to defragment, optimise and fully leverage public spending by pooling Member States resources to support defence projects that no single Member State could develop or procure alone; 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;

2. Recalls that the need for an overall substantial increase and enhanced flexibility in EU contribution to defence spending is essential for any meaningful contribution to bridge the existing capability gap, as mentioned in the White Paper on the Future of European Defence, through EU funding and 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 industrial readiness by providing financial support for the reinforcement of the European Defence Technological and Industrial Base (EDTIB) and incentivising cooperation in defence procurement, thereby reducing excessive fragmentation and increasing standardisation and interoperability of defence systems across the EU; welcomes 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 a predictable, continuous and timely support to the EDTIB; welcomes the potential synergies between European Defence Fund (EDF) and the EDIP that ensures the productisation of EDF projects, thereby having a multiplier effect on the budget invested in collaborative efforts under EDF by supporting the future market uptake of the programme’s results.

4. Notes that the programme envelope of EDIP 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; agrees with the Commission on the risk of an insufficient budgetary volume compared to actual needs; underlines furthermore on the one hand the risk that the limited EU’s resources result in too small investments, lacking the necessary incentivising effect or not having any measurable impact at EU level and on the other hand the risk that Member States pursue fragmented and individual investments; stresses that the estimated need of 53 full time equivalent proposed for the implementation of the programme should be commensurate to the operational needs of the programme;

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

6. Recalls that the proposal of the Commission initially envisaged to fund the USI mostly through external assigned revenue arising from part of the unexpected and extraordinary revenues from Russia’s immobilised sovereign assets that has been used in the meantime for the Ukraine Loan Cooperation Mechanism; calls on the Commission to clarify urgently the sources of financing for the USI and recalls Parliament’s position to propose the allocation of a specific multibillion euro budget to this instrument;

7. Recalls that Parliament had repeatedly called for higher MFF ceilings to increase defence spending; underlines that higher ceilings could have provided for 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 leading once again to fragmented investments and individual priorities in various Member States; considers that, in the face of the existential threat to the Union, a targeted revision of the MFF for defence-related spending should be urgently explored in order to provide the Union with the necessary underlying resources;

8. Welcomes the possibility 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; invites in particular the Member States to allocate at least EUR 15 billion additional contributions to the EDTIB component of EDIP, as well as 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. Welcome the proposal for the Fund to Accelerate defence Supply chains Transformation (FAST) which consists in a blending operation offering debt and/or equity support in order to leverage, de-risk and speed-up investments needed to increase the defence manufacturing capacities of SMEs and small mid-caps; calls on the Commission to provide more details on the rationale of such “de-risking” instrument in particular how it would contribute to address 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;

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

11. Acknowledges that, in accordance with Art. 196(2) of the Financial Regulation (FR), 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, in derogation to Art. 194 FR, in order to answer the specific needs in the area of defence;

13. Calls for splitting the budget line 13.0801 - EDIP Programme proposed in the Legislative Financial Statement to reflect the equal importance of the two objectives of the programme, ensures the comparability of the support provided under ASAP and EDIRPA so far and EDIP in the future and to preserve the prerogatives of the Parliament in the annual budgetary procedure.

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

Amendment 1

Proposal for a regulation

Recital [10] a (new)

Or. en

Amendment 2

Proposal for a regulation

Article 5 – paragraph 1 – point a

Or. en

Amendment 3

Proposal for a regulation

Article 5 – paragraph 1 – point b

Or. en

Amendment 4

Proposal for a regulation

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

Or. en

Amendment 5

Proposal for a regulation

Article 6 – paragraph 1 a (new)

Or. en