EU proposes that states use central funding to bolster defence readiness

By Jan Strupczewski

BRUSSELS (Reuters) - The European Commission proposed on Tuesday that European Union countries, especially those bordering Russia, be allowed to use the money they get from the EU budget to bolster their defence capabilities.

The proposal concerns 392 billion euros ($423.6 billion) that the EU normally spends as part of its cohesion policy to equalise living standards across the bloc and now may be used to boost defence readiness.

Redirecting some cohesion funds towards defence would be voluntary for each government, so it is difficult to estimate the impact on the overall EU defence effort.

But the cash would come on top of the EU's planned 150 billion euros of joint borrowing for defence spending, and an initiative to exempt defence spending from annual EU limits on net government expenditure.

The Commission has estimated that the exemption should generate 650 billion euros of extra spending over four years.

Normally EU countries have to share the costs of a project the EU is paying for with cohesion money. Under the new proposal, defence investment would benefit from one-off pre-financing of 30% in 2026 and the possibility of the EU covering the entire cost of the project.

Because EU treaties forbid the EU budget from directly financing the military, the money would go to dual civilian-military use projects such as reinforcing roads and bridges to allow the passage of tanks.

EU budget money could also be spent on civilian shelters, protecting critical infrastructure, defence-related production facilities and training workers.

"Today's proposal will further enable member states and regions to use current funding to enhance productive capacities in the defence sector," the Commission said in a statement.

The proposal will need approval from the European Parliament and EU governments to enter into force at the start of 2026.

($1 = 0.9255 euros)

(Reporting by Jan Strupczewski; editing by Philip Blenkinsop)