The European Union will propose extending €150 billion in loans to boost defence spending after decades of underinvestment and as US president Donald Trump pulls back American security on the Continent.
European Commission president Ursula von der Leyen also said the EU will propose activating a fiscal escape clause, which could allow countries to use their national budgets to spend an additional €650 billion on defence over four years without triggering budgetary penalties.
Combined with the new defence spending loans, Ms Von der Leyen said the package could mobilise nearly €800 billion if governments take full advantage of the new leeway.
“We are in an era of rearmament,” she told reporters in Brussels on Tuesday. “Europe is ready to massively boost its defence spending.”
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Europe is looking to mobilise hundreds of billions of euro in additional financing as it seeks to continue support for Ukraine at a critical moment, particularly after Mr Trump ordered a pause in all military aid to Kyiv. Ms Von der Leyen has called this a “once-in-a-generation moment” and has previously said the EU faces defence investment needs of about €500 billion over the next decade.
[ Trump halts military aid to UkraineOpens in new window ]
Ms Von der Leyen sent a letter to the member states listing possible options to bolster national defence in the near term. The proposal will be discussed by EU leaders at an emergency meeting on Thursday.
The leaders are expected to assess their preferred ideas and mandate the commission, which is the EU’s executive arm, to work further on them before concrete proposals are put forward as early as their next gathering on March 21-22nd, according to people familiar with the matter, who spoke on the condition of anonymity.
Many EU countries, including France and Italy, face delicate budgetary situations and do not have much fiscal capacity to dramatically increase borrowing.
The letter also listed some other options including mobilising private financing through the capital markets, reallocating other EU funds for defence purposes, expanding the lending practices of the European Investment Bank to include some military projects currently excluded or tapping the European Stability Mechanism, the euro area’s €500 billion bailout fund. – Bloomberg
