EU Commission proposes joint borrowing as part of 800b euro defence plan

BRUSSELS: The European Commission proposed on Tuesday new joint European Union borrowing of 150 billion euros ($157.76 billion) to lend to EU governments for defence as part of an overall 800 billion financing effort to boost Europe’s defence capabilities.

European leaders are under huge pressure to increase defence spending as US President Donald Trump’s return to power has delivered a rude wake-up call that they cannot blindly rely on Washington.

The joint borrowing would go towards building pan-European capability domains like air and missile defence, artillery systems, missiles and ammunition, drones and anti-drone systems or to address other needs from cyber to military mobility, the Commission said.

Trump suspends all military aid to Ukraine

“It will help Member States to pool demand and to buy together. This will reduce costs, reduce fragmentation increase interoperability and strengthen our defence industrial base,” Commission President Ursula von der Leyen said.

Von der Leyen did not give a detailed timeframe, but said spending needed to be increased “urgently now but also over a longer period of time over this decade.”

EU leaders will discuss the proposal at a special summit devoted to defence spending on Thursday.

The Commission also proposed that defence spending be exempt from limits imposed by EU rules on government spending.

“If Member States would increase their defence spending by 1.5 per cent of GDP on average this could create fiscal space of close to 650 billion euros,” von der Leyen said.

In addition, the Commission proposed that money countries receive from the EU’s so-called cohesion funds – designed to equalise standards of living across Europe – could also be used for defence purposes.

All these elements could provide up to 800 billion euros for EU governments to spend on defence projects.

“Europe is ready to assume its responsibilities. Europe could mobilize close to 800 billion euros for a safe and resilient Europe. We will continue working closely with our partners in NATO. This is a moment for Europe. And we are ready to step up,” von der Leyen said.

The Stoxx Europe Aerospace and Defence index rose on the news.

Trump, who has raised European doubts about the US commitment to the NATO security alliance, has said NATO’s European members should spend 5 per cent of GDP on defence – a figure no NATO member including the US currently reaches.

He has also paused military aid to Ukraine following his clash with Ukrainian President Volodymyr Zelenskiy last week, leaving Europe trying to figure out how to react.