EU Considers Joint Defense Financing as Ukraine Crisis Spurs Military Spending Hike
With the ongoing crisis in Ukraine, the European Union (EU) is actively exploring options to augment its defense capabilities, including the possibility of joint financing. Discussions on this matter have accelerated, as leaders recognize the need for a robust and coordinated response to the evolving security landscape.
During a recent meeting in Paris, French President Emmanuel Macron hosted European leaders, including UK Labour Party leader Keir Starmer and German Chancellor Olaf Scholz, to deliberate on ways to bolster Europe's defense capacity. While joint bonds were not explicitly addressed, Polish Prime Minister Donald Tusk indicated that innovative funding measures would be presented ahead of a crucial summit scheduled for March 20-21.
Amid concerns that the US may take unilateral actions regarding Ukraine's future, EU leaders are keen to assert Europe's role in shaping its own defense strategy. This has led to an increasing willingness to consider bold initiatives, including joint debt issuance.
"Given the urgency, I believe it's time for momentous decisions," declared French Minister for European Affairs Benjamin Haddad. "The topic of eurobonds, for instance, should be part of our deliberations."
In the wake of the meeting, European bonds declined in value, while shares in defense companies surged. The prospect of increased military expenditure is driving investor sentiment. NATO planners estimate that member states may need to allocate up to 3.7% of their GDP on defense, far exceeding the current target of 2%.
EU Commission President Ursula von der Leyen has proposed activating an escape clause in EU fiscal regulations to permit countries to enhance defense funding without violating budget limits. Economy chief Valdis Dombrovskis has emphasized the bloc's commitment to supporting national spending in this area.
Other funding options under consideration include reallocating existing funds, such as those earmarked for pandemic recovery, towards defense expenditures. Discussions are also ongoing about the possibility of a smaller group of countries forging ahead with joint debt issuance, bypassing the need for consensus among all 27 member states.
German Foreign Minister Annalena Baerbock hinted at the development of a substantial plan to strengthen Europe's defenses, drawing parallels to the establishment of the Euro and the COVID-19 crisis response. Officials anticipate the unveiling of new spending proposals after the German election on Sunday.
Deutsche Bank analysts estimate that the EU has approximately €400 billion in available defense funding, comprising a combination of national fiscal space, cohesion funds, and repurposed funds from existing programs. However, they caution that if spending needs exceed this amount, additional EU solutions may be necessary.
Poland's Donald Tusk confirmed receiving assurances that substantial European funds would be redirected for defense purposes. European Central Bank President Christine Lagarde has also expressed support for increased fiscal capacity to finance common goods like security.
Lithuanian Defense Minister Dovile Sakaliene noted a significant shift in European allies' perspectives on EU budget rules and joint borrowing, citing discussions in Brussels and Munich.
Denmark, which has traditionally maintained a cautious stance on EU debt issuance, has recently softened its stance, recognizing the urgency of the situation. Danish Prime Minister Mette Frederiksen called for increased military aid to Ukraine, faster production, and a renewed European determination.