EU’s von der Leyen assesses bloc’s defence needs to €500 billion

2 months ago 8

The EU requires €500 billion in defence investments over the next decade, European Commission President Ursula von der Leyen told EU leaders, on Thursday (27 June), as the bloc searches for ways to ramp up funding for its new top priority.

Von der Leyen confirmed earlier reports by Euractiv that the EU’s executive estimated the European defence industry requires around €500 billion worth of investment over the next decade.

It was not immediately clear whether the considered sum includes money needed to continue providing weapons to Ukraine, or modernise and build its defence industry.

The main question is how to finance the €500 billion, according to people familiar with the discussions.

Her comments came as the Commission is expected to propose options on sourcing the necessary funding when EU leaders meet on Thursday (27 June) but instead opted for an oral update to member states.

While von der Leyen’s €500 billion figure appears important, in comparison, EU members spent roughly €240 billion together in 2022 on defence, the United States spent around €718 billion the same year.

Europeans increased their defence expenditure over the past couple of years, due to increased security risks created by Russia’s invasion of Ukraine in 2022.

Between 1999 and 2021, EU member states increased their defence spending by 20%, China by 600% and Russia by 300%, the Commission said, according to people briefed on the discussions.

But European governments are now looking to increase the output of the bloc’s defence industry, but do not agree on how to raise the financial resources required.

The European Commission proposed the European Defence Industrial Plan (EDIP) to revamp the bloc’s military-industrial complex earlier this year, but with only modest funds, indicating additional financing was needed to make the industry able to deliver on wartime needs.

France and Germany have led the discussions on using so-called ‘Eurobonds’ for defence, whereby the EU borrows money from the financial markets.

This was, however, heavily criticised by the more ‘frugal’ EU member states such as the Netherlands, who argue that there are other channels to first explore, such as national contributions.

Several EU member states are pushing for all Europeans who are NATO members – except neutral Austria, Ireland, and Malta – to meet the 2% of GDP spending target.

Other ideas pitched by EU member states and officials include changing the EU’s Investment Bank’s (EIB) lending policy, the use of the profits from the Russian frozen assets, private finance from the Capital Market Union, or making sure ESG criteria (environment and social governance) aligns with the needs for investment in defence, so banks are less resistant to lending.

[Edited by Alexandra Brzozowski/Rajnish Singh]