Parliament backs EU funds-for-ammo plan

The European Parliament on Thursday voted in favor of a Commission proposal aimed at diverting EU funds toward ramping up the production of ammunition.

The move has attracted criticism because it represents a shift in resources away from green and digital projects. It still needs the approval of the bloc’s national governments.

Legislation was presented in April as part of a three-track plan agreed by EU leaders to provide Ukraine with one million pieces of ammunition in 12 months. It’s another step toward using the EU budget for defense purposes — despite “expenditure arising from operations having military or defense implications” technically being banned by EU treaties.

Officials argue the budget is not being used for military operations but to boost the bloc’s industrial capacity.

This bill, known as the Act in Support of Ammunition Production (ASAP), is part of a bigger push, spearheaded by France and French EU Defense and Industry Commissioner Thierry Breton, to make defense a core part of the bloc’s industrial strategy.

ASAP takes €240 million from last year’s proposal to use €500 million from the EU’s budget on boosting joint weapons procurement and combines it with another €260 million of existing EU defense funds toward the production of ammunition and missiles.

It also allows countries to use post-pandemic EU recovery funds to invest in the defense sector, and invites the European Investment Bank to do the same.

Competitive, independent

The Commission argues the use of recovery funds to boost ammunition production is in line with the rules governing the recovery fund, insisting that defense spending “could be in line with the objectives of the [Recovery and Resilience Facility],” a Commission spokesperson said, which includes “improving the resilience, crisis preparedness, adjustment capacity and growth potential of the member states” or “contributing to the strategic autonomy of the Union alongside an open economy.”

In other words, the EU sees it as boosting the bloc’s competitiveness and independence.

While using money meant to reboot the EU’s economy after the pandemic and make it more green and digital has drawn criticism from some lawmakers in the Parliament, they approved the plan overwhelmingly on Thursday by 446 votes to 67, with 112 abstentions.

Negotiations are ongoing in the Council, where EU countries plan to get a deal soon, after which they will start negotiations with Parliament with the goal of reaching a deal by the end of July.

Third rail

Italy, the largest recipient of the fund, has indicated that it supports “a flexible use of European funds, including those of the [Recovery and Resilience Facility], but the latter is a strategic investment tool and not a vehicle to finance the production of munitions or armaments.”

The EIB, whose lending policy currently only authorizes it to finance dual-use items with both civilian and military applications, would need to change its exclusion policy in a vote by finance ministers, who sit on its board of directors, an EIB spokesperson said.

In the run-up to the proposals, Breton’s push to make EIB funding available for core defense purposes was met by resistance from the bank, worried about the impact this could have on its Environmental, Social and Governance ratings, people familiar with the talks who spoke on condition of anonymity said.

Industry experts argue that the change of policy at EIB would be crucial to convincing private banks to lend money to small defense firms since they are often reluctant because of fears of being stigmatized as not compatible with ESG criteria.

According to one EU diplomat, the ASAP proposal could be put before EU ambassadors as early as next week.

A second diplomat speaking on condition of anonymity described the provision of ammunition to Ukraine as the “third rail of EU politics” — untouchable.