As part of the long-term budget for the period 2021-2027, the European Union plans to allocate €13bn for the new European Defence Fund. The Commission says the funding will bolster efforts to increase the EU's strategic autonomy, bolster the EU's ability to protect its citizens and make the EU a stronger global actor.

The European Defence Fund — presented in June 2017 — is intended to support cross-border investments in technology and equipment in areas such as encrypted software and drones.

The Fund will provide €4.1bn to directly finance competitive and collaborative research projects, in particular through grants. Beyond the research phase, €8.9bn will be available to complement Member States' investment by co-financing the costs for prototype development and the ensuing certification and testing requirements.

The EU says the Fund will place it among the top four defence research and technology investors in Europe, and act as a catalyst for an innovative and competitive industrial and scientific base.

The main features of the European Defence Fund are:

• Financing of projects which help make the EU safer and which correspond to priorities agreed by Member States within the framework of the Common Security and Defence Policy and other regional and international organisations such as NATO;

• Only collaborative projects involving at least three participants from three Member States are eligible;

• The EU will only co-fund the development of common prototypes where Member States commit to buying the final product;

• Cross-border participation of SMEs and mid-caps is strongly incentivised by providing higher financing rates, favouring projects by consortia which include SMEs and, if necessary, launching dedicated calls for proposals;

• Targeting breakthrough innovation, with 5% of the funds dedicated to disruptive technology and innovative equipment allowing the EU to boost its long-term technological leadership;

• Permanent Structured Cooperation (PESCO) projects may, if eligible, receive an additional co-financing bonus of 10%, but funding is not automatic.

In a parallel development, Europe is also proposing the so-called European Peace Facility a new off-budget fund worth €10.5bn that will draw together existing off-budget mechanisms devoted to security and defence to overcome existing gaps and limitations. It aims to increase the effectiveness of financing for Common Security and Defence Policy (CSDP) military missions and operations.

It will facilitate the EU's contributions to peace operations led by partners and it will broaden the scope of the military and defence support the EU can offer. It will cover expenditure that cannot be financed under the EU's budget because of its military and defence implications.