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EU plans to finance weapons for Ukraine via its own budget

Brussels is drawing up a proposal to use the EU budget to pre-finance purchases of weapons and ammunition, in what would be an unprecedented foray into the defence industry designed to speed up arms supplies to Ukraine.

The European Commission is exploring how it could leverage the bloc’s budget to provide downpayments to arms manufacturers in order to incentivise increased production, people briefed on the plans told the FT. The plans come in response to concerns over whether Europe can produce sufficient armaments as fast as Kyiv is consuming them in its defence against Russian aggression.

A final commission proposal is set to be circulated among the EU’s 27 members before a meeting of defence ministers on March seventh, one of the officials added.

“We need a new injection to get the defence industry moving,” said one of the officials, all of whom declined to be identified as the plans are not public. “The reality has moved beyond the current systems.”

The plans are being drawn up with the assistance of commission lawyers given that the EU’s governing treaties forbid the use of bloc funds for military purposes. They could be adjusted before they are made public given the legal complexities, the people said.

The proposal would echo the commission’s initiative to secure Covid-19 vaccines in the onset of the pandemic. Then, Brussels provided advance payments to pharmaceutical companies to ensure that member states — who covered the final cost of the jabs — would have sufficient supplies.

Ursula von der Leyen, commission president, said last weekend that advance purchase agreements would “give the defence industry the possibility to invest in production lines now to be faster and to increase the amount they can deliver.”

When asked about the draft proposal, the commission said that the bloc “is considering options to jointly procure standardised defence products such as ammunitions”.

Securing sufficient supplies of ammunition for Ukraine has become an acute issue in recent weeks, as senior officials including Nato secretary-general Jens Stoltenberg have warned that Europe’s defence industry is “under strain” trying to keep up with demand.

Russia is firing more than 20,000 artillery shells in Ukraine each day — as many as European factories manufacture in a month. Ukraine is firing about a quarter of that.

In response, EU capitals have given their backing to proposals for joint procurement contracts to streamline defence orders and encourage manufacturers to expand their production, such as an Estonian proposal for countries to combine on a $4bn contract to buy 1mn artillery shells.

The commission’s proposal, which was sketched out to EU foreign ministers on Monday, would significantly advance that effort by using the bloc’s €1tn seven-year budget to guarantee those orders.

“The EU has multiple ways to proceed with such a project,” said a second official. “Some kind of long-term compensation mechanism will need to be found out . . . and the [EU] budget is the big game. It’s the biggest game.”

Work on the commission’s prepayment proposal comes after almost a year of the EU’s so-called European Peace Facility fund, worth €5.5bn, which has been used to reimburse member states for weapons they supplied to Kyiv.

But officials say that the urgent need to incentivise the defence industry to expand its production means money is required upfront, rather than retrospectively.

“[Ukraine] has cannons, but they lack ammunition,” Josep Borrell, the EU’s foreign and security chief said on Monday. “So, we do everything we can,” he said, in reference to the existing reimbursement scheme and new ways involving the commission to “do common purchase”.

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