EU aims to shift European arms industry to ‘war economy mode’

By Andrew Gray

BRUSSELS (Reuters) - The European Commission will propose on Tuesday ways for the European Union to boost its arms industry so it can shift to "war economy mode" in response to Russia’s invasion of Ukraine.

Thierry Breton, the European industry commissioner, will lay out proposals to encourage EU countries to buy more weapons together from European companies, and to help such firms increase production capacity, according to EU officials.

"We need to change the paradigm and move into war economy mode. This also means that the European defence industry must take more risks, with our support," said Breton, previewing the package.

Breton, a French former tech company CEO, has also said the possibility of another U.S. presidential term for Donald Trump - who has questioned Washington's commitments to NATO - means Europe has to do more to protect itself.

"In the current geopolitical context, Europe must take greater responsibility for its own security, regardless of the outcome of our allies’ elections every four years,” Breton said.

Russia’s war in Ukraine has prompted many European countries to increase defence spending.

But EU officials argue purely national efforts are less efficient and want EU bodies to play a greater role in defence industrial policy.

Analysts say the war has made clear that European industry was ill-prepared for some major challenges, such as a sudden surge in demand for large amounts of artillery ammunition.

Breton’s proposals include creating a European version of the U.S. Foreign Military Sales scheme, under which the United States helps other governments to buy from U.S. arms companies.

Another proposal would allow the EU to compel European weapons firms to prioritise European orders in times of crisis.

To become reality, the proposals will need approval from the EU’s 27 national governments – which have often been reluctant to cede power on defence and military matters – and the European Parliament.

The proposals will also be studied closely by NATO, which has said it welcomes EU efforts to help European defence but warned they must not duplicate or clash with the transatlantic alliance's work.

FUNDING QUESTIONS

Breton’s package is expected to include some 1.5 billion euros ($1.63 billion) in new money through the end of 2027 – a modest sum in the world of large-scale defence procurement.

But officials say the package will create a legal framework that would allow much greater coordinated spending in years to come, if the EU is willing to stump up the cash.

Breton has called for a special EU fund of 100 billion euros for defence projects.

Commission officials say they want Kyiv to take part in the proposed new schemes to boost joint procurement and production capacity, even though Ukraine is not part of the EU.

"Our mission here is to treat Ukraine as almost equivalent to a member state," said one official, speaking on condition of anonymity ahead of the launch of the package.

Agreeing on the proposals will take some time, particularly as a new European Parliament will be elected in June, followed by the appointment of a new European Commission.

Disagreements within the current Commission give a foretaste of some of the power struggles ahead.

While Commission President Ursula von der Leyen has said she will create a post of defence commissioner if she serves a second term, Breton has argued there is no need for such a role.

"If the question is that of a Defence Industry Commissioner, it seems to me that we already have one,” he said.

($1 = 0.9210 euros)

(Reporting by Andrew Gray; Editing by Tomasz Janowski)