EU leaders to discuss more joint borrowing to fund bloc’s military-industrial complex

EU leaders are looking at a serious debate on Thursday (21 March) about how to fund the ramp-up of the bloc’s defence industry to answer Ukraine’s needs and match the Europeans’ ambition to become an independent security player.

The leaders agree that additional cash must flow into the continent’s defence, and the proposed European Defence Industry Programme (EDIP) to boost the European military-industrial complex for the long haul is a good starting point.

EDIP, a future EU-level scheme, would come with €1.5 billion of funding but according to Internal Market Commissioner Thierry Breton and the Estonians, the bloc needs around €100 billion, on top of national budget increases, to make a difference.

This raises the issue of how and where to find more cash.

The answers leaders come up with, one EU diplomat says, will be the litmus test of how seriously the EU is taking the planned boost of defence investments.

While re-shaping the European Investment Bank’s (EIB) policy can be green-lit and the details worked out later, issuing eurobonds ie. joint borrowing from the financial markets, is not supported by everyone.

Plus, while EU diplomats say there is broad support for tapping into €3 billion revenues from Russia’s sanctioned cash, a few EU countries still have concerns over the legality of it.

“The objective of the discussion is (…) to work on additional sources of funding, outside the EU budget,” a source from the French presidential office said, pointing out “innovative solutions”.

Finnish Prime Minister Petteri Orpo told reporters it is “clear we need to fund defence, to ramp up the [European] industry, and help Ukraine”, but remained non-committal about issuing eurobonds when talking to reporters on the eve of the meeting.

“We need to find ways to use the instruments we already have, such as the EIB, the EU budget”, Orpo stated, after clarifying that no national decision on eurobonds has been taken yet.

Several frugal countries such as Germany, Denmark, Sweden, the Netherlands, Austria, but also the Czechs, are wary of the eurobonds idea.

The bloc’s economies are slow, they are already repaying the loans from the pandemic recovery plan, and no clear legal proposal is on the table, they argue. Commission is expected to present a legislative proposal in the spring, two EU diplomats said.

Earlier versions, for instance, mandated the Council and the Commission to explore “all options,” which some considered too broad.

“The text cannot be too open, where it would mean anything can be accepted,” a second EU diplomat said, specifying eurobonds, which its supporters see as the most viable solution.

France’s idea to use the windfall profits from the Russian assets to fund the interest rates seems to have failed to convince them, Euractiv understands.

Paris, alongside Estonia, Belgium, and the European Council President Charles Michel, is supportive of the idea.

“It might be too soon,” one EU official said ahead of the summit when asked if the idea could be endorsed then.

Private money and frozen assets on the radar

The idea of having the European Investment Bank more involved in defence is more popular. Fourteen leaders asked the EIB to go “beyond” its current definition of only sponsoring dual-use products, of which a majority of the revenues come from the civilian sectors and not the military.

However, details on what “expanding” the multi-million lender’s role in defence will have to be sorted out by experts and finance ministers over the coming months.

Certain countries also support the idea of using the revenues of the frozen assets of Russia currently immobilised in the EU to finance the recovery or modernisation of Ukraine’s defence base, as proposed in EDIP by the European Commission, and for military aid to Ukraine, a legislation proposal the Commission tabled on Wednesday.

“A consensus is emerging among member states, in the idea to channel this revenue towards military support to Ukraine”, a French presidential source said, echoing the EU top diplomat.

However, it is too early to discuss the allocation of money which the EU countries have yet to decide whether they will use or not, two EU diplomats insisted, especially since there has been no debate on the legal text yet.

Beyond defence

The discussion about funding security extends beyond defence and is expected to include all aspects of the continent’s security over the next few months.

Leaders are to support the Finnish idea of a ‘Preparedness Union’, according to the draft conclusions text. To that effect, Commission President Ursula von der Leyen also mandated former Finnish prime minister Sauli Niniisto to report to do an assessment of the state of preparedness of the bloc’s civilian and defence by the autumn.

Anna Brunetti contributed to the reporting

[Edited by Alice Taylor/Zoran Radosavljevic]

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