EU Seek €127 Billion for Procurement
The Security Action for Europe (SAFE) financial instrument is designed to significantly impact and bolster the security capabilities of European Union member states by providing EU-backed loans for defense procurement. These loans are intended to reshape the EU's defense industrial base and strategic autonomy in several key ways:
Reshaping the EU's Defense Industrial Base:
Strengthening Internal Supply Chains:
A crucial sourcing requirement for procurement contracts under SAFE is that no more than 35% of component costs can originate from outside the EU, Ukraine, or EEA-EFTA countries.
Enhancing Strategic Autonomy:
Greater Control and Adaptability of Critical Assets:
For specific types of critical equipment, such as air and missile defense systems, maritime surface and underwater capabilities, and strategic enablers like air-to-air refueling, the eligibility conditions for SAFE loans are more stringent.
These stricter conditions include the ability for contractors to modify the equipment if necessary, without any non-EU restrictions. This stipulation promotes greater control, adaptability, and long-term security for these essential defense assets, enhancing European autonomy.
Addressing Immediate National Needs:
While SAFE primarily aims to promote common procurement projects, it also acknowledges immediate national defense requirements.
Promotion of Common Procurement:
SAFE primarily intends to base projects on common procurement, involving at least one member state that benefits from SAFE, together with another member state, Ukraine, or the EEA-EFTA countries (Iceland, Liechtenstein, and Norway).
Scale of Investment:
With 18 countries expressing interest in at least €127 billion ($146 billion) in EU-backed loans, and SAFE offering up to €150 billion, this substantial financial backing underscores the potential for significant upgrades to security capabilities across the bloc.
Here are the primary objectives and mechanisms of the SAFE financial instrument:
Primary Objectives:
Bolstering Security Capabilities:
The main purpose of SAFE is to significantly impact and bolster the security capabilities of European Union member states.
Financing Urgent and Large-Scale Procurement:
It aims to finance "urgent and large-scale procurement efforts" for defense capabilities, enabling member states to acquire necessary defense assets more quickly.
Accelerating Defense Goals:
The initiative is seen as a "major step towards achieving our defense goals quickly and decisively," as stated by EU Commissioner for Defence and Space, Andrius Kubilius.
Strengthening European Defense Industrial Base:
SAFE seeks to strengthen the European defense industrial base and reduce external dependencies by encouraging reliance on internal supply chains.
Enhancing Collective and Individual Defense Capacities:
It aims to enhance both collective and individual defense capacities across the bloc.
Key Mechanisms:
EU-backed Loans:
SAFE provides "competitively priced," long-maturity loans to EU countries seeking financial assistance for defense investments.
Member states have expressed interest in at least €127 billion ($146 billion) in loans, out of a total capacity of up to €150 billion
Eighteen countries, including Italy, Poland, Spain, and France, have expressed initial interest.
Common Procurement Focus:
While temporarily supporting individual procurements due to current geopolitical realities, SAFE primarily intends for projects to be based on common procurement.
Common procurement involves at least one member state benefiting from SAFE, together with another member state, Ukraine, or EEA-EFTA countries (Iceland, Liechtenstein, and Norway).
Countries with security and defense partnerships with the EU, such as the United Kingdom, Canada, South Korea, and Japan, can also participate in common procurement, though they are not eligible to receive the loans directly.
Sourcing Requirements:
Procurement contracts under SAFE require that no more than 35% of component costs come from outside the EU, Ukraine, or EEA-EFTA countries. This encourages reliance on internal supply chains.
For critical equipment such as air and missile defense systems, maritime surface and underwater capabilities, and strategic enablers (like air-to-air refueling), the eligibility conditions are stricter.
For these critical assets, contractors must be able to modify the equipment if necessary, without any non-EU restrictions, promoting greater control and adaptability.
Funding and Deadline:
The European Commission will assess the demand based on early indications of interest and prepare for raising funds on the capital markets.
The deadline for EU member states to formally submit their requests for SAFE loans and their national defense investment plans is the end of November.
Addressing Immediate Needs:
SAFE also provides temporary support for procurements by individual member states to ensure the timely delivery of critical assets, acknowledging immediate national defense requirements in light of current geopolitical realities.
Primary Beneficiaries (Eligible for Direct SAFE Loans):
European Union (EU) member states are the sole recipients directly eligible to obtain SAFE loans.
Eighteen EU member states have already expressed interest in accessing these loans, seeking at least €127 billion ($146 billion) in EU-backed funding.
Specific countries identified among these 18 include Italy, Poland, Spain, and France. These countries are considered primary beneficiaries and participants of the SAFE program.
Participants in Common Procurement Projects (May or may not receive direct loans):
While only EU countries can directly obtain SAFE loans, the initiative also promotes common procurement involving collaboration among various entities. Participants in these collaborative projects include:
At least one EU member state benefiting from SAFE, working together with another member state, Ukraine, or EEA-EFTA countries.
Ukraine
The EEA-EFTA countries: Iceland, Liechtenstein, and Norway.
Countries that have signed security and defense partnerships with the EU, such as the United Kingdom, Canada, South Korea, and Japan. It is important to note that these partnership countries can participate in common procurement but cannot receive the SAFE loans directly.
Key Proponents and Managing Entities:
Andrius Kubilius, the EU Commissioner for Defence and Space, is a significant proponent of the SAFE initiative, expressing his delight at the strong interest from member states and viewing it as a "major step towards achieving our defense goals quickly and decisively".
The European Commission acts as the executive arm of the EU, responsible for announcing and managing SAFE. Its duties include assessing demand from member states and preparing to raise funds on the capital markets to support the loans.
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