But now the stakes are higher than ever, higher than are stakes the now But years. seven coming in the budget of the size the over spendthrift and the frugal the between standoffs protracted with Europe, paralysed coronavirus the before well enough hard already was It hearted. faint- the or impatient for the an exercise been never has EU budgets Negotiating Introduction Shutterstock Source: Summit on 23 April, Commission European April, 23 on Summit EU virtual the After COVID-19the crisis. of out economies European ravaged the pull EU’s to plans the on be will allas eyes only focus on financial firepower financial on only focus Why EU budget negotiators should not the need for EU funding COVID-19 and defence: MAY 2020 1 in investment Union.” European whole the across investment necessary the generate to be able to firepower its increase to need “we that EU budget future the on commented Leyen der von President 2020. 2020. April 23 budget David M. Herszenhorn, Herszenhorn, M. David reboot for coronavirus recovery’ for reboot coronavirus financial 1 However, it is not only only not However, is it firepower that is that firepower ‘EU leaders back back leaders ‘EU , Politico ,

Bob Deen & Kimberley Kruijver Clingendael Alert Clingendael Alert

of importance as the EU negotiates its and industrial base, an area where the next Multi-annual Financial Framework or Berlaymont traditionally had only a minor ‘MFF’ for 2021-2027. It also remains to be role.4 This had already started to change seen whether the EU will stay the course gradually and was accelerated in response and uphold its ambition to become more to the changing geopolitical and security ‘strategically autonomous’, including in environment, including the Ukraine crisis, the the field of security and defence. Europe’s departure of one of the EU’s leading military much-discussed objective to be able to powers through and the unilateral and defend its own interests and to become unpredictable course charted by President a geopolitical actor of significance in an Trump. Europe’s growing awareness of the increasingly uncertain world also depends need to take its fate in its own hands and to on the EU’s willingness to invest in its own build up its own capabilities was reflected in military capabilities. the EU Global Strategy and in the subsequent European Defence Action Plan launched by Over the last few weeks many analysts have the Commission in 2016. A range of initiatives sounded the alarm about expected cuts to were deployed to promote synergies among national defence budgets due to the corona Europe’s patchwork of national armed forces crisis, drawing parallels with the aftermath of such as Permanent Structured Co-operation the 2008 financial crisis when total defence (PESCO) and the Co-ordinated Annual Review spending dropped in the following six of Defence (CARD). But the centrepiece of years by € 24 billion – or about 11 percent.2 the Commission’s effort to get EU Member And while national defence budgets returned States to spend more – and more smartly – to their pre-crisis levels after 2014, defence on their militaries is the European Defence capabilities did not. The gaps created then, Fund (EDF). It is designed to jointly invest in still exist today.3 As governments now research projects and the development of pump vast amounts of state funds into their defence equipment. While pilot programmes economies and health systems, eventually with limited funding are already up and the budgetary circle will have to be squared running, the EDF should become fully and defence budgets will be affected. operational in 2021 with significant funding Can the same be expected at the EU level? from the new MFF.

The Juncker Commission certainly cannot Ambitious plans, ambitious be blamed for a lack of ambition. In 2018, it budgets aimed high in its first budget proposal when it asked for over EUR 17.2 billion for defence (in constant 2018 prices). This represented Things were just looking up. Over the last an almost 30-fold increase compared to the couple of years, the European Commission previous MFF and the first time that defence has steadily expanded its role in defence would get its own budget line. The lion’s share policy and in promoting investment in of this budget, 11.4 billion, would go to the the European defence technological EDF, while another 5.7 billion was earmarked through the Connecting Europe Facility for ‘’ – measures to move military 2 See Alessandro Marrone et al., ‘European equipment more efficiently across the EU. Defence should not be the casualty of the “Great The supported this high Lockdown”’, Euractiv.com, 27 April 2020, as well as level of both political and financial ambition Dick Zandee, Els Duchateau-Polderman and Adája when it adopted its own position on the Stoetman, “Defence & COVID-19: Why budget MFF in November 2018, and the ‘geopolitical cuts should be off the table”, Clingendael Alert, Commission’ of Von der Leyen even created 16 April 2020. Figures on defence spending during a Directorate for Defence Industry and Space 2007-2013 as reported by the European Defence under Commissioner Breton. Agency, Defence Data 2017-2018: key findings and analysis, 2019. 3 Christian Mölling, Torben Schütz and Sophia Becker, ‘Deterrence and Defense in Times of 4 Sophia Besch, ‘The European Commission in COVID-19 – Europe’s Political Choices’, German EU Defense Industrial Policy’, Carnegie Europe, Council on Foreign Relations, 9 April 2020. 22 October 2019.

2 Clingendael Alert

2014-2020 2021-2027

Adopted First COM EP position Finnish EU Michel Technical MFF proposal 2021-2027 Presidency proposal document (02/05/18) (14/11/18) (05/12/19) (14/02/20) (21/02/20)

Total MFF 1 081 144 1 134 583 1 324 089 1 087 327 1 094 827 1 088 927

13. Defence 575 17 220 17 220 8 514 8 514 7 014

(% of total MFF) 0.05% 1.52% 1.3% 0.78% 0.78% 0.64%

European Defence Fund 575 11 453 11 453 6 014 7 014 7 014

Military Mobility 0 5 767 5 767 2 500 1 500 0

Table 1 EU funding reserved for defence within the Multiannual Financial Framework. Numbers are in EUR million in constant 2018 prices.5

Downward trend for defence5

While everyone understood that Juncker’s Gradually, the MFF drifted back towards ambitious opening move was probably not an old-fashioned EU budget dominated by going to make it to the finish, it also did cohesion funds and the common agricultural not make it past the Finns. In December policy, losing unprecedented elements such 2019 the Finnish EU Presidency slashed as investments in defence. And that was the new defence budget line nearly in half well before the coronavirus spread across (see Table 1), cutting more on defence the continent and triggered what might than on any other budget line despite well become Europe’s deepest recession its relatively modest share of the overall in a century. MFF. This was an early indication of how easily defence-related expenditure could fall victim to rising budgetary pressures. Why European defence That prompted the question: who would budgets matter step up and defend defence?

It was not going to be the new President As the Commission gears up to present of the , . a new MFF that will jump-start Europe’s In his unsuccessful attempt at a compromise paralysed economies, it should not forget in February this year he did not even try to why it suggested those funds for defence overturn some of the defence-related cuts in the first place. What would be the effect from the Finnish Presidency. He merely of a substantial reduction in the ambition of proposed to move some of the funding defence-related expenditures in the next MFF? earmarked for military mobility into the First of all, the longer-term consequences EDF. Insiders report that funding for would be dire. Existing capability shortfalls military mobility even vanished altogether would get worse, since filling such gaps in a later ‘technical document’ drawn up requires long-term investments in defence by the Commission on 21 February 2020.6 research and the development of equipment. In its originally proposed form, the EDF would make the European Commission the fourth largest defence research investor in Europe.7 5 European Parliament, Detailed breakdown per MFF programme, 18 February 2020; Lili Bayer, 'EU budget summit: As it happened', Live blog Politico, 22 February 2020. 6 Alexandra Brozowski, ‘Europe’s military mobility: 7 Raluca Csernatoni and Bruno Oliveira Martins, latest casualty of EU budget battle’, Euractiv.com, ‘The European Defence Fund: Key Issues and 25 February 2020. Controversies’, PRIO Policy Brief, March 2019.

3 Clingendael Alert

Moreover, building on experiences following defence. A prime example is the improvement the 2008 financial crisis, experts argue of military mobility in Europe, which was that the probable cuts in national defence identified as one of the key steps towards a budgets will not lead to more cooperation more credible deterrence and was thereby set between EU Member States to achieve to become one of the flagships of EU-NATO economies of scale.8 EU co-funding from the cooperation.10 Its disappearance from the EDF will be needed both as an incentive and latest drafts of the MFF is worrying, as it casts to save funds in the long run through more doubts on the EU’s commitment to do its part efficiency. If the EDF receives much less to ensure that can quickly be funding than originally anticipated, this could moved from west to east if necessary. This is negatively impact European collaborative of significance not only for the United States procurement cooperation in the defence and Eastern European countries but also for sector. The same can be argued about the , which currently leads the PESCO projects, which depend on Member PESCO project on military mobility. States’ contributions, but are also eligible for partial EDF funding. Cutting back now on funds that are meant to promote longer-term Conclusion: the way ahead synergies and efficiencies would be penny wise, pound foolish. Given the enormity of the budgetary challenges posed by COVID-19 it is likely Second, if the EU truly wants to become that the Commission’s original proposal for more strategically autonomous in the defence-related expenditure in the new security and defence domain, it should be MFF will be reduced. However, it is vital that mindful that putting defence investments on these cuts will not nip Europe’s defence the backburner will lead to the erosion of its ambitions in the bud. At the most recent defence technological and industrial base. EU defence ministerial meeting on 6 April This leads not only to continued reliance on – held by videocall – it was recognised by others, but also weakens the EU’s military all participants that the COVID-19 outbreak power relative to strategic rivals such as has a security dimension. EU foreign affairs Russia and China. In addition, the security chief even explicitly stated that challenges facing Europe have not taken “we all need to think hard about how we can a COVID-19 break and may well become improve our resilience and develop defence worse, as underlined by NATO Secretary capabilities to address similar situations in General Stoltenberg at NATO’s recent the future”, referring to the need for a capable meeting in April.9 and credible European defence.11 There is strong political support for this within the And finally, backtracking on the EU’s own European Parliament, where the Committee announced plans to bolster its role in the on Foreign Affairs recently underlined “the defence field by cutting foreseen investments importance of providing adequate financial by 60% would undermine its credibility in support to frame a genuine European Defence the eyes of its strategic partners on both Union, promote and sides of the Atlantic. While the United bolster the EU’s role on the global level”, States has often been critical of the EU’s referring to the EDF and military mobility in plans to support the European defence particular.12 During the next MFF negotiations, industry, it is beyond doubt that NATO could benefit from more European investments in 10 Margriet Drent, Kimberley Kruijver and Dick Zandee, ‘Military Mobility and the EU-NATO Conundrum’, Clingendael Report, July 2019. 8 Alessandro Marrone and Ottavia Credi, ‘COVID- 11 Video conference of Defence Ministers: Remarks 19: Which Effects on Defence Policies in Europe?’, by the High Representative/Vice-President Josep Instituto Affari Internazionali, 9 April 2020. Borrell at the press conference, 6 April 2020. 9 Press conference by NATO Secretary General 12 Opinion of the European Parliament Committee Jens Stoltenberg following the virtual meeting of on Foreign Affairs for the Committee on Budgets the North Atlantic Council in Defence Ministers' on Guidelines for the 2021 Budget (PE646.992), session, 15 April 2020. paragraph 17, 21 April 2020.

4 Clingendael Alert

political leaders can build on this security oriented investments in European security momentum so as not to disproportionately on the traditional altar of big-ticket items cut down the defence header. such as the common agricultural policy or cohesion funds. Even President Juncker’s It was recently argued that “now is the time initial and most ambitious defence envelope to “vaccinate” the resources of Europe’s only constituted a mere drop of 1.52% in armed services” to sustain Europe’s security the MFF ocean. Hasty and disproportionate and defence ambition.13 This call to support defence cuts will not be enough to save national armed forces should also be applied Europe’s struggling economies, but would to the EU level. When the negotiations create longer-term security vulnerabilities continue political leaders should be wary that could haunt Europe for decades not to sacrifice longer-term and future- to come.

13 Daniel Fiott, Marcin Terlikowski and Torben Schütz, ‘It’s time to vaccinate Europe’s defence budgets’, Euractiv, 20 April 2020.

About the Clingendael Institute Clingendael – the Netherlands Institute of International Relations – is a leading think tank and academy on international affairs. Through our analyses, training and public debate we aim to inspire and equip governments, businesses, and civil society in order to contribute to a secure, sustainable and just world.

www.clingendael.org  @clingendaelorg [email protected]  The Clingendael Institute +31 70 324 53 84  The Clingendael Institute  clingendael_institute  Newsletter

About the authors

Bob Deen is a Senior Research Fellow on Security and Defence at the Clingendael Institute. His research focuses on international security issues, geopolitics and multilateral co-operation.

Kimberley Kruijver is a Junior Researcher at the Clingendael Security Unit. Her research concentrates on (European) security and defence, including policies and multilateral co-operation.

5