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A reformed EU weapons fund for Ukraine should be used to incentivise European joint procurement and apply stricter reimbursement rules to factor in national bilateral donations to the war-torn country, according to an internal EU memo circulated to the bloc’s member states, seen by Euractiv.
“In order to stimulate larger orders, participation in joint European procurement initiatives should be encouraged by the provision of financial incentives, taking the form of reimbursements from the UAF [Ukraine Assistance Fund],” the non-paper, drawn up by the bloc’s diplomatic service (EEAS), states.
“Specific financial incentives could also be foreseen for joint procurement initiatives that bring together European and Ukrainian defence industry partners i.e. joint ventures, such as by the application of a higher reimbursement rate (‘bonus’),” it states.
At the same time, “with an increased focus on joint European procurement, reimbursements for deliveries from stocks and from unilateral procurement would gradually phase out while taking into account the possible lead-times of deliveries through joint procurement and in view of Ukraine’s urgent, short term materiel needs,” it adds.
The new push comes after EU leaders in December postponed the agreement to top-up the European Peace Facility (EPF), the off-budget funding mechanism used to reimburse member states for their weapons donations to Ukraine.
At the time, some EU member states – especially Germany and France – requested to change the modalities of the fund to move from an incentives-based approach of depleting national stocks to a procurement-based one.
EU officials had hoped the bloc’s leaders would unlock at least a €5 billion top-up for the EPF dedicated to Ukraine, out of the €20 billion initially tabled.
So far, a total of €5.5 billion from the EPF was allocated to military aid to Ukraine, and the fund itself was emptied to then later on be topped up.
“Russia is investing significant efforts to increase defence industrial production and reconstitute fighting units,” the EU paper states.
“Given the dependence of Ukraine on external support, the choices made by the EU Member States and partners in the coming period will either allow Ukraine to decisively progress or will seriously undermine its ability to resist,” it says.
“Continued military support through the UAF is a central element of the EU security commitments for Ukraine, and reinforces wider efforts by Allies and partners to support Ukraine militarily,” it adds.
Reform debate
According to the internal memo, the future Ukraine Assistance Fund (UAF) would be based on “two main ‘European’ pillars to be funded under the EPF, complementary to the bilateral assistance provided by the EU member states, making the most of our collective efforts”.
The Ukraine envelope under the EPF would continue to fund the provision of lethal and non-lethal support to Ukraine, but from then on with the provision that it only comes “via joint procurement through European industry”, the text states.
It would also keep financing the ‘train and equip’ programme for Ukrainian armed forces under the EU’s training mission for Ukraine (EUMAM).
With that, the new EU proposal sides with the French and the German reform suggestions, not excluding Berlin’s request that direct contributions be taken into account when calculating national contributions to the EPF.
Initial German proposal
Germany’s reform idea aimed on the one hand for its in-kind and bilateral military aid to Ukraine to be taken into account in the future Ukraine special fund, and to make the decision-making process of approving the allocation of EPF money for Ukraine faster.
According to Berlin’s reading, if – for example – the German bilateral donations to Ukraine amount to the same financial level as its contribution to the EPF, it would then only put the difference between the two into the EPF fund. This way, Berlin’s contribution to the common envelope would decrease.
As a consequence, Berlin’s financial contribution to military aid to Ukraine would also decrease, as it would now only pay once.
“EU member states, which are contributing on a high level of military assistance, should not be punished for that,” one EU diplomat said, siding with Germany.
German Chancellor Olaf Scholz announced Berlin will spend more than €7 billion in bilateral aid to Ukraine this year.
“Germany wants its in-kind contributions to be part of the EPF contribution, but most member states have a different view on that,” a second EU diplomat said.
“Scholz has the right to feel frustrated since Germany bilaterally is Ukraine’s biggest [European] funder,” a third EU diplomat said.
“Germany doesn’t need the EPF, but for other, smaller member states it is an important instrument to help finance military aid to Ukraine,” they said, adding some of them “simply would not be able to give any support”.
However, the German approach challenges the idea of solidarity of the EPF, where every EU member state contributes according to its GDP, with no regard as to how much it gains back.
“This would be, de facto, the end of the EPF,” a fourth EU diplomat told Euractiv.
Stricter reimbursement
While re-designing the initial German reform suggestions, the EU proposal is considering the French call to include a ‘buy-European’ clause as part of the deal, in a bid to boost the bloc’s weapons production capacity – a long-standing French demand.
The new reimbursement scheme would therefore see all member states effectively pay for all countries’ recent purchases, which are then sent to Ukraine.
The EU’s diplomatic service also proposes to tighten the rules for reimbursement.
The new fund should “allow for improved governance arrangements, such as fixing a reimbursement rate for joint procurement, and making use of the possibility to offset, in a given year, the value of support provided and contracted by Member States under the Facility against their financial contributions due for the implementation of the assistance measures in support of Ukraine, in accordance with the implementing rules of the Facility and the principle of sound financial management”.
“Reimbursements should be subject to more rigorous conditions, namely the use of the book inventory value as the only valuation methodology for support provided from stock,” the EU proposal states.
Money troubles
In its paper, the EU’s diplomatic service also pushes for an agreement on a €5 billion top-up of the EPF “as soon as possible” to guarantee Ukraine a medium-term perspective.
It had initially tabled a €20 billion top-up but bigger member states were reluctant to invest that much into the fund without having the new modalities figured out first.
Disbursing EU funds to Ukraine has also been blocked by Hungary, which has so far refused the allocation of an eighth €500 million EPF tranche to Kyiv and blocked the agreement on the €50 billion multi-year financial aid plan to keep the country afloat.
It, however, repeats its proposal, stating that “further comparable annual increases could be envisaged until 2027, based on Ukrainian needs and subject to political guidance by the Council.”
“Uncertainty around the predictable and structured provision of military assistance to Ukraine will have a consequential impact on Ukraine,” the non-paper states.
[Edited by Nathalie Weatherald]
