Fears competing international defence schemes could impact European plans

The UK partnered with the Netherlands, Finland, and Poland ahead of the NATO summit in Ankara last week to unveil plans for the Multilateral Defence Mechanism ahead of a planned full launch next year - with the idea of the countries collectively increasing their defence capabilities through a shared approach to financing and efficiency.

At the same time nine other European states - Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey and Ukraine – signed up to Canada’s Defence, Security and Resilience Bank, which looks to offer a similar shared approach to defence funding and resilience.

Both ventures, however, come against a backdrop of the European Commission’s own attempts to promote a joined-up approach across the EU in response to the threat of Russian aggression.

Totis Kotsonis, a defence procurement law expert with Pinsent Masons, said the nature of the two rival financing schemes could have a significant impact on the European Commission’s own ongoing efforts in this field.

"Once again, the European Commission may have reason to be concerned that defence procurement and defence finance are becoming an increasingly crowded space, with a number of potentially overlapping initiatives developing alongside the Commission’s own efforts to promote a more coordinated EU approach,” he said.

“Those initiatives may, over time, reduce the perceived urgency or centrality of the Commission’s agenda.

“That concern would be particularly acute given that the Commission is currently reviewing the rules applicable to defence and security procurement, with a view to making them more flexible and efficient and to facilitating greater collaboration between member states.

“Against that background, the Commission is also likely to be attentive to the risk that member states invoke the essential national security exemption too readily, or too broadly, in order to place national defence procurement outside the ordinary disciplines of the internal market and the EU defence procurement framework."

The Multilateral Defence Mechanism aims to increase defence investment, stimulate joint procurement, and combine the members’ demands for critical defensive technology and capabilities to meet the needs of the current – and potentially future – members via treaties and individual state ratifications.

The UK government said it would work with the other mechanism members so far to encourage a broader coalition as it begins to define how the finance mechanisms work this autumn.

UK chancellor Rachel Reeves has called for the two rival bodies to merge, telling the Financial Times (registration required) that while the ventures complimented each other that the “next step is to continue to work on bringing them together more formally”.

The Canadian venture is looking to secure secure a triple-A credit rating with support from leading private banks to allow provision of low-interest loans for defence project funding and project scaling across the members.

Absent from both schemes, however, is Germany which has previously distanced itself from involvement in the collaborations.

Andreas Haak, a European procurement law expert with Pinsent Masons in Düsseldorf, said the country’s absence from the initiatives highlighted a need for broader defence improvements.

“Germany’s decision not to join the scheme highlights that, while new financing initiatives can play an important role, funding alone does not deliver defence capability,” he said.

“The real test will be whether governments can combine financing, procurement and industrial policy in a way that enables faster acquisition and production across allied defence supply chains.”