EU states wary of funding Brussels defence ‘power grab’
Fiscally conservative EU states are pushing back at a nascent Brussels plan to boost common funding for defence, raising doubts over the drive to rapidly expand the continent’s industrial capacity.
While most member states want to strengthen European defence and reduce reliance on the US, there are big differences over whether to hand the European Commission oversight of new joint funds dedicated to defence.
The reservations underscore the difficulty of expanding Europe’s military capabilities at a time of strained public finances, as well as divisions over the merits of empowering Brussels on defence policy.
“We would not accept a power grab by the commission,” said a senior EU diplomat, who described an associated idea of the 27 member states issuing new jointly backed defence bonds as “pure fantasy”.
“The commission doesn’t have to incentivise this. Governments will place orders, defence companies will invest in capacity and sell their stuff. That’s how market economies work. There’s no need for this style of planned economy,” they added.
Commission president Ursula von der Leyen has drawn up a detailed strategy for Europe’s defence sector that encourages joint procurement among EU countries, with Brussels subsidising weapons deemed to be strategically vital and acting as a guarantor for certain levels of production.
The strategy, which is due to be presented later this week, includes a new fund to support small defence companies through loans or equity injections, according to a draft seen by the Financial Times. Precise figures and targets in the proposal are still under discussion amid heavy lobbying from key capitals such as Berlin and Paris.
Diminished by decades of defence budget cuts, Europe’s defence industrial sector has been badly exposed by its inability to meet the needs of Ukraine as it resists Russia’s invasion.
The war has rewritten EU strategic thinking regarding the threat from Moscow, spurred a surge in spending on security and prompted calls from many leaders for the continent to become more self-sufficient on defence production.
France is pushing for a maximalist approach towards supporting EU industry, which aims to minimise purchases from outside the bloc and would block non-EU companies from strategies to develop critical technologies.
Paris has also called for fresh money to support this. EU industry commissioner Thierry Breton, who is French, proposed issuing €100bn in fresh joint debt to fund defence investments, an idea taken up by leaders including Estonian Prime Minister Kaja Kallas.
But countries including Germany and the Netherlands are unwilling to issue new debt.
“The Netherlands is not in favour of issuing new common debt . . . Financing defence expenditure is not a crisis response, but a policy response to structural challenges,” said a Dutch finance ministry spokesperson. “Therefore, the use of common debt is not the most obvious way.”
There is potentially wider support for the commission’s suggestion to broaden the European Investment Bank’s lending policy to “meet the financing needs of the [defence] sector”.
No timeline is outlined in the draft proposal. Such a move would require backing from a majority of EU countries, who are all shareholders of the lender.
New EIB president Nadia Calviño who took office in January has promised to review the scope of its current policy, which allows it to invest in dual-use items that have both civilian and military applications such as drones.
“The issue is to look at what we can do more of, and not about what we can’t do. It’s not about the exclusion but about broadening where we can be acting,” said an EIB official.