ROME — A plan by the European Union to spend €500 million ($555 million) on beefing up the bloc’s ammunition factories to help Ukraine risks draining much needed funds from long-term weapons development programs, a senior industrial official has said.
The EU deal to splash that amount of money on souping up the continent’s ammo making capacity edged a step closer to reality last week, as the EU Council agreed its plans with the European parliament, with a sign- off expected by end July.
The investment in Europe’s industrial output is the third element of the EU’s so-called Act in Support of Ammunition Production (ASAP), which also pays for states to donate existing stocks to Ukraine and funds joint procurement by members in a bid to supply Kyiv with one million artillery rounds in 12 months.
The problem is that €260 million of the €500 million promised for the ASAP investment will likely come from the 2024 budget of the European Defence Fund, which funds EU member states’ joint research and development of new weaponry.
“We are still awaiting the publication of the final text, but we assume the sources of funding will not change, and the use of the EDF-budget for ASAP is not a positive solution,” said Burkard Schmitt, the defense and security director at the Brussels-based Aerospace, Security and Defence Industries Association of Europe (ASD).
With a budget of around €8 billion for 2021-2027, the EDF has an annual budget of about a billion euros, meaning it will lose around a quarter of its 2024 funding when it hands over €260 million to bolster ammo production.
“We understand the pressure to fulfill immediate needs, but we need to be careful to avoid negative impacts on long-term objectives. If there is less investment in future capabilities, EU member states will be forced to depend more on off-the-shelf purchasing from abroad in the future,” said Schmitt.
One potential remedy was a €1.5 billion boost to EDF funding in 2025-2027, now being proposed by the EU Commission, he said.
“Europe’s defense industry is generally satisfied with the EDF – there has been a very positive reaction to it, even if there is always room for improvement,” he added.
In a statement released last week, the ASD praised the EU’s plan to incorporate a so-called ramp-up fund into its ammunition investment scheme, which aims to make it easier for firms to access private and public financing.
“This is a so-called blending mechanism already used by the EU in the past in other sectors, where you put public money on the table as a guarantee to encourage private investment. It mitigates the risk for private investors,” said Schmitt, who added the currently envisaged total was a maximum of €50 million maximum.
The industry group has called for the European Investment Bank – the lending arm oft he EU – to be involved, but Schmitt said member states were opposed to the idea.
“The EIB would be the natural candidate to handle the ramp-up fund but until now it has not been involved in core defense activities, only dual- use technology. The European Commission is in favor of a more active role of the EIB in defense, but certain member states are against,” he said.
Another measure that member states have questioned is the EU’s proposed power to regulate the ammunition market.
While they are positive about the idea of financially supporting industrial ramp-up, Schmitt said they have not welcomed most of the proposed regulatory measures aimed at the ammunition market.
The proposed authorities have raised fears that the EU would be able to make companies with a surplus of raw materials like explosives sell to firms with a shortage. The scenario has alarmed firms who fear they would be made to give up confidential inventory information and bail out competitors.
An EU spokesperson previously told Defense News that member states had expressed concerns the plan “could require the notification and possible violation of commercial secrets or sensitive information and hand too much power to the EU.”
Said Schmitt: “The member states’ position is to eliminate most of the regulatory provisions proposed by the Commission, and I believe (the EU) parliament has agreed, although we have yet to see the final text.”
Tom Kington is the Italy correspondent for Defense News.
