The European Union is setting aside €500 million ($551 million) to boost manufacturing of artillery shells, missiles and gunpowder in an effort to speed up production of ammunition for Ukraine and galvanize the bloc’s defense industry.
(Bloomberg) — The European Union is setting aside €500 million ($551 million) to boost manufacturing of artillery shells, missiles and gunpowder in an effort to speed up production of ammunition for Ukraine and galvanize the bloc’s defense industry.
Among a raft of measures, the European Commission proposed the funds to co-finance projects alongside EU governments. It offered around half of the funding for companies to ramp up output capacity or refit old stocks of ammunition to make them operational again.
“The act we are proposing is unprecedented,” Thierry Breton, the internal market commissioner, said in comments shared ahead of the proposal. “It aims to directly support, with EU money, the ramp-up of our defense industry for Ukraine and for our own security.”
The EU is looking to jump-start the bloc’s defense industry after years of lower spending following the Cold War, which caused firms to scale back production. Artillery ammunition has become an urgent need in light of the large volumes used every day by both Russia and Ukraine.
The bloc wants to boost supply of the shells to Ukraine as it continues to fend off Russia’s invasion and prepares its own counter-offensive. Member states are also keen to stock up their own supplies to prepare for any potential future conflict.
Separately, the bloc’s foreign ministers in March backed plans to spend €1 billion from its European Peace Facility to reimburse around 50% of the modern and Soviet-era ammunition that member states send to Ukraine from their own stockpiles. More than €600 million worth of missiles and shells have already been delivered as part of this effort, the EU’s foreign policy chief Josep Borrell said in April.
Joint Purchases
Also on Wednesday, EU ambassadors signed off on plans to spend another €1 billion from the same fund to jointly buy ammunition, according to the Swedish presidency of the council. While foreign ministers had backed the plan in March, the effort stalled in technical talks as they sought to hammer out the legal terms of the deal.
Under the act proposed Wednesday, which still needs the approval of the European Parliament and member states, the commission said it would also use around €50 million of the money to launch a so-called Ramp-Up Fund to improve defense firms’ access to financing. This would provide potential subsidies to compensate firms for the higher level of interest rates banks give them, as well as potentially offering preferential-rated loans to companies ready to increase production.
The EU hopes the loans will address complaints by European defense firms. The industry has warned of difficulties to clinch funding from banks and investors amid a rising trend of socially responsible investing, which has continued despite Russia’s war in Ukraine and government plans to increase defense spending.
Appeal on EIB
In its proposal, the commission called on the bloc’s own lending arm, the European Investment Bank, to step up its support for the defense industry. The EIB currently invests in systems with dual civilian and security uses, but doesn’t offer loans to finance weaponry, ammunition and explosives. Changing this would need the backing of the EU’s 27 member states.
The commission also proposed measures aimed at clearing governing obstacles with temporary regulatory waivers ending in 2025. The move would absolve companies from some national laws such as those that forbid night shifts, which force companies to close factories at night. The EU also said it could decide, along with a company’s national government, to require a firm to reorient its production for Ukraine or for member states.
The commission said it would seek to fast track negotiations with member states and Parliament to finalize the act as soon as the end of June.
–With assistance from Gina Turner, Kevin Whitelaw and Katharina Rosskopf.
(Updates with EU ambassadors’ ammunition deal in the seventh paragraph.)
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