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Commission ready to place arms orders for member states, von der Leyen says

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In a speech to the European Parliament, Commission President Ursula von der Leyen pushed to prioritise “joint defence procurements” to reassure Europe’s defence industry that it will be able to find buyers for its increased production.

“To ensure it has the sufficient quantity of material and the technological superiority that we may need in the future, that means turbo charging our defence industrial capacity in the next five years,” von der Leyen said in Strasbourg on Wednesday (28 February).

“At the heart of this must be one simple principle: Europe must spend more, spend better, spend European.”

One way to do it, she said, is to “prioritise defence joint procurement, just as we did with vaccines or with natural gas”, with the European Commission closing contracts with the industry as a guarantee that member states will purchase their products.

The idea was already hinted at by Internal Market Commissioner Thierry Breton, who said the Commission could find ways to de-risk the industries’ investments into manufacturing and production capacities while waiting for the governments to place orders.

Von der Leyen also said it was “time to start a conversation about using the windfall profits of frozen Russian assets to jointly purchase military equipment for Ukraine”.

The Commission will present in the coming weeks its European Defence Industrial Strategy (EDIS) and the European Defence Industrial Programme (EDIP) from joint research to ownership and an EU defence single market.

The first details, reported by Bloomberg, show that as expected, a large part of the measures proposed were already outlined in the EU executive consultation with the industry last year.

It is expected to include a European mechanism to sell weapons, fund flagship armament projects, a VAT exemption for member states’ consortia jointly procuring in Europe, measures to match European offers of equipment and countries’ demands for national and joint procurement, secure supply chains, changes in the European investment bank’s (EIB) strict anti-weapons lending policy.

It comes at a time when the Russian invasion of Ukraine highlighted Kyiv’s dependence on other countries for the supply of defence equipment, after years of under-investment and de-industrialisation across Europe following the Cold War.

“Putin used the peace dividend to prepare for his war. As a result, the world is as dangerous as it has been for generations,” von der Leyen highlighted.

To spend more, better, and European, as the president said, “we must collectively send a strong signal to the industry”.

“This is why we will look at how to facilitate for example offtake agreements – they need security and the knowledge the products will be taken off – or advance purchase agreements where we provide guarantees,” von der Leyen explained.

“This would give our defence industry companies very stable orders and predictability in the long run”.

Advanced purchase agreements are the contracts the Commission used to procure the COVID-19 vaccines on behalf of the member states, who were then obligated to purchase and deliver them.

The offtake agreement works as a promise agreement to the companies to buy the products when they have not been manufactured yet.

Both are ways to give companies perspective on orders and purchases and are critical in accessing loans from banks to invest in urgent production capacities.

The EU executive would also therefore take up the role of a procurement agent between countries and industries.

The joint procurement of defence equipment, the Commission president said, “will help reduce fragmentation and increase interoperability”, two traditional arguments used by the EU executive to push countries to work more together on defence.

Long term, this move could be used to keep the factories “ever warm” – meaning ready to use in case of another conflict, even if the need to supply Ukraine and replenish European stockpiles were to end.

“The risks of war should not be overblown, but they should be prepared for, and that starts with the urgent need to rebuild, replenish and modernise member states’ armed forces,” von der Leyen said.

She called on the EU countries to “rebuild, replenish and modernise” their armed forces, “develop and manufacture the next generation of battle-winning operational capabilities”, and “ensure it has the sufficient quantity of material and the technological superiority that we may need in the future”.

Ramping up the bloc’s defence production in Europe has been on the Commission’s agenda since the war in Ukraine started.

But it has taken more importance as Washington’s military packages have been blocked in Congress and Europeans have had to pick up donations to sustain Kyiv’s efforts, which increasingly suffer from a shortage of manpower and ammunition.

Von der Leyen said she was encouraged by the words of European Investment Bank President Nadia Calviño “that the EIB is ready to do more to contribute to joint projects that boost the European defence industry, and I call on the Member States to endorse this proposal”.

[Edited by Zoran Radosavljevic]

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