On Thursday, leaders of the European Union will convene to address how to finance a significant boost in defence readiness, aimed at deterring any potential future aggression from Russia and reducing security reliance on the US.
The European Commission has put forth several proposals for raising funds that could accumulate to approximately €800 billion over a series of years.
Outlined below are the suggested approaches:
Amending EU Spending Regulations
Not all EU governments endorse this concept, arguing that a provision for special treatment of defence spending is already incorporated within the existing regulations.
They contend that what is lacking is a more comprehensive definition of defence investment, which they would prefer to prioritize.
The Commission has estimated that if EU governments were to boost their defence expenditure by an average of 1.5% of GDP, it could generate fiscal space of nearly €650 billion over four years.
However, economists caution that such borrowing could exacerbate budget deficits and raise concerns among bond investors.
Utilization of the EU’s 2021-2027 Budget
The current seven-year EU budget, totaling €1.2 trillion and established prior to the Russian invasion of Ukraine, lacks specific provisions for defence.
Nonetheless, about one-third of this budget is allocated for equalizing living standards across the 27-nation EU via cohesion funds, which could potentially be used for projects related to defence, such as civilian shelters or enhancing roads and bridges to facilitate tank movement.
“We will propose additional opportunities and incentives for Member States to decide if they wish to utilize cohesion policy programmes to bolster defence spending,” stated the Commission.
New Collective EU Borrowing
The EU could potentially borrow €150 billion against the security of its budget to provide loans to governments for defence-related investments.
The funds would be allocated to projects that are beneficial for all EU members, promoting pooled demand and collaborative purchasing.
These projects would encompass pan-European air and missile defence systems, artillery systems, missiles, ammunition, drones, anti-drone technologies, as well as enhancements in cyber capabilities and military mobility.
