EU proposes borrowing 150 billion euros in big rearmament push

By Jan Strupczewski and Andrew Gray

BRUSSELS (Reuters) -The European Commission proposed on Tuesday to borrow up to 150 billion euros ($157.76 billion) to lend to EU governments under a rearmament plan driven by Russia's war in Ukraine and fears that Europe can no longer be sure of U.S. protection.

"We are living in the most momentous and dangerous of times," European Commission President Ursula von der Leyen said. "We are in an era of rearmament. And Europe is ready to massively boost its defence spending."

The announcement came the day after U.S. President Donald Trump paused military aid to Ukraine, highlighting a growing divergence between European leaders and Washington over the continent's security and how to handle Russia.

Von der Leyen put forward the 150 billion euro fund for pan-European defence priorities such as air defence, missiles and drones as part of a broader package of proposals that she said could mobilise up to 800 billion euros for European defence.

EU leaders will hold initial discussions on the proposals at a special summit devoted to defence and Ukraine on Thursday. Some elements of the package will require the approval of EU governments.

Trump has accused European countries of failing to spend enough on their own defence and relying instead on the United States for protection through the NATO alliance. European leaders insist they are now rapidly boosting defence spending.

Much of the Commission package focuses on encouraging the EU's member states to spend more on defence and repurposing existing funds rather than providing new EU money.

It did not include a proposal for joint borrowing for grants - rather than loans - for defence projects, which countries such as the Baltic states and France have advocated but Germany and The Netherlands have opposed.

Polish Defence Minister Wladyslaw Kosiniak-Kamysz said grants would be a better option. "I believe that would be more effective," he told reporters.

German Foreign Minister Annalena Baerbock welcomed the package as an "important first step".

As part of the plan, the European Investment Bank - the bank of EU governments - said it would lift limits on financing for defence projects and broaden the scope of what is eligible, though a ban on financing weapons and ammunition would remain.

As it has previously signalled, the Commission also proposed that defence spending be exempt from limits imposed by EU rules on government debt.

"If Member States would increase their defence spending by 1.5% of GDP on average this could create fiscal space of close to 650 billion euros over four years," von der Leyen said.

UNDER PRESSURE

European leaders are under huge pressure to increase defence spending as Trump's return to power has convinced many of them that they cannot be sure they can rely on U.S. protection through NATO, as they have done for decades.

EU members spent 326 billion euros on defence in 2024 - about 1.9% of GDP, according to the EU's European Defence Agency. European leaders have declared spending should rise much further in the years ahead.

French Finance Minister Eric Lombard said on Tuesday that Paris "must go faster and harder" on defence spending.

The Commission also proposed that money countries receive from the EU's so-called cohesion funds - designed to equalise standards of living across Europe - could also be used for defence purposes.

The Stoxx Europe Aerospace and Defence index rose on news of the package.

Lucas Guttenberg, a European economics expert at the Bertelsmann Stiftung think tank, said the Commission was "trying to make sure that fiscal policy does not stand in the way of defense policy".

"It however does so in a pretty short-termish way that will have only small effects on the actual problem, namely the availability of long-term funding," he said on social media platform BlueSky.

($1 = 0.9508 euros)

(Additional reporting by Bart Meijer, Charlotte Van Campenhout; editing by Ingrid Melander, Christina Fincher and Angus MacSwan)