(Bloomberg) -- European Union member states are nearing a deal on a new €1.5 billion ($1.6 billion) defense fund to help bolster the industry in the bloc and Ukraine over the next three years.
An agreement on the European Defence Investment Program is likely by the end of the year and would allow purchases of military equipment consisting of up to 35% of components from outside the EU, according to people familiar with the matter.
The agreement on a 35-65% split was the result of balancing the ambition of boosting Europe’s defense industry over the long term with being able to purchase off-the-shelf equipment more immediately to help Ukraine meet its defense needs.
Another factor is the bloc’s concerns over provoking the ire of Donald Trump. The US president-elect has repeatedly voiced frustration at both insufficient European defense spending and at the bloc not buying enough American products.
The EU is in the process identifying flagship projects of “common interest” that could benefit from EDIP funds in such areas as air and missile defense.
The EU is also trying to to shift from its current practice of buying off-the-shelf equipment from third countries as an emergency response to funding more collaborative investments and joint procurement.
Russia’s invasion of Ukraine has exposed significant limits of the bloc’s defense industry and the depth of its reliance on other countries for key supplies and defense capabilities. Over the past few years, the EU has been struggling to ramp up production capacity and spending after decades of underinvestment in the wake of the Cold War’s end.
--With assistance from Alberto Nardelli.
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