The EU’s €392 billion pivot to boost defence over underdeveloped regions

Europe is reprioritising its €392 billion multi-year regional development fund to boost its defence sector and get the EU ready for war, according to a draft seen by Euractiv.

Known as cohesion funds, one third of the EU budget currently goes to promoting economic convergence across the bloc, primarily in poorer regions. But faced with a looming Russian invasion, Brussels is looking to tap that money for its defence push.

A mid-term review of the €392 billion scheme, that runs from 2021-2027, “provides an opportunity... to refocus the programmes towards the urgent new challenges,” the document, seen by Euractiv, reads.

In practice, what is on the table after one year of consultations is a signifcant break with convention: instead of funding small companies in economically underperforming regions, the money should instead go to big players anywhere in Europe, preferably in the defence sector. 

A substantial proportion of the cash pot should be given to the defence sector “without restriction in terms of geography or size of the enterprise”, the Commission says, adding that the bloc's subsidy rules will remain in effect.

In a nod to the EU executive’s push to encourage companies to “scale up”, the Commission will also urge EU capitals to be “more selective in granting aid to firms” and “recognise and strengthen the role of large enterprises in regional development”.

Such large firms “steer research, innovation, knowledge, and technology transfer towards other companies in their value chain”, the document notes.

It adds that EU countries should “support the scaling up of innovative” small and medium-sized enterprises (SMEs) into so-called “small midcaps”, or firms consisting of between 250-3000 employees.

The Commission will also allow member states to re-allocate money away from the cohesion fund towards InvestEU, a €26 billion fund that aims to crowd in private sector funding in strategic sectors.

Housing – an area in which the EU recently installed its first-ever commissioner, also features in the plan. The Commission will propose to “double the planned cohesion policy investments in affordable housing” from its current level of €7.5 billion, the draft reads. 

The cohesion funding mid-term review is set to be unveiled on Tuesday afternoon by Raffaele Fitto, the Commission's vice-president.

[OM]