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EU Elections 2024 Spotlight: Promises and Risks Abound for the Future of Defence in Europe

May 7, 2024
By Antonio Barroso, Carsten Nickel & Benoit Cormier

The European Parliament (EP) elections of 6-9 June and the appointment of a new European Commission by year-end promise to be consequential for a wide range of policy issues. In this joint briefing, our geopolitical advisory and EU teams reflect on the growing importance of defence in the European political discourse in the lead-up to the elections.

European (Geo)Political Context

With the conflict in Ukraine showing no sign of resolution and continued tensions in the Middle East, threats are accumulating in Europe’s neighbourhood. Defence and security concerns have become a prominent agenda item for EU policymakers and will remain so following the EP elections. While the pro-business majority with the centre-right European People’s party (EPP) at its helm is likely to hold, the predicted shift to the right could lead to a renewed focus on the EU’s resilience and its capacity to protect itself, including on defence. Political developments in the U.S. are also focusing the minds of European leaders given existing fears in Brussels and several national capitals that Washington may become a less reliable security provider.

Incumbent European Commission President Ursula von der Leyen, who is also the lead candidate of the EPP, is heavily campaigning on security and defence issues. For instance, Von der Leyen has vowed to create the position of an EU “defence commissioner” if reappointed.

She has also promised to increase funding for the sector and help expand Europe’s defence industrial base in a strategy unveiled in early March. It sets ambitious targets for the EU to “make steady progress towards procuring at least 50% of their defence procurement budget within the EU by 2030.” It also encourages countries to ensure “intra-EU defence trade represents at least 35% of the value of the EU defence market.”

To reach these objectives, the Commission prioritizes what it calls “European defence industrial readiness.” The text offers to set up a European Military Sales Mechanism, modelled after the U.S. Foreign Military Sales, and to reward member states joining European defence programs. Benefits would include an increased funding rate, a VAT exemption and the possibility to issue debt-titles for long-term financing of armament programs.

However, this strategy lacks the financial resources needed to achieve these objectives, with only 1.5 billion euros of fresh EU money. The Commission hopes its roadmap will incentivize member states to dedicate much more funding to defence in the next EU common budget, with current Internal Market Commissioner Thierry Breton estimating the needs at about EUR 100 billion.

Internal Drivers

For these and other initiatives to materialise, member states will have to navigate several constraints:

  • Institutional limits: Under European treaties, defence and security policies traditionally fall under the competence of member states and spending from the EU budget is only possible under unanimity. This explains the reluctance from certain national capitals regarding the creation of a specific portfolio on the matter, which would have to be confined to industrial issues in any case, given member states’ prerogatives. Moreover, the EU’s High Representative for Foreign Affairs and Security Policy, who is also responsible for building consensus between defence ministers, already has certain attributions on the dossier. EU leaders will have to compromise on whether and how to make these existing institutional arrangements work in favour of a more harmonised defence policy, especially given that a reform of the EU treaties is currently off the table.
  • Fiscal space: Not all member states have the same fiscal leeway to push for a substantial hike in defence spending. For instance, France had a larger-than expected budget deficit in 2023 of above 5% of GDP, which jeopardizes its ability to continue raising defence expenditures. The limited fiscal headroom and U.S. pressure for substantially increased European defence spending explains why some states continue to push for pan-European initiatives to finance further increases in EU defence funding. Using the proceeds from frozen Russian assets to fund ammunition for Ukraine and topping up the so-called European Peace Facility (EPF) are first stop-gap solutions, while the idea of EU defence bonds mooted by French President Emmanuel Macron is politically much more contested. Conclusions from the latest European Council in March state that “the European Investment Bank is invited to adapt its policy for lending to the defence industry and its current definition of dual-use goods,” call for “European defence industry’s access to public and private finance” and ask “the Commission to explore all options for mobilising funding and report  back by June.”
  • Political divisions: The biggest obstacle to quick progress on EU defence policies is the political differences between member states on a wide range of issues. Countries such as Germany, the Netherlands and Austria remain opposed to the idea of issuing more common debt. This has to do with fiscal considerations, potential problems under national constitutional law and, most importantly, the strategic desire to maintain transatlantic ties. Similarly, several southern states fear negative consequences for the green transition if the European Investment Bank is allowed to finance defence acquisitions. Meanwhile, France and other member states want EU funding to be spent exclusively on European material, a view not shared by Germany, which declined to back a “Buy European” clause at a recent meeting of economy ministers in France. Long-standing neutrality policies are also a constraint in certain member states, while the Russia-friendly positions of governments in Hungary and Slovakia will continue to create headaches in EU negotiations on security matters.

External Drivers

The single most important geopolitical driver that will influence the speed and depth of any progress on EU common defence policies is the U.S. presidential election. For instance, a Trump presidency that boldly removes security guarantees (from Ukraine or Europe more broadly) is likely a necessary condition for Berlin to align more closely with Paris. In contrast, a Biden presidency with even less room for manoeuvre could complicate Franco-German coordination, as Berlin would hope to keep the U.S. engaged.

The evolution of the conflict in Ukraine and any other potential flashpoints in the vicinity of the EU could also act as potential incentives to make bolder decisions on defence and security issues. Even if the United States’ latest support package of USD 60 billion has eventually passed Congress, European leaders are under pressure to continue providing support to Kyiv on their own. The EU is trying to address Ukraine’s immediate needs, reinforcing its defence instruments in the process. The current focus on air-defence systems, key in both Ukraine and Israel, is driving the conversation on the need for enhanced capacities in Europe. The multiplication of conflicts around Europe, in an arc encompassing the Sahel and moving north-eastward all the way to Russia, also forces the EU to take into account this new reality.

In late March, European Council President Charles Michel shared a draft of a “Strategic Agenda” for the next 5-year political cycle, starting after the elections. While it still needs to be agreed upon by European leaders, the document begins with a “strong and secure Europe” section, focusing on foreign policy, defence, expanding the EU and fighting unauthorised migration. This agenda reflects the current preoccupations of most Europeans, worried about their countries’ standing in the world and protecting their way of life. With the return of war on European soil and a campaign partly fought on politicians’ ties to Russia, not to mention escalating tensions worldwide, defence has entered the electoral discourse and will continue drawing the attention of European institutions in the coming years.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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