EU plans to boost ammunition production with war economy industrial plan
The European Commission is set to lay out a plan on Wednesday (3 May) to increase European industry’s capacity for producing ammunition to one million a year, EU officials said as the bloc struggles to arm Ukraine and refill its own stocks.
With its Act in Support of Ammunition Production (ASAP), the European Commission wants to incentivise Europe’s defence industry to invest in ramping their production capacity, be it supply chain components, machines, or personnel.
The plan is “unprecedented” and “aims to directly support, with EU money, the ramp-up of our defence industry for Ukraine and for our own security,” Thierry Breton, Internal Market and Defence Industry Commissioner, told a group of reporters ahead of the announcement.
European industry “does not have the scale today to meet the security needs of Ukraine and our member states. But it has the potential to do so”, Breton said.
The move is the third tier of a three-track plan the EU proposed in March to boost support for Ukraine, and member states’ stockpiles, including a push to ramp up ammunition production on the continent.
1 million shells per year
“I am confident that within 12 months, we will be able to increase our production capacity to 1 million rounds per year in Europe,” Breton told reporters.
According to member states’ estimates, Ukraine uses around 60,000-210,000 artillery shells per month, whereas Russia fires about 600,000-1,800,000 – ten times as much.
Ukraine’s partners are also both facing an industrial challenge in production capacities, to produce ammunition and equipment to fight the war.
“To support Ukraine in the very short term, we must continue to provide from our stocks. But we also need to reprioritise current production and direct it to Ukraine as a priority,” Breton said.
In the past weeks, Breton had toured the bloc’s defence industries, visiting 11 member states – Bulgaria, France, Czech Republic, Slovakia, Poland, Romania, Italy, Sweden, Slovenia, Croatia, and Greece – and is set to visit Germany and Spain in the coming days.
“We have nothing to envy from our partners,” Breton told reporters about findings from his ‘defence tour’. “But when it comes to defence, our industry must now switch to war economy mode.”
Diplomats from some EU countries doubt Europe’s ability to produce enough ammunition, but officials in Brussels insist it can reach the target.
Europe’s defence industry has been cautious in investing in its ramp-up, as member states orders remain uncertain in the longer term and, therefore, investment.
EU budget for co-financing
Breton’s temporary one-year investment plan proposes using €500 million from the EU budget to finance the ramp of ammunition production – from artillery ammunition to missile production – in the bloc.
It would go through a fast-track procedure to be adopted by the co-legislators in July, with the EU executive hoping also to finish negotiations on the EU’s joint procurement incentive fund (EDIRPA).
Brussels says the money would provide up to 60% of co-financing for selected projects, and member states or the companies would have to come up with the other part of the cash.
Financing will come from two sources in the EU budget: €260 million from the European Defence Fund (EDF), used to finance the research and development (R&D) of defence equipment, and €240 million from the EDIRPA fund, as EURACTIV reported earlier.
The EU would co-finance at a rate of 40%, with defence companies able to receive bonuses – an additional 10% if they create new partnerships and/or an additional 10% if they agree to re-prioritise their own production to answer the demand.
The ASAP plan also aims to incentivise member states to use existing EU funds to invest in the ramp-up of the industry, such as the cohesion funds and the EU’s Recovery and Resilience Facility funds (RFF).
These would then be clearly available to build factories and production lines, for example, the EU’s executive stresses, as boosting the industrial base will also attract employment and drive the economy.
Another financial stream would come from subsidies to compensate for higher interest rates that banks put on the defence industry and loans to the companies boosting their production.
Over the past, banks have become wary of financing defence-related activities, especially since the EU put forward its “taxonomy” plans to identify defence activities as socially harmful.
Despite this being an initial idea proposal back in March, the ASAP plan does not push for more European Investment Bank (EIB) involvement, EURACTIV understands.
The emergency programme would run for one year, until mid-June 2025, but could serve as a basis to be reactivated later.
Re-organising the industry
The investment could not only be directed into machines and production lines but also into supply chains, which could include powder manufacturing to avoid bottlenecks or the re-fitting of old ammunition in the member states’ stockpiles to make sure they are usable, EURACTIV understands.
Due to time pressure and the short-term of the instrument only meant to be in place for one year, the European Commission would not put limits on eligibility criteria for the supply chain, meaning they can also come from third countries.
The EU executive’s plan also puts forward a list of regulatory waivers.
One measure to be put forward is meant to be related to priority-rated orders: In case a company is not willing to re-orient its ammunition production, the European Commission would be allowed to order it to do so.
The waivers would cover the right for factories to run 24/7, bend the rules of public procurement to allow a member state to join an already existing framework contract without the need for a separate procedure, ease the rules on the transfer of spare parts, for instance, according to the information given to EURACTIV.
These rules, which can also be seen as obstacles, could therefore be suspended on a temporary basis until the end of the regulation’s timeframe in June 2025.