COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Launching the European Defence Fund
Date: 2017-06-07
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: EU Member State, EU investment, European defence policy, European security, common security and defence policy, fund (EU), military cooperation, public safety, research and development

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   EUROPEAN COMMISSION  Brussels, 7.6.2017  COM(2017) 295 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Launching the European Defence Fund  
 
 
INTRODUCTION 

The  EU  is  facing  increased  instability  and  conflicts  in  its  neighbourhood  and  new  security 
threats  are  emerging.  This  situation  is  unlikely  to  change  in  the  near  future.  Citizens 
increasingly look to Europe for protection within and beyond its borders because the scale of 
these challenges is such that no Member State can successfully address them on their own. 

The security of European citizens is first and foremost a European responsibility. Recognising 
this, Member States are reinvesting in defence. The 28 current Member States are spending 
1.34% of GDP on defence (for the EU27, the figure is 1.32%), and there is a clear need to do 
more.  

To be ready to face tomorrow's threats and to protect its citizens, Europe needs to enhance its 
strategic  autonomy.  This  requires  the  development  of  key  technologies  in  critical  areas  and 
strategic capabilities to ensure technological leadership. Cooperation at all levels is the only 
way to deliver on the expectations of EU citizens. By encouraging cooperation, the European 
Union can help maximise the output and quality of Member States' investment in defence. 

For  this  reason,  defence  policy  has  been  identified  as  one  of  the  priority  areas  of  action  in 
President Juncker's political guidelines. In 2016, the European Union laid the foundations for 
a stronger European defence policy. As part of a comprehensive defence package following 
up  the  EU  Global  Strategy  in  the  security  and  defence  area,  the  Commission  adopted  the 
European Defence Action Plan (EDAP).1  

This  Action  Plan  set  out  the  measures  needed  to  achieve  greater  European  defence 
cooperation  and  support  the  competitiveness  of  Europe’s  defence  industry.  It  proposed  the 
establishment  of  a  European  Defence  Fund.  The  Fund  should  help  Member  States  make 
cooperation the norm and thereby develop and acquire key strategic defence capabilities. The 
European  Council  welcomed  the  initiative  as  well  as  the  Commission's  intention  to  present 
proposals for the establishment of a European Defence Fund in the first half of 2017.2 

Now is the moment of delivering on that mandate. Time is running fast. The implementation 
of the European Defence Fund needs to be taken forward as a matter of priority.  

Work  is  advancing  on  the  preparation  of  the  Research  Window  of  the  European  Defence 
Fund.  Today,  the  Commission  is  making  a  legislative  proposal  for  a  European  Defence 
Industrial  Development  Programme.  The  proposal  reflects  an  intensive  dialogue  with  all 
stakeholders, notably the Member States. Cooperation with the High Representative and the 
EDA has been close. This Communication also presents tools to promote the joint acquisition 
of defence capabilities by Member States. Further action will be taken in subsequent phases 
of the establishment of the Fund. 

The European Defence Fund must become a key enabler for the future of European defence. 
It will support the level of ambition the Union will agree upon when considering the different 
scenarios towards a Security and European Defence Union, as set out in the reflection paper 
on the future of European defence.3 

1.  Why do we need a European Defence Fund? 

Despite several initiatives over the past years, the landscape of the European defence industry 
is  characterised  by  insufficient  levels  and  quality  of  investment  in  the  development  and 

1   COM(2016)950.  
2   See paragraph 12 of the European Council Conclusions of 15 December 2016.  
3   See the reflection paper on the future of European defence, COM(2017)315. 

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procurement  of  future  capabilities.  Member  States  are  not  cooperating  enough,  with  more 
than 80% of procurement and more than 90% of Research and Technology run on a national 
basis. A high degree of fragmentation remains, with 178 different weapon systems in Europe 
compared to 30 in the US. Too little coordination in defence planning leads to an inefficient 
use  of  taxpayers'  money,  unnecessary  duplication  and  suboptimal  deployability  of  defence 
forces. There are wide differences in the level of defence spending between Member States. 
Enhanced solidarity, including through the involvement of the EU budget, is needed to deliver 
common defence capabilities. 

The  EU-level:    the  Commission,  the  High  Representative/Vice-President  and  the  European 
Defence Agency (EDA) can significantly help the Member States in coordinated planning and 
joint development of future capabilities. The following steps will be meaningful:  

-  Systematic identification of European defence capability priorities, based on the EU’s 
new level of ambition in security and defence. This level of ambition was based on the 
EU  Global  Strategy  and  endorsed  by  the  European  Council 4 .  The  Capability 
Development Plan as revised in 2018 will be the key reference at the EU level. Where 
appropriate,  regional  and  international  cooperation  initiatives  contributing  to  the 
implementation of the EU priorities will also be taken into account.  

-  Greater  transparency  and  political  direction  in  national  capability  planning.  The 
Coordinated  Annual  Review  on  Defence  (CARD)  will  foster  greater  coordination  in 
national defence planning and enhanced European defence cooperation. 

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Joint funding mechanisms, as foreseen in the European Defence Fund, should achieve 
a structural shift towards greater defence cooperation. 

The  coordination  of  investment  decisions  requires  a  common  definition  of  needs  and 
priorities.  These  will  remain  in  the  hands  of  Member  States.  Some  of  these  priorities  have 
already  been  identified  such  as  Remotely  Piloted  Aircraft  Systems  (drones),  air-to-air 
refuelling capacity, Satellite Communication and Cyber.5 These priorities were confirmed by 
the  EU  Global  Strategy,  which  identified  additional  priority  capability  areas  where  Europe 
needs  to  invest  and  promote  collaborative  development  including:  intelligence-surveillance 
reconnaissance,  autonomous  access  to  space  and  permanent  Earth  observation  as  well  as 
maritime security.  

Increased coordination of investment amongst Member States throughout the industrial cycle 
is  crucial,  from  research  to  the  development  of  prototypes  to  the  acquisition  of  defence 
capabilities. It would contribute to greater efficiency in national defence spending, maximise 
innovation  by  achieving  greater  scale,  reduce  the  risk  of  duplication,  foster  interoperability 
between  armed  forces  and  encourage  greater  standardisation  of  equipment.  It  would  also 
allow for risk- and cost-sharing.  

That  is  why  the  European  Defence  Fund  aims  to  provide  the  necessary  incentives  at  each 
stage  of  the  industrial  cycle.  The  key  measure  of  its  success  will  therefore  be  a  significant 
increase in the share of cooperative defence projects in overall defence spending6. The Fund 
must  help  develop  technological  skills  and  provide  incentives  to  build  integrated  and 
competitive  cross-border  supply  chains.  Possible  complementarities  with  civil  use  and 

4   European Council Conclusions of 15 December 2016 and Council Conclusions of 14 November 2016 on 

implementing the EUGS in the security and defence area. 
5   See European Council Conclusions of 20 December 2013. 
6   The current share of European defence equipment procurement devoted to collaborative projects is around 
22.1%. 90% of these collaborative projects are European, amounting to an investment of EUR 5.1 billion. 

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corresponding  European  civil  support  programmes  will  be  examined  throughout  the 
programming and delivery cycle. This will ensure the most efficient use and complementarity 
of European resources for both civil and military research, innovation and deployment efforts. 
Of  particular  importance  will  be  the  complementarity  with  the  other  EU  security  policies, 
including cyber security. 

2.  What is the European Defence Fund? 

The European Defence Fund consists of two legally distinct but complementary windows (see 
Figure 1). Both are being deployed in a gradual manner. The windows will be coordinated by 
a  Coordination  Board,  bringing  together  the  Commission,  the  High  Representative,  the 
Member  States,  the  European  Defence  Agency,  as  well  as  industry  as  appropriate.  The 
support  provided  by  the  EU  budget  will  be  tailored  to  the  phase  of  the  industrial  cycle 
concerned.   

The  different  programmes  and  tools  developed  under  the  research  and  capability  windows 
will be inclusive and open to the participation of beneficiaries from all Member States. It is 
essential  that  all  companies,  regardless  of  their  size  and  location  in  the  Union,  can  benefit 
from the tools available. SMEs, at the heart of innovation in Europe and critical for the supply 
chains, should benefit in particular.  

Figure 1: The European Defence Fund 

The  research  window  is  already  beginning  to  finance  collaborative  research  in  innovative 
defence products and technologies at EU level. The first steps towards the future programme 
have already been taken with the launch of the Pilot Project and the launch of the Preparatory 
Action,  with  a  total  expected  budget  of  EUR  90  million  over  three  years7.  The  projects  it 
finances,  which  may  include  projects  developed  in  the  framework  of  the  Permanent 
Structured Cooperation (PESCO), take into account defence capability priorities agreed by the 
Member States within the EU. It will be fully funded by the EU budget through a dedicated 

7   C(2017)2262. 

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EU  programme  under  the  next  Multiannual  Financial  Framework  (MFF).  The  estimated 
budget  will be  of  around  EUR 500  million per year.  The proposal for this  defence research 
programme will be made in the course of 2018 in order for it to be operational on 1 January 
2021.  The  future  defence  research  programme  will  benefit  from  a  tailor  made  governance 
structure, reflecting the specificities of the defence sector. It will be designed in light of the 
experience  gained  through  the  Pilot  Project,  the  Preparatory  Action  and  the  governance 
structures in Horizon 2020.   

The capability window, which should aim to achieve a reference amount of EUR 5 billion per 
year in the medium-term, will support the joint development and the joint acquisition of key 
defence  capabilities.  These  will  respect  the  defence  capability  priorities  agreed  by  Member 
States within the EU. While contributions for the capability window will mainly come from 
Member  States,  the  EU  budget  will  encourage  defence  cooperation  by  reducing  the  risk  in 
earlier  stages  of  the  industrial  development  cycle.  Such  contributions,  provided  through  the 
Defence  Industrial  Development  Programme,  will  support  the  competitiveness  of  the 
European defence industry.  They will leverage  financing from  Member  States  in support of 
the European defence industry launching and executing development projects in cooperation. 
The  requirement  of  a  joint  financing  commitment  for  the  further  development  and 
procurement of the final product or technology by Member States will direct EU funding and 
investments  towards  viable  projects  in  priority  areas.  A  flexible  Financial  Toolbox  will 
provide  a  range  of  options  to  address  different  needs  of  Member  States  in  the  launch  of 
collaborative development programmes after the prototype phase as well as in view of joint 
acquisition.  

Figure 2: The governance of the European Defence Fund until 2020 

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3.  Towards the Research Window of the Fund: Supporting research in defence 

products and technologies 

Defence research is essential to develop the future key capabilities, bridge technological gaps 
and thereby address emerging and future security threats facing Europe. It helps develop core 
technological know-how and skills.  

The  Commission  will  mobilise  EU  funds  to  leverage  and  complement  national  defence 
research  programmes.  The  focus  will  be  on  collaborative  defence  research  and  technology 
development  activities  and  stimulating  cooperation  amongst  R&T  actors  across  Europe, 
taking into account the defence capability priorities agreed by Member States within the EU. 
A two-step approach will be pursued: the initial Preparatory Action on Defence Research will 
lead to a more substantial EU defence research programme under the next MFF. 

a.  Preparatory Action on Defence Research 

The financing  decision launching the Preparatory  Action on Defence Research was  adopted 
on 11 April.8 Together with the Pilot Project, this is the first time that EU budget will support 
actions in defence R&T.  

A  budget  of  EUR  25  million  has  been  agreed  for  2017.  The  Commission  has  proposed  a 
budget of EUR 40 million for 2018 and of EUR 25 million for 2019 (EUR 90 million overall). 
The  Preparatory  Action  will  target  research  areas 9  which  are  crucial  to  advance  the 
development of key defence systems. Based on priorities set by the Member States, including 
through  the  EDA,  these  are  a  Defence  Research  Technology  Demonstrator  Project  and  a 
number  of  actions  in  the  areas  of  Critical  Defence  Technologies,  Future  and  Emerging 
Disruptive  Technologies,  Standardisation  and  Interoperability.  Strategic  Technology 
Foresight will also be funded.  

The  EDA  is  managing  the  implementation  of  the  Preparatory  Action's  annual  work 
programmes  on  behalf  of  the  Commission,  in  accordance  with  the  Delegation  Agreement 
signed  on  31  May.  It  has  valuable  expertise  and  experience  with  the  organisation  and 
management  of  research  projects  in  the  area  of  defence.  In  addition,  the  EDA  has  assisted 
Member  States  and  the  Commission  in  defining  research  topics  and  will  support  the 
exploitation of research results.   

In the implementation of the Preparatory Action, the Commission will be assisted by a group 
of Member State experts and by an advisory group bringing together experts from industry, 
research and technology organisations, academia, the EDA and the EEAS.  

Specific implementation modalities were developed in close consultation with Member States 
and defence industries to reflect the specificities of the defence research activities. EU support 
will mainly  take the form of grants.  The  first calls  for  proposals are being published today. 
Proposals  will  be  evaluated  based  on  their  excellence,  their  impact  and  their  quality  and 
efficiency  of  implementation.  They will  be  reviewed  in relation  to  ethical,  legal,  or  societal 
aspects by a group of experts on defence ethical and legal issues.  

The signature of first grant agreements is foreseen by the end of 2017. The Commission will 
review progress made in the implementation of the Preparatory Action on an annual basis. 

8   C(2017)2262. 
9   These  actions  will  be  identified  in  the  technology  clusters  of  Autonomous  platforms,  C4ISR  (Command, 
Control,  Communications,  Computers,  Intelligence,  Surveillance  and  Reconnaissance),  Effects,  Force 
Protection and Soldier Systems. 

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Achieved milestones: 

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Agreement with the European Parliament and the Council on the EUR 25 million for 
the Preparatory Action for 2017; 

Adoption of the Financing Decision launching the Preparatory Action; 

Agreement  on  the  work  programme  and  the  conditions  of  participation  (reflected  in 
the calls for proposals and model grant agreements);  

Signature of the delegation agreement with the EDA; 

Publication of the first calls for proposals. The calls primarily focus on a technological 
demonstrator  for  unmanned  systems  in  a  naval  environment  and  on  force  protection 
and soldier systems. 

Next steps: 

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Signature of first grant agreements – December 2017; 

Securing the budget for the years 2018 and 2019 to reach EUR 90 million overall in 
the period 2017-2019. 

b.  Towards a dedicated EU defence research programme  

While  it  is  an  essential  first  step,  the  Preparatory  Action  will  remain  limited  in  time  and 
scope. Its purpose will be to demonstrate the added value of EU-funded defence R&T and to 
pave the way towards a dedicated EU defence research programme under the next MFF (post-
2020).  A  broad  consultation  with  all  stakeholders,  including  the  EU  institutions,  will 
accompany  this  transition.  To  support  this  dialogue,  the  Commission  will  also  consult  the 
expert group established in the context of the Preparatory Action on the key elements of the 
future defence research programme.  

The future defence research programme will focus on targeted research activities supporting 
the  development  of  defence-related  products  and  innovative  technologies.  It  should  be 
capability-driven  and  focus  on  critical  defence  technologies  as  well  as  exploratory  and 
disruptive  research  with  the  potential  to  strengthen  the  technological  leadership  of  the 
European  defence  industry.  Member  States  will  identify,  with  the  help  of  the  EDA,  the 
defence  capability  priorities  and  the  R&T  priorities.  The  Commission  will  take  these  into 
account  in  the  future  defence  research  programme.  Projects  will  be  selected  with  the 
assistance  of  experts  against  defined  criteria  such  as  excellence  and  impact,  and  typically 
require trans-national collaboration. The future programme should attract broad participation 
of different actors, including SMEs.  

The precise relationship with the successor to Horizon 2020 will need to be determined. The 
financing  of  the  defence  research  programme  should  be  separate  from  and  not  affect  the 
civilian research programme.  

To  meet  the  public  expectations  and  reflect  the  high  level  of  ambition,  the  future  defence 
research  programme  needs  an  ambitious  budget.  In  the  European  Defence  Action  Plan,  the 
Commission indicated a reference amount of EUR 500 million per year. This would make the 
EU one of the biggest defence R&T investors in Europe and the first investor in collaborative 
defence research.  

The  experience  with  the  management  of  the  Pilot  Project  and  the  Preparatory  Action  will 
provide  guidance  on  the  future  role  for  the  EDA  and  the  overall  governance  of  the  future 
programme  in  the  context  of  the  follow-up  programme.  While  taking  into  account  existing 

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structures  and  expertise,  various  options  will  be  considered  for  associating  industry 
stakeholders in the preparation and implementation of the programme.  

Next steps:  

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Continued  dialogue  with  Member  States,  the  European  Parliament,  the  Council,  the 
EDA, the industry, R&T organisations and other interested parties in the preparation 
of the programme; 

Adoption of the proposal, accompanied by an impact assessment, in 2018 in view of 
the next MFF; 

4.  Towards the Capability Window of the Fund: Promoting joint development and 

joint acquisition of key defence capabilities 

The economic case for joint development and procurement is strong but so are the challenges. 
Cooperative  development  and  procurement  programmes  require  common  assessment  of 
threats and needs as well as an effective partnership between participating Member States and 
industry. Joint investments, whether at the stage of development or procurement, also require 
a level of synchronisation of national defence planning and budget cycles. High upfront costs 
and long project timescales can discourage important investment decisions.  

Some  defence  development  projects  crucial  for  providing  key  future  capabilities  have  not 
proceeded  despite  the  initial  stages  of  R&T  already  been  funded.  It  is  therefore  particularly 
important to bridge the gap between research and development, i.e. to ensure that the results 
of research are further developed into the  capability  needed. Indeed, this phase of  the cycle 
entails  important  technical  and  financial  risks  that  individual  Member  States  may  not  be 
willing  or  able  to  take.  The  development  and  testing  of  prototypes  in  particular  involves 
heavy  upfront  costs  while  the  technological  risks  at  that  stage  remain  substantial.  In 
collaborative  programmes,  these  challenges  are  easier  to  overcome,  often  leading  to  the 
successful delivery of state of the art capabilities that are currently in use in the armed forces 
of Member States.  

European collaboration in the field of missile technology is a prime example: investments like 
the Storm Shadow / SCALP cruise missiles or the Meteor and IRIS-T air-to-air missiles show 
that  collaborative  programmes  can  contribute  significantly  to  achieving  economies  of  scale, 
standardisation and interoperability.  

The Meteor, which entered service with the Swedish Air Force in 2016, is considered as one 
of  the  most  capable  beyond  visual  range  air-to-air  missiles.  It  was  developed  to  meet  the 
needs  of  six  Member  States  (the  United  Kingdom,  Germany,  Italy,  France,  Spain  and 
Sweden) and will equip at least three European platforms.10 

Projects  like  the  Eurofighter  Typhoon  also  show  that  European  defence  collaborative 
programmes  can  entail  wider  economic  benefits.  A  study  on  the  Typhoon  programme 11 
estimated that it supported some 100 000 jobs in the participating Member States, with a high 
proportion of highly-qualified workers. It generated important technology benefits and spin-
offs, as well as skills that are highly transferrable to other sectors and even contributed to the 
introduction of modern business practices in the industry.    

10   Eurofighter Typhoon, Dassault Rafale and Saab Gripen. Its integration is also foreseen on the Lockheed F-35 

Lightning II. 

11   Hartley, The industrial and economic benefits of Eurofighter Typhoon, University of York, York, 2008. 

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The impact of the Capability Window on the competitiveness of the European defence 
industry: 

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Identification  of  strategic  capability  priorities  notably  through  the  Capability 
Development  Plan  combined  with  a  multiannual  funding  scheme  should  encourage 
industry to invest in innovation. 

The  capability  window  should  facilitate  political  decisions  to  launch  cooperative 
programmes,  accelerate  their  execution  and  promote  innovation  in  the  European 
defence supply chains. 

The  capability  window  should  encourage  the  pooling  of  the  demand  that  will 
ultimately  lead  to  industrial  joint  undertakings  and  potential  consolidation  of  the 
European industrial landscape. 

The capability window should encourage joint purchase that will enable the European 
defence  industry  to  achieve  economies  of  scale  and  therefore  reinforce  the  global 
competitiveness of the European defence industry. 

a.  Promoting 

joint  development 

through 

the  European  Defence  Industrial 

Development Programme  

The  capability  window  will  be  driven  by  Member  States  and  their  needs  and  resources. 
However,  the  EU  can  complement  national  financing  and  provide  incentives  to  launch 
collaborative  development  projects.  Today's  proposal  for  a  Regulation  of  the  European 
Parliament  and  the  Council  to  establish  a  European  Defence  Industrial  Development 
Programme is an important step in that direction. The proposal foresees a budget of EUR 500 
million for two years, with EUR 245 million for 2019 and 255 million for 2020.  

The European Defence Industrial Development Programme will co-finance a part of the costs 
of development. An amount of EUR 500 million under the programme could therefore lead to 
a  significant  total  investment  of  at  least  EUR  2.5  billion  over  the  two  years  in  the 
development phase of collaborative defence capabilities.  

The  European  Defence  Industrial  Development  Programme  will  support  industry  in  the 
development  phase  for  collective  investments  in  cutting-edge  products  and  technology.  The 
Programme  could  also  support  the  spin-in  of  commercial  innovation  into  future  defence 
projects, such as artificial intelligence, big data, cyber defence, robotics and super-computing. 

The  cooperative  projects  developed  by  the  beneficiaries  of  the  Programme  will  have  to 
contribute  to  meeting  the  security  and  defence  interests  of  the  EU,  notably  in  view  of  the 
capability priorities commonly agreed by Member States at EU level (through the Capability 
Development  Plan),  also  taking  into  account  European  regional  or  multilateral  cooperation 
corresponding  to  EU  strategic  priorities.  Driven  by  the  objective  of  increasing  the 
competitiveness  of  our  defence  industries,  they  should  help  meet  the  level  of  ambition  in 
security and defence as derived from the EU Global Strategy on Foreign and Security Policy 
in terms of crisis management and the protection of Europe.  

The Programme will complement the research window by supporting actions which focus on 
post-research activities, based on common technical requirements. It will help the industry to 
launch  collaborative  development  programmes  or  upgrading  existing  ones  by  actions 
supporting  the  definition  of  common  technical  requirements,  feasibility  studies  and  the 
development  of  prototypes  and  testing.  It  can  also  be  used  for  EU-wide  industrial  and 
technological challenges and competitions to take advantage of the diversity of the European 
technological  and  industrial  base.  It  should  support  innovative  SMEs  and  facilitate  their 
inclusion  in  European  supply  chains.  It  should  reduce  fragmentation,  which  can  hinder 

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economies of scale and cross-border use. Financial support may in particular take the form of 
grants or financial instruments. The Programme will only cover part of the development costs.  

The  Programme  will  initially  cover  the  years  2019-2020.  Only  projects  involving  at  least 
three companies from at least two Member States will be eligible. The collaborative projects 
can be managed by a project manager selected by the Member States co-financing the project. 
The  Programme  will  cover  different  types  of  projects.  It  should  benefit  both  large-scale 
companies and SMEs in the defence sector, ensuring inclusiveness in terms of undertakings 
and  Member  States.  It  will  thus  enhance  cross-border  cooperation  among  industry  and 
contribute  to  the  competitiveness  of  the  whole  defence  industrial  sector.  For  that  reason,  a 
proportion of the overall budget will benefit projects enabling the cross-border participation 
of SMEs. 

A more substantial programme will be prepared under the next MFF taking into account the 
initial  experience.  The  future  programme  may  allow  for  a  broader  range  of  projects  to  be 
covered than under the current programme, given its limited scope and duration.  

As regards governance, the Commission will be responsible for the overall execution of the 
programme.  It  may  however  entrust  certain  tasks  to  an  implementing  body.  The  EDA  will 
have  a  key  role  to  play  in  the  identification  of  the  capability  priorities,  as  well  as  in 
harmonisation  of  technical  requirements.  It  will  participate  as  observer  in  the  Programme 
Committee  composed  of  Member  State  representatives  as  well  as  in  an  advisory  group 
composed of representatives of industry and other experts in the defence sector. Furthermore, 
the  EEAS  will  be  involved  in  the  programme  including  in  the  work  of  the  Programme 
Committee in accordance with applicable rules. Committee The Programme Committee will 
provide  an  opinion  on  the  annual  work  programme  and  the  award  of  funding  for  selected 
cooperative actions to the Commission.  

The  programme  ensures  synergies  with  the  capability  pillar  of  the  Permanent  Structured 
Cooperation (PESCO). PESCO is one of the key instruments in the Treaty to help fulfilling 
the EU’s level of ambition in security and defence, enhance the EU’s operational ability and 
support  greater  cooperation  and  efficiency  in  defence  capabilities  development.  Projects 
developed  in  the  context  of  PESCO  would  ensure  enhanced  cooperation  between 
undertakings in the different Member States on a continuous basis and directly contribute to 
the aims of the programme, which thus envisages an increased funding rate for such projects.  

However, as the Programme targets a broader range of projects, a participation in PESCO will 
not be a pre-requisite for obtaining support under the programme. Other projects contributing 
to  the  development  of  commonly  agreed  capability  priorities,  including  projects  conducted 
under  the  EDA  framework  or  based  on  regional  cooperation  in  line  with  EU  security  and 
defence interests can also be considered for support.  

Next steps: 

- 

- 

Discussions  with  Member  States  to  start  the  preparation  of  pipelines  of  possible 
projects  which  could  benefit  from  support  under  the  European  Defence  Industrial 
Development Programme; 

A  swift  examination  and  adoption  by  the  co-legislators.  To  achieve  this,  strong 
support of the European Parliament and the Council will be required. The Commission 
will therefore propose European Defence Industrial Development Programme among 
the  legislative  priorities  to  be  given  priority  treatment  by  the  three  institutions.  An 
agreement with the European Parliament and the Council by early 2018 would allow 
first project to be financed in 2019; 

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- 

Preparation  of  a  more  ambitious  Defence  Industrial  Development  Programme  in  the 
next Multiannual Financial Framework, accompanied by an impact assessment, with a 
reference amount of EUR 1 billion each year with the aim to enable a significant total 
yearly investment in collaborative defence capabilities in Europe. 

b.  Looking forward: paving the way for joint acquisition of capabilities  

The  development  and  acquisition  of  defence  capabilities  are  inherently  linked,  especially 
when  it  comes  to  financing.  In  order  to  benefit  from  support  under  the  European  Defence 
Industrial  Development  Programme,  industry  will  have  to  demonstrate  that  Member  States 
have committed to jointly finance the further development of the eligible action and procure 
the  final  product  or  technology  in  a  coordinated  way,  including  through  joint  procurement 
where applicable. Such commitment would ensure that a contribution from the EU budget is 
only  provided  to  projects  where  on  one  hand,  there  is  reasonable  expectation  that  the 
development results in procurement and on the other hand, where this is done in a cooperative 
manner to optimise the investments and ensure synergies.  

Procurement  essentially remains in the hands  of Member  States. It is therefore necessary to 
explore  further  incentives  to  trigger  more  collaborative  acquisition  of  defence  equipment, 
with  its  advantages  in  terms  of  interoperability,  economies  of  scale,  supporting  a  viable 
European  industrial  base,  lifecycle  savings  in  terms  of  maintenance,  logistic  support,  and 
training facilities and command structure. Such incentives could also facilitate multinational 
equipment  and  joint  ownership  solutions,  which  may  be  particularly  suited  for  capabilities 
which are not in permanent use (e.g. strategic lift assets). 

Financial Toolbox  

While the role of the EU budget is necessarily limited as regards the acquisition of defence 
capabilities, the Commission can support Member States in many respects, notably by helping 
them deploy the most suitable and cost-saving financial arrangements for the joint acquisition 
of  defence  capabilities.  At  the  moment,  collaborative  procurement  projects  are  mostly 
negotiated and implemented on an ad-hoc basis by the Member States involved. Knowledge 
and  best  practice  on  possible  financial  arrangements  are  not  being  systematically  recorded, 
standardised and shared to the benefit of all Member States. In addition, while Member States 
have  a  great  deal  of  national  knowledge  and  expertise  on  how  to  conduct  national  defence 
procurement, they experience a gap in terms of expertise and tools in the case of collaborative 
projects. Information and tools for optimal financial arrangements are not available in a single 
'hub'.  Each  collaborative  development  and  procurement  project  has  its  unique  requirements 
and  characteristics,  and  it  would  therefore  not  be  appropriate  to  apply  a  one-size-fits-all 
approach.  However,  a  number  of  challenges  encountered  by  collaborative  projects  are 
recurrent and there would thus be merit for having a ready-made set of tools, as well as the 
expertise  to  advise  on  their  use  in  the  specific  project  context,  available  on  demand.  The 
Commission, in collaboration with Member States, has identified some of the most frequent 
challenges and possible ways to address them.  

  A first challenge is lifting synergies and synchronising budget spending: collaboration 
among Member States can lead to synergies and economies of scale, but lifting such 
synergies is often hampered by the lack of synchronisation in the planning of budget 
contributions, which in turn can lead to delays in the availability of fiscal resources for 
collaborative  projects.  A  possible  way  to  address  this  challenge  is  the  pooling  of 

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national resources for funding specific collaborative projects12, which would allow for 
the necessary degree of budget coordination and synchronisation over long periods of 
time, and avoid the unavailability of funds in a given year. 

  A second challenge consists in fair risk and cost sharing: the cost of development of 
capabilities  may  initially  be  'restricted'  to  the  (potentially  small)  number  of 
participating Member States, despite the fact that it could subsequently create a benefit 
to  others  (e.g.  'off-the-shelf'  procurement).  It  is  possible  to  develop  mechanisms 
whereby  these  Member  States  are  'compensated'  via  a  development  cost  recovery 
mechanism,  by  other  Member  States  taking  part  in  the  procurement  of  a  capability. 
This  includes  the  possibility  of  setting  up  project-related  financial  vehicles.  If 
warranted,  these  vehicles  could  also  be  used  for  a  project-related  issuance  of  capital 
instruments (debt or equity) with a view to enable a more flexible structure and ensure 
full availability of the resources when they are needed. 

  A third challenge is avoiding financing constraints in the supply chain: development 
of capabilities is carried out by different parts of the defence supply chain – big system 
providers  acting  as  prime  contractors  but  also  SMEs  and  intermediate  companies  as 
sub-contractors. The latter may have difficulties accessing the necessary financing. In 
order  to  overcome  these  difficulties,  well-targeted  financial  instruments,  such  as 
guarantees, could be used to cover loans to defence (sub)-contractors.  

  Finally,  further  optimisation  and  added  value  of  cooperation  among  Member  States 
can be achieved by exploring alternative forms of ultimate ownership structures of the 
capabilities (e.g. joint ownership or leasing structures).  

Together,  the  abovementioned  instruments  will  form  part  of  the  European  Defence  Fund's 
Financial  Toolbox.  The  Financial  Toolbox  will  provide  the  different  types  of  arrangements 
that  Member  States  can  use  to  address  challenges  for  collaborative  development  and 
procurement  from  a  financing  perspective.  The  Financial  Toolbox,  the  use  of  which  is 
voluntary for Member States, will in particular provide a set of standardised and predefined 
financial  tools  that  can  be  used  flexibly  by  Member  States  in  order  to  finance  jointly  the 
projects benefitting from the support of the EU budget in the prototype phase but not limited 
to them. 

In  the  short  term,  an  ad-hoc  Committee  will  be  established  with  Member  States  to  develop 
ready-to-use, standardised instruments that will allow the Financial Toolbox instruments to be 
deployed in  a rapid  manner where Member States  decide to use  them. This  might inter alia 
include  elements  such  as  standardised  templates,  draft  term  sheets,  standard  tools  to  set-up 
project-related financing vehicles (SPVs) or templates for necessary framework agreements. 
This  ad-hoc  committee  will  comprise 
from  both  Defence  and 
Finance/Economy  Ministries,  representatives  from  the  EEAS,  the  EDA13 and  other  relevant 
stakeholders. Existing structures, mechanisms, and experience gained by Member States from 
collaborative  financing  of  defence  projects  will  be  used  to  the  greatest  possible  extent  to 
ensure best practices and avoid duplications. The Commission will support this work, draw on 

representatives 

12   One example of a pooling mechanism is the EDA's Cooperative Financial Mechanism, the establishment of 
which establishment was approved by the EDA's Ministerial Steering Board on 18 May 2017. Negotiations 
with Member States on a Programme Arrangement will start soon. 

13   Full  use  will  in  particular  be  made  of  the  EDA's  expertise  from  setting  up  the  Cooperative  Financial 

Mechanism.  

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its  expertise  in  using  similar  tools  in  other  policy  areas  and  help  adapt  those  tools  to  the 
defence context.  

The Commission will furthermore set up an internal Task Force to assist Member States, on 
demand,  with  the  application  of  the  Financial  Toolbox  in  the  case  of  specific  collaborative 
procurement  projects.  For  example,  it  will  advise  on  the  merit  of  using  different  forms  of 
funding instruments for project-related financial vehicles, including up-front equity payments 
and  bridge  financing  via  the  issuance  of  capital  market  instruments.  In  addition,  the  Task 
Force  will  be  available  as  a  single  contact  point  with  the  ability  to  draw  on  Commission 
expertise in other areas of relevance to collaborative procurement projects, like for example 
compliance with EU competition and the defence procurement law or the statistical treatment 
in fiscal accounts. As such, the internal Task Force would offer a one-stop-shop in the areas 
of  the  Commission's  expertise,  providing  advisory,  administrative  and,  if  warranted,  also 
financial  services  on  demand  to  those  Member  States  that  wish  to  undertake  collaborative 
procurement  projects.14 In  this  way,  the  Commission  can  act  as  a  trustworthy  partner  for 
Member States in establishing joint procurement in defence capabilities.  

Looking further ahead, the benefits in establishing a permanent financial structure beyond the 
specific project context will also be explored. Depending on its design and financial profile, 
such  a  permanent  structure  could  provide  additional  financial  incentives  for  collaborative 
capability development and procurement among Member States, including its treatment in the 
overall  fiscal  framework 15 .  Subject  to  the  final  shape  of  the  possible  future  Permanent 
Structured  Cooperation,  and  considering  its  inclusive  character,  the  possibility  to  bring 
together  key  aspects  of  the  Financial  Toolbox  with  the  PESCO  framework  will  also  be 
considered.  

Next steps: 

- 

- 

- 

Creation of an ad-hoc Committee with Member States and relevant stakeholders with 
the  objective  of  developing  a  standardised  initial  set  of  instruments  that  could  form 
part of the Financial Toolbox; 

Creation  of  an  internal  Commission  Task  Force  to  act  as  a  one-stop-shop  providing 
support  to  Member  States  on  specific  collaborative  procurement  projects,  including 
the  deployment  of  the  Financial  Toolbox  and  other  advisory,  financial  and 
administrative services; 

Further  examination  of  the  possible  establishment  of  a  permanent  financial  structure 
beyond the project context to provide additional financial incentives for collaborative 
capability development. 

5.  Supporting integrated European supply chains and competitive SMEs 

While  capability  development  is  normally  fully  financed  with  public  means,  the  industry 
often carries an important part of the risk. This is a particular challenge for smaller suppliers 

14   It  should  be  noted  that  the  provision  of  certain  services  by  the  Commission,  e.g.  financial  services,  would 

require a mandate in line with the relevant case law of the European Court of Justice.  

15  As  mentioned  in  the  Europea  Defence  Action  Plan:  "National  capital  contributions  to  the  "capability 
window" will  be  treated  as  "one-offs"  under  the Stability  and  Growth  Pact,  which  means  that  they will  be 
discounted  from  the  structural  fiscal  effort  expected  to  be  accomplished  by  Member  States.  The  same 
treatment will apply to guarantees to the extent that they have an impact on deficit and/or debt." 

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that often have to adapt and regularly modernise their production capacity depending on the 
varying interest, while keeping at the edge of the innovation curve. These players are a crucial 
part  of  the defence  supply  chain and  the  challenges  they  face  may  affect  the success  of  the 
development programmes. Also, such challenges may arise during the development stage but 
also during subsequent procurement. 

The  development  of  capabilities  is  carried  out  not  only  by  big  system  providers  acting  as 
prime contractors but also by SMEs and mid-cap companies that often act as sub-contractors. 
Hence,  there  will  often  be  a  whole  chain  of  interlinked  contributing  enterprises  which  are 
involved in the process.  If  one element in the chain faces individual  funding constraints for 
making the necessary corporate investments or for obtaining sufficient working capital, then 
this might drive up the overall costs of development and/or the marginal cost of production. It 
might also cause delays in capability development or procurement.  

At  the  same  time,  given  the  new  technological  challenges  in  the  sector  (from  artificial 
intelligence  to  robotization),  innovation  in  defence  technologies  often  comes  up  from  start-
ups  whose  focus  might  not  be  primarily  defence  in  some  cases.  Appropriate  financial 
instruments,  like  venture  capital  or  equity  might  help  develop  competitive  European 
technologies critical for Europe’s security and strategic autonomy. 

In order to tap into the potential of SMEs and smaller sub-contractors, all instruments of the 
European Defence Fund will be mobilised both in the research and capability window. Both 
the  Preparatory  Action  and  the  future  EU  defence  research  programme  will  attract  a  broad 
participation  of  actors,  including  SMEs.  The  European  Defence  Industrial  Development 
Programme will ensure that a proportion of the overall budget will benefit projects enabling 
the cross-border participation of SMEs. In that way, the Programme will support the inclusion 
of SMEs into European supply chains.  

Although much work has been undertaken to support the cross-border market access of SMEs 
and  sub-suppliers  as  well  as  to  facilitate  their  integration  in  existing  or  newly  established 
supply chains, more needs to done both at European and at national level. What is required is 
a range of measures to support cross border market access, including measures to: 

  Reduce  the  fragmentation  and  improve  the  functioning  of  the  Single  Market  in 

defence;  

  Support  under  the  European  Structural  and  Investment  Funds  or  centrally  managed 

EU programmes;  

  Further  facilitate  access  to  finance  from  the  European  Investment  Bank,  European 
Investment Fund and other players, including national promotional banks, that follow 
its lending policy with a particular focus on innovation through instruments like equity 
and venture capital; and to 

  Support  the  development  of  regional  clusters  through  the  European  Network  of 

Defence-related Regions16. 

Financial instruments to support SMEs and mid-caps 

The  Defence  Industrial  Development  Programme  proposed by  the  Commission  foresees  the 
possibility of financial instruments to support SMEs and mid-caps in closing the gap between 
research  and  development.  These  financial  instruments  could  be  implemented  with  the  EIB 
group (including the EIF for innovative SMEs and start-ups) or other relevant partners. 

16   https://www.endr.eu/  

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In order to help exploit new opportunities for different parts of the supply chain and in line 
with  its  internal  limitations,  the  EIB  group  is  already  supporting  investments  in  the  area  of 
security  and  defence,  notably  in  three  areas:  i)  RDI  for  dual-use  technologies,  including 
cybersecurity  and  vaccines,  as  far  as  these  investments  can  be  motivated  by  their 
commercialisation  in  civilian  applications;  ii)  protection  of  physical  infrastructures,  such  as 
surveillance,  and  admission  control  in  the  energy,  transport  and  urban  sectors;  and  iii) 
telecommunications  and  information  infrastructure,  including  (fixed,  mobile  and  satellite) 
broadband networks, data centres and computer systems. The European Investment Fund has 
recently developed agreements in the field of Venture Capital to support start-ups in security 
and  defence  fields.  The  EIB  will  further  step  up  its  contribution  to  the  EU  security  and 
defence  agenda.  This  includes,  as  a  first  step,  increased  support  for  dual-use  technologies, 
increased  financing  of  civil  protection  measures,  such  as  strengthening  physical,  cyber  and 
biodefence  infrastructure,  as  well  as  the  extension  of  support  to  investments  which  are 
ancillary  to  security  and  defence  activities.  In  a  second  step,  the  Bank  will  in  view  of  the 
necessary changes to its overarching policies develop a robust due diligence system to support 
investments in the security sector within the Union.  

Where the access to finance might still be limited for certain  defence-related activities in light 
of lending restrictions, the role National or Regional Promotional Banks could play to deploy 
relevant  financial  instruments  and  in  that  way  improve  the  access  of  SMEs  in  the  supply 
chains to obtain necessary funding will be explored further. A number of these Promotional 
Banks already can and do actively support projects in the national defence context. Examples 
of supported projects range from Public-Private-Partnership structures for military services to 
military capabilities such as armoured vehicles. The Commission will look into the best ways 
to deploy relevant financial instruments in the next MFF. 

Use of structural funds and smart specialisation 

The Union funding programmes, notably the European Structural and Investment Funds, can 
also play an important role in promoting integrated supply chains. As set out in the European 
Defence Action Plan, the Commission is working to promote funding opportunities offered by 
Structural  Funds  that  may  be  used  by  Member  States  in  the  defence  sector  as  long  as  they 
contribute to the objectives of the fund in question to:  

(i) Co-fund productive investment projects, and  

(ii) Support the modernisation of the defence supply chains.  

Defence  industries  can contribute  to  the  goals and  objectives  set in  the  European  Structural 
and  Investment  Funds,  such  as  promoting  the  development  of  regional  economies, 
representing  a  high  investment  multiplier  on  skills,  jobs,  technological  and  economic 
development.  

The European Regional and Development Fund (ERDF) may support investments for SMEs 
active  in  or  related  to  the  defence  sector  as  long  as  they  pursue  the  prevailing  objective  of 
strengthening the Union's economic, social and territorial cohesion, comply with the scope of 
support from the ERDF and contribute to the existing thematic objectives17.  

For  example,  investments  into  defence-related  research  and  innovation  activities  for  the 
development  and  uptake  of  new  technologies  are  eligible  for  financing  from  the  ERDF, 
particularly  where  they  are  linked  to  the  implementation  of  smart  specialization,  if  the 

17   As defined in Regulation (EC) No 1301/2013. 

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prevailing  objective  of  the  investment  is  to  contribute  to  the  Union's  economic,  social  and 
territorial cohesion.  

Further actions to support SMEs in the defence sector 

The Commission will be following up on the report from the Expert Group on Cross-Border 
Access  for  SMEs  to  defence  and  security  contracts  published  on  30  November  2016.  The 
Commission  will  be  adopting  recommendations,  addressed  to  Member  States  and  their 
contracting authorities, to support SMEs and sub-suppliers in a range of areas including: 

  Concrete actions on how the procurement authorities could facilitate cross-border and 
SMEs' and mid-caps' participation in defence procurement procedures. Such measures 
could include providing early information about long-term plans and priorities, using 
pre-procurement  advertising,  designing  public  procurement  procedures  to  facilitate 
cross-border and SMEs participation, training for suppliers and providers, etc. 

 

Industrial policy measures such as developing funding schemes taking into account the 
needs  of  defence  SMEs,  providing  information  on  SMEs  and  their  capacities, 
supporting  development  of  defence  clusters,  building  skills,  supporting  and  carrying 
out R&T projects with support for SMEs involvement. 

These recommendations are expected to be adopted by the end of 2017 and discussions with 
Member  States  have  already  begun.  The  recommendations  will  be  followed-up  with 
engagement  with  industry  to  develop  the  set  of  good  practices  across  the  supply  chains  to 
follow in order to have competitive businesses and the best possible products, while providing 
opportunities  to  sub-suppliers  across  Europe  regardless  of  their  location.  The  Commission 
count on active engagement of industry, and especially of prime contractors, in this process. 

Next steps: 

- 

- 

- 

- 

- 

- 

Proportion  of  budget  of  the  European  Defence  Industrial  Development  Programme 
earmarked for projects enabling the cross-border participation of SMEs; 

Consider  the  cross-border  participation  of  SMEs  and  dedicated  financial  instruments 
in the context of preparing the proposals under the next MFF;  

The  EIB  group  will  step-up  in  the  short-term  its  support  for  dual-use  technologies, 
increased financing of civil protection measures, as well as the extension of support to 
investments which are ancillary to security and defence activities. In a second step, the 
Bank will in view of the necessary changes to its overarching policies develop a robust 
due diligence system to support investments in the security sector within the Union.  

Where the access to finance might still be limited for certain defence-related activities 
in  light  of  lending  restrictions,  the  role  National  or  Regional  Promotional  Banks  to 
deploy relevant financial instruments and in that way improve the access of SMEs in 
the supply chains will be explored in the context of the next MFF. 

Raise  awareness  of  existing  opportunities  provided  by  EU  funding  programmes  as 
well as National or Regional Promotional Banks; 

Develop with the industry a set of good practices across the supply chains. 

CONCLUSION 

The European Defence Fund is already starting to deliver.  

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The Preparatory Action on defence research is up and running, providing an estimated EUR 
90  million  over  three  years  under  the  research  window.  Today's  proposal  for  a  European 
Defence Industrial Development Programme will add EUR 500 million until 2020 under the 
capability  window,  with  the  potential  of  generating  overall investments  of  at  least EUR  2.5 
billion as of 2019. 

In addition, the Commission is launching a number of financial tools that should quickly lead 
to  collaborative  projects  between  the  Member  States.  The  Commission  stands  ready  to 
support Member States on specific collaborative procurement projects.  

The Commission is playing its part. The European Parliament and Council should now adopt 
the proposal as a matter of priority. Member States should use 2018 to identify and prepare 
the pipeline of projects to be funded as a matter of urgency.  

These proposals and actions are part of a step change towards closer defence cooperation in 
Europe  that  will  be  consolidated  in  the  upcoming  MFF  post-2020  where  the  European 
Defence Fund will represent half of the collaborative defence projects in Europe. 

In  making  these  proposals,  the  Commission  is  contributing  to  the  creation  of  a  European 
Union that protects and that defends. An ambitious European Defence Fund will support the 
competitiveness  of  the  European  defence  industry.  It  will  be  the  engine  powering  the 
development of a European Security and Defence Union.  

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ANNEX 

Supporting defence cooperation through the Financial Toolbox 

The  Commission  will  play  an  active  role  with  respect  to  the  Financial  Toolbox.  It  will 
establish an ad hoc committee comprising Member States and relevant stakeholders with the 
aim  of  standardising  the  Financial  Toolbox  instruments,  to  the  extent  possible,  to  allow  for 
their rapid deployment in each specific project context. Moreover, the Commission will set up 
a  Task  Force  that  will  support  Member  States,  upon  demand,  with  the  application  of  the 
Financial  Toolbox  in  the  case  of  specific  collaborative  procurement  projects.  The 
Commission  will  thus  provide  a  concrete  contribution  in  supporting  Member  States  in 
carrying out collaborative procurement projects.  

Standardisation of the Financial Toolbox: 

The  work  to  be  carried  out  to  standardise  instruments  in  the  Financial  Toolbox  would  take 
into  account  existing  practices,  concepts  and  examples  from  national,  multinational  and 
international  contexts.  In  order  to  avoid  duplication,  existing  structures  and  mechanisms 
should  be  linked  to  the  Financial  Toolbox  in  the  best  possible  way,  while  at  the  same  time 
remaining open to different options for the framework that is used.  

Pooling of budget resources 

At its simplest, pooling would require Member States that decide to cooperate on a defence 
project to contribute an amount of funds to a national compartment (e.g. bank account) of the 
designated  pooling  mechanism.  These  funds  could  then  be  used  for  collectively  funding 
specific collaborative projects with other Member State(s). There are already some examples 
of pooling in place or under development in the area of defence that provide an idea of the 
potential  possibilities.  Notably,  the  Organisation  Conjointe  de  Coopération  en  matière 
d'Armement's  (OCCAR),  has  in  place  a  simple  pooling  mechanism,  whereas  the  European 
Defence  Agency  (EDA)  is  currently  in  the  process  of  establishing  a  Cooperative  Financial 
Mechanism18 (CFM),  a  form  of  pooling  mechanism  that  inter  alia  would  also  allow  for  the 
possibility  for  the  exchange  of  'reimbursable  advances'  among  Member  States.  The 
Commission  will  do  further  work,  in  particular  to  explore  and  assess  to  what  extent  the 
existing  mechanisms  will  be  combined  with  more  sophisticated  Financial  Toolbox 
instruments.  

Cost recovery mechanism via a financial vehicle (SPV) 

The cost recovery would produce a form of 'quasi-revenues' that would flow back to the initial 
investees  (i.e.  Member  States  that  invested  in  the  development  of  a  capability).  If  these  are 
pooled in a special-purpose vehicle (SPV), the cash flow structure would be akin to the one of 
a project financing context. Two different funding structures could be considered for such an 
SPV:  i)  equity  financing,  whereby  each  Member  State  participating  in  the  development  to 
make an equal lump sum payment to the SPV to cover the cost of development, which would 
correspond  to  an  equity  participation  in  the  SPV;  or  ii)  bridge  financing,  whereby  Member 
States participating in the development could also decide to finance part of the development 
cost by issuing capital market instruments (e.g. project bond), thereby reducing their upfront 
equity  participation  in  the  SPV.  The  Commission  will  do  further  work  on  the  different 
institutional, financial and legal aspects required to implement such structures, including the 

18   On 18 May 2017, the EDA Steering Board adopted the Cooperative Financial Mechanism as an EDA Ad-
Hoc CAT A programme. Negotiations with Member States on a Programme Arrangement will start soon and 
are expected to be concluded in the coming months.  

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set-up  of  project-related  financing  vehicles.  The  objective  would  be  to  facilitate  their  usage 
through standardisation and the exchange of experience and best practices.  

Guarantee on project-related funding of suppliers 

Guarantees  could  be  used  to  cover  loans  to  defence  (sub)-contractors.  One  way  to  provide 
guarantees  would  be  for  Member  States  that  will  participate  in  the  procurement  to  form  a 
financing vehicle (e.g. SPV) and pool contributions, creating a guarantee fund. An alternative 
to  pre-funding  the  guarantee  fund  would  require  Member  States  that  will  participate  to 
provide over-guarantees to ensure a sufficient credit-enhancement. The Commission will do 
further work, in particular to explore options with regard to a more institutional cooperation 
with public financial institutions, such as promotional banks, concerning the implementation 
of financial instruments such as guarantees.  

Other possible tools 

Examples of joint ownership in the defence sector already exist, namely in the NATO context 
(e.g.  Multinational  Multi  Role  Tanker  Transport  Fleet  and  Strategic  Airlift  Capability).  The 
experiences  gathered  to  date  could  form  a  useful  basis  for  the  further  development  of  the 
tools,  to  be  included  in  the  Financial  Toolbox,  which  could  support  Member  States  in 
pursuing joint ownership. In addition, leasing arrangements could also be a potentially useful 
addition  to  the  Financial  Toolbox.  One  form  of  leasing  could  notably  include  leasing  by 
Member  State(s)  from  private  sector  and/or  an  enterprise  collectively  owned.  Leasing  from 
another  Member  State  /  third  country  could  also  be  envisaged,  in  particular  in  cases  where 
these  countries  are  either  specialised  in  a  certain  defence  capability  and  /  or  have  spare 
capacity.  Another  possibility  could  be  for  the  EU  (e.g.  Commission  or  an  Agency)  to  lease 
(where possible by the Treaty) capabilities (e.g. dual-use goods) from the private sector. 

Project-specific support in implementation of the Financial Toolbox: 

The  Commission  will  set  up  an  internal  Task  Force  that  will  stand  ready  to  assist  Member 
States with the application of the Financial Toolbox. The Task Force will be able to provide 
concrete  assistance  and  project-specific  input.  Examples  of  the  types  of  support  that  the 
internal Task Force can be envisaged to provide are summarised below. 

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