Headlines
Europe's options for paying for better defence readiness
Published by Global Banking & Finance Review®
Posted on February 18, 2025
3 min readLast updated: January 26, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on February 18, 2025
3 min readLast updated: January 26, 2026
EU leaders explore funding options for defence readiness to counter Russia and reduce US dependency, considering borrowing and budget adjustments.
By Jan Strupczewski and Andrew Gray
BRUSSELS (Reuters) -European Union leaders will discuss on Thursday how to finance a sharp increase in defence readiness to deter any possible future attack from Russia and become less dependent for security on the United States.
The European Commission on Tuesday proposed several ways to raise the funds that would add up to around 800 billion euros over several years. Below are the ideas put forward:
NEW JOINT EU BORROWING
The EU could borrow 150 billion euros against the security of the EU budget to provide loans to governments for defence investment. The borrowing could be decided with qualified majority of EU governments, so no single country could block it.
The funds would be for projects that benefit all in the EU and would pool demand and entail buying together.
The projects would include pan-European air and missile defence, artillery systems, missiles and ammunition drones and anti-drone systems as well as cyber and military mobility.
The money from the EU, even though a loan, could be attractive to most EU governments because the Commission borrows more cheaply with a AAA rating, while most European countries have a lower rating.
Maturities of the loans would be "pretty long", EU officials said, and the loans would be allocated on the basis of demand -- countries would apply with proposals to get them.
RELAXING EU SPENDING RULES
The Commission proposed that defence spending be exempt from EU laws that put annual spending limits on governments to protect EU public finances and the value of the euro currency. The exemption would be valid for four years, each year allowing 1.5% of GDP of extra spending.
EU governments could approve such an exemption with a qualified majority, meaning no single country could veto it.
If every EU country used this option to the maximum, it could generate 257 billion euros per year of extra defence spending, adding up to about 650 billion over four years.
Not all EU governments support the idea, as they say special treatment for defence spending already exists in the rules. What is missing, they say, is a broader definition of defence investment, an issue they would prefer to focus on.
MONEY FROM THE EU'S 2021-2027 BUDGET
The current seven-year EU budget of 1.2 trillion euros, created well before the Russian invasion of Ukraine, has no proper funds for defence.
But around one-third of it is earmarked to equalise the standard of living between EU regions - the so-called cohesion funds - and some of that cash can be used for projects that would be linked to defence, like shelters for civilians or strengthening roads and bridges to allow the passage of tanks.
It would be up to governments to decide if they want to use this option.
($1 = 0.9560 euros)
(Reporting by Jan Strupczewski and Andrew Gray; Editing by Hugh Lawson, Christina Fincher, Alexandra Hudson)
The European Commission proposed several ways to raise around 800 billion euros over several years for defence readiness.
The EU could borrow 150 billion euros against the security of the EU budget to provide loans to governments for defence investment.
The Commission proposed that defence spending be exempt from EU laws that limit annual spending, potentially generating 257 billion euros per year.
The current EU budget of 1.2 trillion euros has no proper funds for defence, but some cohesion funds can be redirected for related projects.
The loans from the EU could be attractive because the Commission borrows more cheaply with a AAA rating, compared to most European countries with lower ratings.
Explore more articles in the Headlines category
