EU explores joint defence funding as US commitment wavers

By Jan Strupczewski

BRUSSELS (Reuters) -European Union finance ministers on Monday began discussing how to pay for defence through new joint borrowing, existing EU funds and a greater role for the European Investment Bank, with a view to taking decisions in June.

The ministers' talks follow a meeting of European leaders last Thursday after U.S. President Donald Trump froze U.S. military aid to Kyiv and raised doubts about Washington's commitment to European allies.

Polish Finance Minister Andrzej Domanski, who chairs the discussions, said that summit had confirmed the "absolute political will to make Europe more responsible for its own security and to find money for a huge re-arming of Europe".

The ministers will work on a European Commission proposal for the EU to raise 150 billion euros ($163 billion) against the security of the EU budget, for loans to governments for joint defence projects - an arrangement Germany was quick to support.

"What Germany is very open to, and what we have supported explicitly, is whenever there are true European projects in the defence area to also think about common financing," German Finance Minister Joerg Kukies said.

One of the contentious topics linked to the joint borrowing is who to buy the weapons systems from. France leads the group of countries that would rather buy from European firms, while Germany is more open to buying outside Europe as well.

The long-standing dilemma became acute after Washington cut off Ukraine from its intelligence data, ammunition and other equipment, raising concern it could do the same to other countries and rendering some advanced weapons systems useless.

"It is very important the funds are used to buy European products that are part of the our strategic autonomy," French Finance Minister Eric Lombard said.

COHESION FUNDS, EIB AND RULE CHANGE

The ministers will also discuss the use of EU cohesion funds to pay for dual-use projects that benefit both civilians and the army and a new lending policy for the EIB, a bank owned by EU governments, to broaden the scope of projects it can lend for and increase the amount of money available.

On Tuesday, the ministers will discuss how to change EU fiscal rules to provide room for more national spending.

To remove EU barriers, the Commission has proposed to let all 27 EU governments increase defence spending by 1.5% of GDP each year for four years without triggering any disciplinary steps under the EU's debt rules that underpin the euro.

The ministers will discuss broadening the existing definition of defence spending, which now only takes into account military hardware. The current rules do not deem the construction of ammunition factories, or the reinforcement of roads and bridges to enable the crossing of tanks, to be defence expenditure and many governments want to change that.

(Reporting by Jan Strupczewski; Editing by Lincoln Feast and Angus MacSwan)