Good afternoon and welcome back to Firepower,

Defence policy priorities should receive a big pile of cash in the European Commission’s proposal for the next seven-year EU budget which lands 16 July – at least if Ursula von der Leyen & Co. follow up on repeated comments that such programmes are a top priority for Brussels.

Less clear, however, is whether that’s what the EU’s member states want. EU programme funds come with strings attached, notably a strong Buy-European preference for military purchases that doesn’t always align with domestic priorities, particularly in Eastern Europe. Meanwhile, some notable net contributors to the EU’s budget want to steer their cash toward their domestic arms industry.

EU cash doesn’t appear out of nowhere. Brussels still needs to convince key capitals that channelling the money through the bloc’s budget brings added value – bringing down prices by bundling orders, forging more industrial cooperation or scaling production.

In today’s edition:

Lots of details remain unanswered, but draft legislation for the European Commission's massive industrial policy fund (seen by Euractiv) points toward a key structure of the next seven-year budget proposal. The fund would merge up to 14 existing budget lines into a single massive industrial policy fund.

The bloc's long-term budget, set to start in 2028, is heading for a major overhaul. Read about the Five fights that will shape the EU’s next €1.2 trillion budget.

EDIP NEGOTIATIONS GET REAL. MEPs are hoping to work through as much of the non-controversial parts of the European Defence Industry Programme (EDIP) proposal in three next rounds of technical talks (today plus next week on Tuesday and Thursday).

THE AGENDA, seen by Euractiv, features focus on the fund to support SMEs and midcaps (FAST, article 19), the creation of a legal framework for jointly handling defence deals (known as “SEAP”), the security of supplies (Articles 34 to 45), and EDIP’s governance (Art. 59 to 67). Negotiators from Parliament, the Council and the Commission have cleared seven hours of their agenda today, between 9am and 4pm.

The sticking points are for after the summer holidays: who can get the money and how big to make the cash pot. Once source said the Parliament is currently aiming to adopt the final text in October.

NO ASAP FOR PARLIAMENT. The European Parliament’s Parliament's defence committee SEDE opposes extending the ASAP ammunition production subsidy programme, three SEDE sources told Firepower, in its opinion on the mini-omnibus proposal. That’s because MEPs expect EDIP to fill that same function. One of the sources said the Parliament’s industry committee is expected to give the same opinion. SEDE will vote its official position on the mini-omnibus next week.

THE LONG LIFE OF ASAP AND EDIRPA. But the Commission and EU countries are keeping the door open to reviving ASAP with renewed funding. The EU executive is also keeping the EDIRPA incentives for joint military procurement on the table. Initial funding for ASAP expired at the end of June, which many took as the end of the programme (EDIRPA lapses in December). But new cash could still bring it back online.

The Commission plans to include both ASAP and EDIRPA in the next seven-year EU budget proposal, according to documents reviewed by Euractiv. That’s also a potential hedge in case ASAP and EDIRPA elements get cut at the EDIP bargaining table.

SAFE UPDATE. Ursula von der Leyen said this week that 10 EU countries have already stated their intention to take loans under the EU’s €150 billion SAFE military procurement effort, and she expects “more to join”. Firepower asked around: Estonia, Lithuania, Poland, Ireland and Cyprus are among those in on SAFE, while Belgium is interested but has not yet taken a formal decision. Germany and Sweden won’t use SAFE loans but are keen to joint procurement deals. Meanwhile, Slovenia, Italy, Czechia and France are looking into it. Let us know if we missed you!

EU-UKRAINE INNOVATION. The European Commission and Ukraine launched “BraveTech EU” today. EU defence chief Andrius Kubilius pitched the programme as a way for the European defence industry to “learn from the Ukrainians’ battle-tested experience to innovate”. Ukrainian defence firms have made waves with novel drone-making abilities and deployments. The Commission already proposed including Ukrainian drone-makers in EU innovation programmes, while Ukraine in turn could "scale innovation using the European Union defence potential", according to Kubilius. BraveTechEU also intends to work as a matchmaking platform for companies on both sides of the exchange.

EUROPE’S ROCKET RACE HEATS UP. Five launch startups – Rocket Factory Augsburg, Isar Aerospace, Orbex, PLD Space and MaiaSpace – are vying for up to €169 million each under a European Space Agency (ESA) program aimed at building homegrown rivals to SpaceX. The final call will come at ESA’s November funding summit. The outcome carries big implications for European defence, as all five have pitched military uses for their rockets, but it’s clear not all will make it to the market.

NEW LIFTOFF OPTION: ESA also struck a deal this week with French Guiana’s Kourou spaceport, making it easier for winners to launch alongside Ariane and Vega systems.

EU PUMPS UP THE DEFENCE BUDGET. BUT HOW MUCH, FOR WHOM? That's what everyone’s asking while waiting for the Commission to unveil its proposal for the EU’s next seven-year budget on Wednesday. We’ve heard the €100 billion figure repeatedly floated as a “logical” option for the defence policy budget by EU leaders, officials, politicians, lobbyists and outside experts.

The new EUROPEAN COMPETITIVENESS FUND from the Commission will merge several defence industry programmes together with funds for other “strategic” sectors, with a strong EU preference clause, according to the Commission’s draft. What hasn’t been clarified: Whether all the various defence industry programmes (EDF, EDIP, ASAP, EDIRPA), each with their own terms and criteria, will get separate dedicated budget lines within the fund – or if the money will be shared with other industry policies priorities such as health and space.

MADE-IN-EU SECURITY TECH FUND? Europe's security tech sector is urging the Commission to incentivise purchases of EU-made security tech solutions for protecting critical infrastructure across Europe, instead of relying on Chinese or American products. David Luengo, the chair of the Security Business Unit within ASD, the main European defence industry lobby group, told Firepower that they’ve been pushing in high-level meetings (and in a position paper) for a big, brand-new EU fund – why not around €50 billion? – in the EU's next seven-year budget. Luengo argued that security tech should be viewed similarly to military hardware, with funding and preferences to back a strong EU-based sector. The goal, he said, is to protect critical infrastructure across Europe such as railway systems, energy and telecom networks, or traffic management systems.

EU DARPA IN THE MAKING. One thing seems set: Defence startups will get a specific investment fund, modelled on the American DARPA military research effort, according to a draft of the Horizon Europe research programme, which would house the fund. The Pentagon agency funnels billions of dollars into defence innovations every year – and a European DARPA equivalent could be a key step in completing the EU defence fund, currently marked at €8 billion, which invests in defence R&D but doesn’t have a start up-specific angle.

How much goes to MILITARY MOBILITY programmes to refit transport infrastructure to military standards remains to be seen. Problems rushing military equipment and supplies to Ukraine in 2022 exposed how big an issue infrastructure is for Europe’s militaries, making mobility a major EU investment priority. The current budget (which runs from 2021 to 2027) includes just €1.7 billion. Euractiv obtained a draft of the programme structure, and Politico reported a €100 billion figure.

The German aviation industry is turning to Berlin for support amid renewed tensions over the joint European next-generation FCAS fighter jet project, with Paris reportedly seeking a significantly larger share of the work for French contractors.

“Geopolitics on wings”: Danish subcontractor downplays worries over kill switch in European F-35s

European concerns persist that the high-end American F-35 fighter jet might contain a "kill switch" that lets the US essentially disable the aircraft remotely. Nine EU countries – including Germany, Italy and Poland – plan to operate F-35s or have the jets already. But Danish defence contractor Terma, which manufactures more than 80 components for the F-35, dismissed those concerns.

“The F-35 is geopolitics on wings – Lockheed Martin relies on countless subcontractors from around the world,” Terma spokesperson Thomas Rekling told Euractiv. “The Americans are just as dependent on us as we are on them to get an F-35 off the ground.”

According to aerospace giant Lockheed Martin, over 1,900 different suppliers from more than 10 countries contribute to the production of the F-35 Lightning II. Terma’s contributions include radar electronics and multipurpose pods that can be mounted underneath the aircraft.

Last week, Danish Defence Minister Troels Lund Poulsen said European countries should continue purchasing US military equipment, despite growing transatlantic tensions over trade – and Trump’s repeated threats to annex Greenland, an autonomous territory under Denmark.

Against the backdrop of the latest turmoil in the FCAS jet programme, today’s Politico report that GERMANY is considering ordering an additional 15 US-made F-35s will surely raise eyebrows. But it's not necessarily a decisive blow against FCAS, which is expected to be a more advanced fighter but won’t be ready until after 2040.

US WEAPONS BACK IN UKRAINE. Shipments of artillery shells, missiles and other badly needed munitions to Ukraine from US arsenals resumed on Monday – just a few days after the Pentagon’s chief spokesman declared that those deliveries were “on pause” as the US reviewed its stockpiles to “ensure America is first”. The abrupt halt alarmed Ukraine – and left the EU facing the daunting task of trying to fill the gap.

FRANCE will publish a formal strategic review on Sunday, the same evening that President Emmanuel Macron will give a defence-focused speech. An Elysée source tells Firepower that Macron’s remarks will focus on integrating more youth in the military, assess threats facing France and address the public financing needed.

SPAIN’s technology and defence company Indra officially started merger talks with fellow Spanish defence contractor Escribano Mechanical & Engineering (EM&E). A potential deal has raised concerns about conflicts of interest, since Indra President Ángel Escribano is a co-owner of EM&E with his brother, Javier. Indra, which has ambitions to become Spain’s dominant defence company, also increased its ownership stakes in Tess Defence (51%) and ITP Aereo (9.6%). More here .

French President Emmanuel Macron and UK Prime Minister Keir Starmer suggested they are ready to use nuclear weapons to protect European allies against possible Russian aggression, after a meeting in the UK.

The two also hosted a meeting of the "Coalition of the Willing" to secure Ukraine post-ceasefire, and decided on hosting its operational headquarters in Paris first.

European Union

• Next round of EDIP technical talks on 15 and 17 July

Commission

• Ursula von der Leyen presents the first package of the EU’s seven-year budget on 16 July. The second package will be presented in September
• The Agendas of Ursula von der Leyen, Andrius Kubilius and Kaja Kallas will be available here

Council

• FAC,15 July, find the topics on the agenda here
• COREPER II, 11 and 16 July
• Political and Security Committee, 16 and 17 July
• EU Military Committee, 16 July
• The agenda of António Costa will be available here

Parliament

• The SEDE committee meets on 16 July to discuss Denmark’s priorities with the Danish Defence Minister Troels Lund Poulsen, and discuss the recent NATO summit in The Hague with the alliance’s deputy secretary general, Radmila Shekerinska. EDIP co-rapporteurs will update MEPs on the state of negotiations. MEPs will also meet on 17 July. Find the full agenda here

The Capitals

• France’s Emmanuel Macron gives speech on defence, 13 July
• US Army’s inaugural LANDEURO Symposium, in Wiesbaden, Germany, 16–17 July

Events

• ECR group event: New perspectives after the NATO Hague Summit with Belgian Defence Minister Theo Francken, 14 July
• EPC Forum with Chair of the SEDE Marie-Agnes Strack-Zimmermann, 17 July

Thank you for reading,

Firepower was brought to you by Euractiv's defence team, with extra reporting by Magnus Lund-Nielsen, Nicoletta Ionta, Inés Fernández-Pontes and Joshua Posaner. You can find the rest of our coverage here .

We want to hear from you: tell us what you think and what you know!

We're at defence@euractiv.com, and each team member is available at firstname.lastname@euractiv.com

Have a nice weekend.