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New EU lending practice aims to buoy cooperative arms programs short on cash

New EU lending practice aims to buoy cooperative arms programs short on cash

COLOGNE, Germany — The European Defence Agency is readying a new program for underwriting cooperative defense programs whose funding is at risk due to temporary budgeting hiccups in the member nations.

EDA Chief Executive Jorge Domecq signed an agreement to that effect, dubbed the Cooperative Financial Mechanism, or CFM, with European Investment Bank Vice President Alexander Stubb on Monday. The idea is to provide a stream of money for multilateral programs in cases where countries want to participate but can’t because their national bureaucracies have yet to clear the required funds.

According to a 2016 EDA assessment, 10-20 percent of collaborative program funding is affected by these disparities among member states. They can occur when parliaments have yet to approve funds needed at a certain time, for example, or because disparate budgeting cycles hinder synchronization.

“The agency’s role is to promote and incentivize collaborative defense projects in Europe and to help create the right conditions for that,” Domecq said. “The CFM adds a very powerful instrument to our toolbox in the context of an enhanced momentum for defense cooperation fostered by the EU defense initiatives. In future, mismatching budgetary cycles or provisional gaps in funding should no longer exclude member states from participating in multinational programs.”

The new lending project comes at a time when European Union-wide defense efforts are beginning to hum along, and officials are looking for clues of what has worked and what has not. The bloc wants to achieve a higher degree of autonomy from the United States, with initial research funding spread far and wide across the spectrum of military requirements.

The new funding mechanism will work in two ways: European Defence Agency officials will either dole out increments of a $6 billion line of credit underwritten by the European Investment Bank, or they can broker funding advances from member states with excess liquidity to those needing cash.

“Europe has to be at the forefront of the development of key strategic defense technologies, including AI [artificial intelligence] and digitalization,” Stubb said. “A lack of access to suitable financing solutions allowing to better synchronize joint resources is seen as one of the major impediments to the launch or implementation of defense-related cooperative projects. This is where the EU bank comes into play.”

The CFM lending arrangement is expected to enter into force during the first half of 2020, once all member states that want to partake have signed on.

Belgium, Bulgaria, Cyprus, France, Greece, Hungary, Lithuania, the Netherlands, Portugal, Slovenia and Spain are already in; Germany, Italy, Malta, Poland and Romania are expected to join in the coming months.


Source : Sebastian Sprenger Link to Author