EU arms initiative: Commission proposes 'Buy European' criteria

SAFE – the European Commission's €150 billion instrument for upgrading is intended to benefit European manufacturers. Contractors and their subcontractors who benefit from public contracts under the instrument must be based in the EU, the European Economic Area (EEA) or Ukraine. This is stated in the legislative proposal presented by the Commission on Wednesday.

There are conditional exceptions for complex weapons systems, such as air defense systems, large drones and AI. In this case, foreign manufacturers with a production site in the EU may also participate in arms procurement. However, this only applies if the company's European subsidiary has the ability to modify the design of the weapon system itself. This condition is likely to be difficult to meet, particularly in the case of complex weapon systems.

" Buy European" criteria also apply to the components of the purchased weapon systems. Product components from the EU, the EEA and Ukraine must account for at least 65 precent of the cost of the end product. This is intended to ensure that not only the final production step takes place in the EU, but that a significant part of the supply chain is established in Europe.

The "Buy European" criteria are controversial among the Member States. "If you use EU money, it is only normal that the EU arms industry should benefit from it," said one diplomat on Wednesday. Another diplomat warned that the European arms industry was closely intertwined with industries from third countries. "If we cut Europe out of this, we are shooting ourselves in the foot politically and economically," he said.

Under SAFE, the Commission lends money to the Member States. The Member States can spend the money on joint armaments procurement with other Member States. In this way, the Commission wants to bring about standardization in the European arms market. To make the instrument more attractive, the Commission is also proposing that no VAT must be paid on such purchases. Simplified procurement rules are also to apply. In return, the Member States must submit a defense investment plan to the Commission. In these plans, they must show how they intend to strengthen the European defense industry.

Certain third countries may participate in joint procurement projects. States that have concluded a security and defense partnership with the EU may participate in joint procurement projects under the SAFE instrument. However, they would not benefit from the loans themselves.

It is still unclear for how many Member States SAFE is attractive at all. They have to pay the same interest rate for SAFE loans as the EU has to pay on the capital markets. This means that it is particularly interesting for those Member States that have to pay higher interest rates on the capital market.

There is also uncertainty regarding the use of the national escape clauses of the EU debt rules. The Commission asserts that the national escape clause only applies to additional defense spending of up to 1.5 percent of GDP. The German government had previously lobbied in vain for an adjustment of the EU debt rules instead. EU fiscal policy expert Lucas Guttenberg from the Bertelsmann Stiftung criticized the use of national escape clauses as a "short-sighted mistake." There is a risk that the rules will become unenforceable.

The legal text of the fiscal rules does not provide for any thematic restriction of the escape clauses. The Commission argues that this is nevertheless possible. Guttenberg, on the other hand, fears that this would not be legally enforceable. "De facto, national escape clauses apply to all expenditure," says Guttenberg.