Estonia: Spat with EU undermines arms fund for Ukraine

The list of questions over which the 27 member states of the European Union are almost irrevocably at odds sometimes seems unending: how to manage migration, whether to take on joint debt to fund ambitious projects, or if nuclear energy can be considered green, to name but a few.

But ever since Russia launched its full-scale invasion on Ukraine in February 2022, resolute backing for Kyiv has been a rare (and highly welcome) subject of unity.

However, on Tuesday, citing diplomats from other member states and EU officials, news outlet Politico reported that the tiny Baltic state of Estonia had raised eyebrows in Brussels with the extent to which it has claimed back the costs of new military equipment rather than the actual value of equipment sent to Ukraine.

While seeking reimbursement in this way isn't against the rules governing the pot of money in question — the European Peace Facility (EPF) — Estonia appears to have done so more than other peers, Politico reported, publishing leaked documents to back up the claims.

'Estonia follows EPF rules'

The Estonian Defence Ministry swiftly hit back. "Estonia has followed EPF rules in determining whether aid given to Ukraine is to be classified as book value or as replacement value," it wrote in an online statement. It stressed that Tallinn had only requested reimbursement for new equipment when production was discontinued and when replacing those stocks was essential for their capabilities.

"Supporting Ukraine is not a competition and its core rationale is not about an EU reimbursement scheme. The stakes are much higher — repelling aggression in 21st century Europe and preserving our security architecture," the statement concluded sharply.

Ukraine also reiterated its thanks to Tallinn on Tuesday in an apparent show of solidarity. "The Estonian example of investing in Europe's security is inspiring. Estonia's military assistance to Ukraine has already surpassed 1% of the country's GDP," Ukrainian Defence Minister Oleksii Reznikov tweeted. "Everything we receive from our [Estonian] friends, from javelins to howitzers, helps the [Ukrainian] army defend Ukraine and all of Europe."

Estonia, which has a population of just 1.4 million and joined the European Union and the Western military alliance NATO in 2004 along with other former Soviet states, is widely acknowledged as one of Ukraine's most ardent backers.

Fund could run out of money

So if Estonia followed the rules and Ukraine is happy, what is the controversy about?

The implication is that Tallinn is taking the opportunity to modernize its stocks with the help of EU funds rather than domestic assets, which other member states are not doing, Luigi Scazzieri, an analyst from the Centre for European Reform, told DW.

"Clearly there's annoyance in some countries at the way Estonia has used the fund," he said. "Mainly because if everyone used the fund to be reimbursed for new equipment, then the money in the fund would actually run out very, very quickly."

The EPF, an off-budget funding mechanism, has some €8 billion at its disposal after a string of top-ups in view of expenditure on Ukraine.

In a major defence policy shake-up, the 27 EU states agreed to use it to help arm Kyiv last year by partially reimbursing member states for the military aid they send from their own stocks.

EU rules generally prohibit buying arms with joint funds, but the outbreak of war on the bloc's doorstep ushered in a break with taboo. The EPF was mobilized as a workaround solution.

More clarity needed

To Scazzieri, it appears that the rules surrounding reimbursements are not clear enough. "Because the risk is that without clear rules, then you do risk undermining political consensus for what's been a very important instrument," he said. Keeping such expenditure off the main budget comes with transparency risks, he added.

Publicly, EU officials and governments often tout the EPF as an example of the bloc's unified, unwavering support for Ukraine as it fends off Russia. "But there have always been tensions behind the scenes, or even very much in public actually, if we look back at the spat about sending tanks," Scazzieri said, referring to criticism of Germany, by its eastern EU neighbors in particular, for its initial reluctance to supply Kyiv with modern tanks earlier this year.

But this conflict could potentially be more harmful than previous ones if it were to break down consensus on the EPF, since this could translate into concrete results for Ukraine, Scazzieri suggested.

The fund will need a fresh top-up if it is to keep going, especially in light of a major deal to supply Ukraine with ammunition that was struck in recent weeks.

Edited by: Anne Thomas