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