Defence funding could be the EU’s next big battle to fight

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EU leaders this week agreed defence should be a priority in the future. But the question how and what to fund leaves them largely divided.

Poland and the three Baltic states presented a new proposal to their counterparts, seen by Euractiv, under which the EU27 should finance a military barrier on their borders with Russia and Belarus. The estimated cost: €2.5 billion.

“This is also your external border that we are defending,” Poland’s Prime Minister Donald Tusk said, when he presented the plan, according to people familiar with the discussions.

His country already spends 4% of GDP on defence, while small Latvia and Lithuania are likely to join Estonia in spending 3% of GDP on defence this year, all well above the 2% target set by NATO.

The joint idea follows an earlier initiative by Poland and Greece, which called for the creation of an EU air defence system modelled on the Israeli Iron Dome.

Moreover, the EU has been asked to draw up possible responses against Russia’s growing hybrid and physical attacks inside its territory.

The initiatives come on top of European countries’ efforts to supply weapons to Ukraine and ramp up their own industrial defence capacity.

But with high-spending countries like Warsaw already facing a European Commission deficit procedure and the burden to finance defence already eating into many other member states’ priorities, financial support is desired.

Thus, EU leaders expected the European Commission to come forward with “innovative ideas”, as to where to find the money.

European Commission President (and President-designate) Ursula von der Leyen told EU leaders she estimates that “additional defence requirements of around €500 billion will be required over the next ten years.”

This could be financed nationally or through “new own resources at EU level.” In the case of the latter also through the “borrowing capacity of the EU budget” (read joint debt), she said.

While the EU executive failed to produce an options paper, EU leaders published in their conclusions that funding should come from both “private and public” channels, suggesting no idea was off the table, and the controversial Eurobonds are not considered a priority.

But in the room, both German Chancellor Olaf Scholz and outgoing Dutch Prime Minister Mark Rutte, both long proponents of tightening the bloc’s fiscal rules, argued against sinking more EU cash into common defence spending.

French President Emmanuel Macron, while still in favour of Eurobonds, made a case for putting money into European industry explicitly, a long-standing French position.

Other EU leaders during the debate questioned why Rutte, who will take over as secretary-general of NATO in October, would want to stop the bloc from investing in defence.

It’s true that under Rutte’s 14-year leadership, the Netherlands never met the 2% spending target, which was only recently achieved as a response to Russia’s full-scale invasion of Ukraine.

Scholz assumed a different position, arguing that the financing of military projects from the EU budget was prohibited, people familiar with the discussions said.

“The behaviour by some countries around the table has been a bit particular,” one senior EU official said after the summit.

But EU diplomats recalled throughout the night how Germany categorically ruled out joint debt at the beginning of the COVID-19 pandemic, only to then propose an unprecedented reconstruction fund of €500 billion euros with France.

In other words, time will tell. Many EU diplomats expect another U-turn from Berlin if external pressure or needs require it.

“There is a sense that this trend is irreversible,” one senior EU diplomat said after the summit.

“There will be attempts by some to undermine, including the United States, but this will be irreversible, because EU member states realise that we are no longer in the same chapter as before Russia’s war and that we need to advance,” they added.

EU IN THE WORLD

POST-EUCO | EU leaders on Thursday gave their political green light to a trio of names – Ursula von der Leyen, Antonio Costa, and Kaja Kallas – to lead the EU’s three major institutions over the next five years. But the road to approval will still be long.

EGYPT FUNDS | The European Commission this weekend signed €1 billion in macro-financial assistance with Egypt, part of a previously agreed funding package to help Cairo pursue substantial economic reforms.

WIDER EUROPE

NEXT STEPS | After Ukraine and Moldova formally opened their accession talks this week, they are expected to kick off a process of further aligning their own legislation to the bloc, Euractiv spoke to both countries chief negotiators about their expectations for the next stages of the process.

GEORGIA’s PATH | Georgia’s accession to the bloc has ‘de facto’ been halted after the country’s authorities passed a controversial Russia-style ‘foreign agent’ law, EU leaders warned this week.

DEFENCE BRIEFING

HYBRID THREATS | The EU should draw up possible responses against Russia’s growing hybrid and physical attacks inside its territory, Lithuania’s Foreign Minister Gabrelius Landsbergis told Euractiv, advocating a more pro-active approach to the bloc’s internal security.

€500 BILLION | According to the European Commission, that’s the price of the investment needed for the next decade to ramp up production capacity and modernise the armed forces, von der Leyen told EU leaders this week, confirming earlier reporting by Euractiv.

EDIP TROUBLE | Key parts of the proposed European Defence Industry Programme (EDIP), designed to bolster production capacity, are likely to sideline France’s staunch opposition to using EU funds for foreign-produced defence components. Euractiv learned that a mock vote initially planned this week to assess negotiations was cancelled.

BRETON, AGAIN? | France’s President Emmanuel Macron wants to nominate Thierry Breton for the European Commission, angling for an expanded portfolio around economic security and defence. But far-right Rassemblement National, who could claim the post of Prime minister after the legislative elections, claim to have a say in the appointment.

RUTTE, CONFIRMED | After months in the waiting room, Dutch Prime Minister Mark Rutte was confirmed as the next secretary-general of NATO on Wednesday (26 June). He will start on October 1st.

WHAT ELSE WE’RE READING

• What France Surprise Elections Could Mean For It’s Relations With The World [War on the Rocks]
• The End of the Biden Era [The Atlantic]
• Is It Too Late to Replace a Presidential Candidate? [Foreign Policy]
• The Palestinian Question As Seen From Moscow [Le Monde Diplomatique]
• Have China’s Wolf Warriors Gone Extinct? [Foreign Affairs]

ON OUR RADAR NEXT WEEK

• French legislative elections, first round
  | Sunday, 30 June 2024 | France
• EU-Egypt Investment Conference

  | Sunday, 30 June 2024 | Cairo, Egypt

• Hungary takes over rotating EU presidency
  | Monday, 1 July 2024 | Budapest, Hungary
  
• German Chancellor Scholz visits Poland for talks
  | Tuesday, 2 July 2024 | Warsaw, Poland
  
• Shanghai Cooperation Organisation leaders’ summit
  | Wednesday, 3 July 2024 | Astana, Kazakhstan
  
• Deadline by which EU to decide whether to impose provisional duties on Chinese electric cars
  | Thursday, 4 July 2024 | Brussels, Belgium
  
• Annual ECFR Council meeting, Euractiv is media partner
  | Thu-Fri, 4-5 July 2024 | Madrid, Brussels

PREVIOUS EDITIONS

• The EU’s Race To Lock In Ukraine Long-Term Support
• Switzerland’s Ukraine Summit Reveals Split Visions For Future Peace Settlement
• Far-Right Fragmentation On EU Foreign Policy
• How The Next Few Weeks Could Shape The West’s Support For Ukraine
• Russia’s Hybrid Warfare Tactics Raise Alarm In Europe
• Beyond Georgia, The EU Needs To Get Its Messaging Straight

[Edited by Chris Powers]

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